Coming soon to a chemist near you – medicine shortages

Some more bad news for the public in today’s Business Report. One of the easier economic predictions to make are the results of price controls. When a minimum price is set too high, over supply results. When a price ceiling is set too low, shortages develop.  We made this call in the LPG gas market a year before shortages developed countrywide.  From the Business Report today:

THE Department of Health has proposed a freeze on the single exit price (SEP) of medicines for a second consecutive year, saying the economic principles that determined prices did not justify an increase.

This year, the department said, the factors proposed by the pharmaceutical industry were taken into account when price adjustment yielded a decrease and this was very likely to be repeated in the 2012 determination.

The formula for price adjustment is 70 percent dependant on the consumer price index (CPI), 15 percent on the exchange rate and 15 percent on the rand’s purchasing power.

“Last year that formula resulted in a price decrease, but we didn’t want to say they (pharmaceutical companies) must decrease prices,” said Anban Pillay, the head of pricing at the department. Pillay said some companies were charging well above the international average on a number of medicines, so the department had proposed the international benchmarking method.

The government will now, for the second year in a row, prevent pharmaceutical prices from rising.  Soon, this will result in pharmacists’ shelves running dry. While the government thinks it is doing the public a favour by preventing price increases, many people will soon not have any medicine to buy. Who’s going to sell pharmaceuticals at a loss?

Apart from creating a black market for pharmaceuticals, government will also be the cause of shortages. You might want to stock up on any essential medicine you may require for the future. Shortages may develop for short periods of time, or longer, it is hard to tell at this stage.

Also, just bear in mind that the government in July 2011 said it wants to go into the pharmaceutical business.  If government can create shortages of pharmaceutical supply by making it seem like “market failure” of the “private sector”, it gives itself legitimacy with the general public to launch the government pharmaceutical business. They’ll create shortages and then cry “see, we told you so, we need a governmental agency that supplies drugs to the public.”

This may actually be a very clever strategy on the evil government’s part to jump-start the nationalisation of the entire health care industry.

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