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.