I recently saw a couple of stories (here and here) that piqued my interest. They both dealt with shortages of a drug called Methotrexate. Wanting to know more, I spoke to a friend who happens to be a pharmacist. Here is what I learned.
- Methotrexate is a fifty-year-old chemotherapy drug that is still used to treat certain types of cancers, such as ALL
- The patent has long since expired and it is cheaply available as a generic – a single dose costs about $1.58.
- It is possible to source Methotrexate from overseas, but there are justifiable concerns about quality control
- It is possible to source Methotrexate on the black market – a $15 bottle costs $85.
Why is there a shortage of this drug? Because the pharmaceutical companies in the US have stopped making it.
Why have they stopped making it? Because it is no longer profitable for them to do so.
Why is it no longer profitable? Because the government expects to purchase their supply below cost.
In most cases, this is not a problem; the private market pays a higher rate that makes the drug profitable. But since the vast majority of the Methotrexate consumed in the US is by Medicare and Medicaid, there is not enough money on the table to make it cost-effective to produce the stuff.
So there you have it. The Government has decided on how much they are willing to pay for Methotrexate, and the suppliers say that they cannot produce it at that cost while making enough profit to make it worth their while.
Amazingly, the commonest solution that I have heard is that we must somehow force the companies to supply Methotrexate at the desired price. And yet, if you ask people if they are willing to go to work for nothing, they will look at you as if you were insane. But what they are asking for is pretty much the same thing.
This is where Keynesian economics falls flat on its face – the government can mandate whatever price it wants, but the one thing it cannot do – at least for long – is to force a business to sell a product to them at a loss. And that appears to be what has happened here.
Sadly, the press is not reporting this side of the story; they ‘re too busy telling us about the eeeevil pharmaceutical companies, and showing us pictures of cute bald children suffering from leukemia.
Did I miss something?