Posted by: tarkenton on Feb 22, 2012
I believe very strongly that one of the most prominent problems affecting business in America is hyper-regulation from the government. Of course, without showing ways in which regulations unnecessarily increase business costs, it’s just rhetoric. But there are very tangible examples, and one of them has been very prominently featured in the news recently.
MSNBC.com spotlighted the way federal regulations on drug storage and safety have resulted in hospitals and pharmacies simply throwing away expensive, scarce medicines. Affecting not just pharmacies and hospitals, this has an impact on the costs every small business faces.
Rules requiring pharmacies not to hold onto medicines that are past their safe and effective date certainly make sense. But the real problem is that the rules are written in such a way as to target drugs that studies say are still safe and effective.
Federal regulations require pharmacies to discard drugs that are past the manufacturer’s “good-until” dates—but that refers to the manufacturer’s instructions from when the drug was initially cleared by the Food and Drug Administration. Oftentimes, those instructions are overly cautious, to ensure clearance from the FDA. Later studies might show that a medicine is safe far beyond the initially listed date, but the process of getting new approval from the administration is so expensive that it is never changed—forcing everyone to comply with a date that is known to be incorrect.
As Andrew Von Eschenbach noted in a Wall Street Journal piece this week, the FDA is relying on 20th century procedures to evaluate 21st century products.
These little differences—the article gives the example of one drug that is listed as good for two weeks outside the refrigerator, when newer studies show it would be good for a month—add up. It results in drug shortages, which are increasingly common. In 2011, 267 drugs were in short supply, the most in history, and up from 211 in 2010.
A drug shortage means several things. For one thing, it means that many people in need of treatment are forced to go onto a waiting list and might never get the medication they need—all because pharmacies have to throw out perfectly usable drugs. Drug shortages also mean that pharmacies must keep buying more of a drug more often, instead of holding onto the stocks they had. And if a provider chooses to dispense medicines that were still safe but past the legally mandated expiration date, they would face massive fines and lawsuits.
Artificial shortages in supply drive up costs, which must in turn be passed on to consumers. The only winners are the pharmaceutical companies, who enjoy skyrocketing demand.
What does all this have to do with small businesses? Small business people have certainly noticed the way health coverage costs have ballooned in recent years. The cost of health care in general has soared, and the cost of a family health plan, for instance, has risen 113 percent since 2001. Regulations that cause drug shortages contribute to that problem. Costs go up for health care providers, which means higher costs for businesses.
It goes to show how an inefficient regulation in one sector has a negative impact up and down the entire economy. Additional money you spend on health care is money you can’t spend hiring new employees, or purchasing new equipment, or investing in R&D.
Businessweek recently published an article arguing that regulations create jobs, citing how federal regulations increase the market for those who help with compliance. But really, that’s not job creation. That’s shifting spending from one part of your business (where you would spend your money if you had the choice) to another part (which doesn’t help the rest of your business). Now there’s a shortage of the thing you wanted in the first place, and an excess of regulators and compliance experts who create nothing.