Tuesday, November 8

A Modest Proposal

Yesterday’s Tribune called for an investigation of the reason for the delays in the delivery of flu shots to Great Falls. After all, it is November, and the flu shot clinics that “normally” happen in November have mainly been postponed, cancelled or delayed.

In fact, yesterday’s WSJ revealed that the CDC was, in fact, investigating delays from all across the country. (Non-free, registration required). Let me venture an outrageous proposal; if the government would stay out of the pricing of flu shots, they would be more available, and innovative new technologies would be developed to speed their delivery to consumers.

I had my flu shot last week. I had it at Albertson’s grocery store, and I gladly paid $25 out of pocket for the shot. That $25 is two and a half times more than the flu shot clinics held by the City County Health Department, but it appears that they have not been able to get supplied.

By mandating that the shots have to be sold for $10, the government is setting a price that does not meet a company’s costs, including a reasonable profit. Profit is not evil, and we can not expect a private company to do business if that business can not expect to earn a profit for going to market. If it costs me 25¢ to make a small plumbing fitting, then you can bet that I will not sell it for less than 50¢. If you insist on paying less, then I probably will not sell to you. If the government goes ahead and mandates that I sell that fitting for, say, 30¢, I will just close up shop rather than do business under such terms. Otherwise, I would have no way of paying overhead and earning a profit.

That is exactly what has happened to the vaccine industry. Why is there a shortage? It is because there are only three companies—worldwide—that will make the flu vaccine. They still use 50 year old technology because it does not pay them to invest in research and development.

A modest proposal; let companies charge what the market will bear. If their cost is too high, then don’t buy their product. That will cause the price to come down. However, no one has a right to force anyone to manufacture an item and sell it below cost.

UPDATE: The always relevent WSJ ran a front page story this morning discussing just this topic. The online Journal is free this week, so read the story.


GeeGuy said...

Price caps virtually always cause shortages. Just as price floors, if set above market prices, would cause surpluses.

Price caps cause shortages because they are rarely, if ever, set above market prices. (For reasons that are intuitively obvious!)

Good post, Aaron.

david said...

Free enterprise is the ONLY solution to this kind of situation...and this situation of one of many, many similar types that will cause me to leave the healthcare industry in about two years.