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Home Publications Blogs Beat the Press Can We Talk About Drug Patents Please?

Can We Talk About Drug Patents Please?

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Sunday, 18 September 2011 13:49

The Washington Post ran a fascinating article (researched by ProPublica). The article examined 15 instances in which pharmaceutical or medical supply companies reached settlements in connection with kickback schemes where they paid doctors to use their drugs or medical equipment. The study found that none of the 75 doctors paid any fine or suffered any professional sanction.

While this is an amazing situation, since it implies that these doctors suffered no consequence even after being caught in actions that could have endangered the health and the life of their patients, it is even more remarkable that patent protection, the underlying cause of the problem, was never mentioned. Government granted patent monopolies allow drug companies to charge prices that several hundred or even several thousand percent above the free market price.

In a free market, most drugs would be sold at just $5-$8 per prescription, as is the case with hundreds of generic drugs. However, patent monopolies allow drug companies to sell these drugs for hundreds or even thousands of dollars per prescription. This enormous gap between the patent monopoly price and free market price is the basis for the kickbacks. In the absence of patent protection, the profit margins would not be sufficient to allow drug or medical supply companies to pay kickbacks.

The failure to mention the underlying economics of these kickbacks would be like reporting on payoffs of key money to prospective landlords as a way of evading rent controls, without ever mentioning that apartments are subject to rent control. Key money would not make sense in a housing market with no rent restrictions, just as kickbacks to doctors would not make sense in a pharmaceutical market without patent protection.

Comments (5)Add Comment
U Have to Decide Life or Food?
written by James, September 18, 2011 6:11

It's no questions that medication in this country is significantly expenseive/overpriced. Got 25 pills for elbow joint pain and cost $21 with insurance. Without, the bill would have been $96!

The pills have been around for years too but just still within the patent period.
WaPo Business Section Today was Great for a Change
written by Paul, September 18, 2011 6:43
Not only did the WaPo give huge ink to the drug kickback scandal (which also should have mentioned that the whole thing is largely funded by Medicare and Medicaid), but Steve Pearlstein also had an insightful column on the phony economic policies of the GOP. Finally, Warren Brown did a great job explaining the latest developments in automotive tech from the Frankfurt auto show.

Did the Business Section get a new Sunday editor, or what?
Author seems to misunderstand what is going on
written by Jeff, September 18, 2011 8:12
While the current status on patent law can rightfully be debated, none of the above points really contribute meaningfully to the point that the author seems to be trying to make.
1. on kickbacks - These are ILLEGAL! That's why there was litigation - The author seems to be claiming the following: a - kickbacks occur, b - kickbacks are caused by patent law, c - therefore, patents should be abolished. This is ridiculous. The problem is illegal and unethical behavior, not kickbacks. Kickbacks occur in virtually all industries, not just pharmaceuticals.
2. on failure to punish physicians - Again, this has nothing to do with patents. The physicians rightfully should face some discipline but the mere presence of this happening is not a good argument that patents shouldn't exist.
3. on pricing - There seems to be a relative misunderstanding of what contributes to the high cost of prescription drugs. Yes, kickbacks theoretically could contribute to it but the high cost is due much more to recouping research & investment costs, advertising costs, third party payer thresholds, etc. The assertion that the sole driver of the delta between the "free market" price of a generic and a medication under patent is kickbacks is absurd.

Removing patents will cause innovation to move to zero. If you want to remove patents that is fine, but be aware that the improvements in health seen from medications will stagnate and, in the long term, we will miss the opportunity for future life saving medications. No drug patent has an endless timeframe.
...
written by izzatzo, September 18, 2011 9:31
There are posters on this board who should keep their day job and be very glad they are not paid what they're worth should the socialist patent floor on which their jobs depend suddenly collapse upon the release of free market competition and lower prices.
Patents are the Basis for Kickbacks
written by Dean, September 18, 2011 9:42
Jeff,

this is 100 percent a patent issue just like a black market in communism would be an issue about the effects of state planing. Participating in the black market was a violation of the law under communism as well.

And, there are many alternatives to patent monopolies for supporting research. We already spend $30 billion a year financing research through the NIH. Here's my scheme http://www.cepr.net/index.php?...cle&id=149

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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