TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

There’s been a rash of cancer drug shortages, including drugs used to treat leukemia, lymphoma, and testicular cancer. These shortages aren’t due to shortages of raw materials used to make them. They’re due to Medicare regulation introduced in the Bush administration’s Medicare prescription drug bill.

Ezekiel Emanuel—not exactly someone concerned about technocratic health care regulation—explains why:

The underlying reason for this is that cancer patients do not buy chemotherapy drugs from their local pharmacies the way they buy asthma inhalers or insulin. Instead, it is their oncologists who buy the drugs, administer them and then bill Medicare and insurance companies for the costs.

Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling. And indirectly — because of the time it takes drug companies to compile actual sales data and the government to revise the average selling price — it restricted the price from increasing by more than 6 percent every six months.

The act had an unintended consequence. In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug.

There will always be unintended consequences when we attempt to control complex systems. Those regulations seem, on their face, to be perfectly logical, but what effect they will have is rarely understood before they are implemented.

Emanuel begins his editorial by quipping that Obama administration critics must be disappointed they can’t pin these shortages on Obama, but this is a perfect example of concerns critics—including me—had about the President’s health care reform. The PPACA’s main cost control mechanism is the Independent Payment Advisory Board (IPAB), an unelected board with the power to reduce Medicare payments to providers, and there is no reason to think they won’t fall into this same trap.

Emanuel seems blind to the similarities between these regulations introduced by the Bush administration and the IPAB; he says these shortages are caused by government interfering with natural market functions, yet he is a large proponent of an unelected board of technocrats with the power to decide what drugs and treatments are and are not supported by Medicare.

(Via Megan McArdle.)