Why that $3 Billion Figure for Wasted Cancer Drugs is Wrong

There is a story making its way around the internet about the supposed waste of high tech cancer drugs each year. A new study published Monday by a research team at New York’s Sloan Kettering Cancer Center, estimates the drugs left over after patients receive a cancer treatment to be worth $3 Billion

The problem with the study is the researchers do not understand the economics of drug pricing.  The drug manufacturer doesn't charge by the ounce, they charge by the treatment.

If drugs had permanence and were transferable, like say gold, they would be priced by some measure of unit size. But the drug manufacturer knows that once a treatment is given, the rest is discarded. Hence they price the drug for a treatment and provide enough medication for one treatment regardless of how much is in the vial.  The price for many drugs is not a function of manufacturing costs, it is a function of what the market will bear.  It may only cost $2.00 per ounce to produce a drug that can be sold for $1,000 per treatment, so if an ounce or two is thrown out now and then, not much economic input is lost.  It may even cost the drug manufacturer more to dispense the drug in varying quantities to meet the needs of different individuals.

To know how much is wasted each year you would need to use manufacturing costs, not retail prices.  You can be sure that that number is considerably less than $3 Billion and it would probably make us all sick if we really knew how much less it is.

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