Conspiracy Theorist

Regulatory failure leads to meningitis outbreak

by Mark Luedtke

Thousands of Americans are terrified of a deadly, nationwide meningitis outbreak. The outbreak resulted from a prescription steroid that was contaminated with fungus.  Over 14,000 people have received potentially tainted steroid shots and are at risk. As of this writing, 24 people have been killed by the contamination. Eleven people in Ohio have reportedly contracted the disease.

Like most of us, you probably wonder how a disaster like this could happen. It isn’t by accident. Only a gross, institutional failure could produce such a widespread disaster. If you’ve been following this story at all, you might believe that lack of government regulation caused this problem. Typical is Salon’s rant, “How could this happen? And where was the Food and Drug Administration, the federal agency that’s supposed to oversee the pharmaceutical industry? How could it happen? Simple: There are almost no laws regulating pharmaceutical compounding, the process of making made-to-order prescriptions tailored to the unique needs of individual clients.” That statement is designed to scare people, but it’s untrue. While federal regulations are few, the New England Compounding Center (NECC), the producer of the tainted steroids, was subject to some of the most oppressive regulations in the country from Massachusetts where it operated.

Judge Andrew Napolitano describes the Massachusetts regulatory regimen, “It is well known that the state of Massachusetts is the most highly-regulated state in the union, with the government that is most in your face. It has a government that is physically present at the plants of the people and entities that they regulate … I don’t know if they have a person physically present in this facility, but they have the right to do so.” Regulation doesn’t get any more thorough than physical inspection of the premises, yet, even though the state of Massachusetts wielded this power, regulators failed to prevent this crisis.

Compounding pharmacies fill a specific niche in the drug market. They provide specific doses of compounded drugs at a lower price than the big pharmaceutical companies offer. By law, they are supposed to have a prescription for every order they fill. NECC reportedly broke that law, “Dr. Madeleine Biondolillo of the Massachusetts Department of Public Health said it appears the company violated state law governing those pharmacies, which aren’t supposed to do large-scale production like a drug manufacturer. Instead, they’re supposed to produce medication for patient-specific prescriptions, she said. ‘This organization chose to apparently violate the licensing requirements under which they were allowed to operate, she told reporters Thursday.”

But this isn’t the only regulation failure that led to the meningitis outbreak. CBS reports on two other aspects of regulatory failure, “‘Officials at the Massachusetts Department of Public Health said NECC was in violation of its license and noted that the company’s shipments to other states ‘bears looking at at a federal level.’ Yet the company did not conceal the fact that it was shipping nationwide. The company’s website claimed the business was licensed in all 50 states.” Furthermore, “A current employee posted on his online resume that NECC adhered to ‘USP 797,’ which is the safety and sterilization standard set by the United States Pharmacopeia that sets standards for pharmacies. Massachusetts is one of 18 states that mandates the 797 standard.”

Regulators found problems with the company in 1999, 2002 and 2006, but the company continued to operate. It passed inspection in 2011.

It’s obvious this meningitis outbreak wasn’t caused by lack of regulation. Unfortunately, the opposite is true. The outbreak was a consequence of coercive regulation. For a number of reasons, regulation by coercion can only be counterproductive.

Because humans are constantly innovating, regulations are obsolete the moment they are inked. While politicians bloviate and bureaucrats fiddle, wealth producers innovate. Once enshrined as law, regulations cripple advancement on the paths they ban and encourage advancement on other, often more risky and expensive, paths. In addition, because of their coercive nature, regulations generally create an adversarial relationship between producer and regulator to the detriment of us all.

But worse, coercive regulations invite corruption. Regulatory corruption is so common in the U.S., it has been institutionalized, legalized and termed regulatory capture. Since politicians and bureaucrats want to advance their personal economic interests like every other human being, the biggest companies in any regulated industry pay politicians and wine and dine regulators to insure that regulations work in their favor and against their smaller competitors. And that isn’t even counting the ubiquitous petty corruption of individual regulators. The added costs of these regulations weigh more heavily on smaller companies, bankrupting many and leaving only giant corporations effectively cartelized by the government. The inevitable result is government’s corporate agents provide lower quality products at a higher price than would exist in a free market. Furthermore, government limits liability for businesses which conform to its obsolete and self-serving regulations, encouraging risky activity.

None of this would happen in a free market. Facing unrestricted liability, the profit motive for both the producer and its insurance company would guarantee they would cooperate to provide the safest, highest quality products at the lowest price.

In the case of the meningitis outbreak, federal regulations have made new drugs so expensive and dangerous that they created the compound pharmacy niche. State regulation enabled the NECC to utilize risky procedures to create tainted products. The calls to force another counterproductive layer of regulation on compound pharmacies are misguided and if implemented will lead to more frequent outbreaks like this. The solution to the problem of tainted products is robust competition and mutually profitable cooperation in a free market.

Reach DCP freelance writer Mark Luedtke at MarkLuedtke@daytoncitypaper.com

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