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Home Publications Blogs Beat the Press Cancer Drug Prices: We Could Take Away Their Government Granted Monopoly

Cancer Drug Prices: We Could Take Away Their Government Granted Monopoly

Sunday, 24 February 2013 07:56

The Washington Post gave us one of its classics, an opinion piece that struggled with the dilemma of the proper pricing of cancer drugs. While the piece tells readers how the prices of these drugs are bankrupting families, it never once mentions why the prices are so high. The word "patent" does not appear in the column. Of course without patent monopolies most cancer drugs could be easily copied and sold as low-priced generics.

Drugs are expensive to develop, but once they have been developed the cost of producing another dose is almost always very low. In the economists' dream world, cancer drugs would sell at their cheap marginal cost.

Of course we would need an alternative mechanism for financing the research. Such alternatives do exist. We could have direct public funding similar to the $30 billion that we spend each year to finance research at National Institutes of Health. (That funding could even go through private drug companies, as long as all the research was fully public.)

We could also go the route of a patent buyout system, where patents would be purchased by the government and then put in the public domain. This method has been suggested by Nobel Laureate Joe Stiglitz and actually proposed in a bill by Vermont Senator Bernie Sanders. Unfortunately it is difficult to get information on such proposals in Washington.

Comments (10)Add Comment
Patent reform-starting to get there
written by Jennifer, February 24, 2013 7:49
It's true they did not come out for major patent changes but they made some good suggestions. They called for all government bodies to negotiate prices. They did call out "pay to delay" where the big pharma companies actually pay to keep generics off the market. They called for closer examination of new drugs--right now when a "new" drug is patented it does not have to be proven to be more effective then the current drugs on market to be covered. In fact Germany just denied two new drugs on this basis but this does not happen here, at least not through the government. Recently Sloan-Kettering publicly stated they were not going to use a new cancer drug because it was too expensive and did not appear to have improved results. Mysteriously, the drug price was cut in half about a month later. I'm all for a complete overall of the system but that is not going to happen soon, in the meantime there is a lot that could be done around the edges that would make a real difference. If people have not read the Steve Brill article they should, and he does bring up patents. healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us]
The case against patents
written by David, February 24, 2013 9:26

In brief:

The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity.

Patented Property More Important Than Personal Property
written by Last Mover, February 24, 2013 10:42
Funny how that works. Big Pharma can use patents to exploit government awarded ownership and control over pharma drugs but Americans don't even have ownership and control over personal information anymore.
written by ezra abrams, February 24, 2013 12:42
As an economist, your solutions (the pdf in the link) are economic ones; however, the problem is fundamentally not economic, but technical; hence, eonomic fixes are not appropriate.

The fundamental problem is that we know very little about the human body. This might seem a strange thing to say, in light of the immense amount of very high quality science tht goes on.

However, the relevant standard is not how much we knew at time X in the past, but how much we need to know to make drugs cheaply on demand, eg, how much do we need to know so that the RnD costs of a NCE, from concetp to FDA approval, is, say 50 million.

I would guess we need to triple the NIH budget, and go another 10 years.
written by ezra abrams, February 24, 2013 1:04
why does it cost, say, 500 million dollars to develop a new drug ?
well, much of that is failure in the pipeline - drugs cause toxicity in animal models or phase I; the other biggie is that most drugs aren't that effective so you need a large phase III

imagine if we could do all the side effect stuff early on, either in silico or in vitro, and that drugs actually worked - say 85% of subjects in a double blind randomized trial actually got really better

In this world, which is not that far away froma techncial perspective,it would cost, say 10 million to develop a new drug.

at which point no one would care about drug costs
Cancer cost and profitability
written by Oxbird, February 24, 2013 2:45
It is perhaps worth noting that two of the articles authors are at MD Anderson in Houston, one of the hospitals prominently featured in the recent Time magazine story about high costs in our medical system. As a non-profit they manage to earn a profit hundreds of hundreds of millions of dollars and pay its CEO several million dollars (as I recall the story). Might one way of dealing with the high costs of cancer drugs be for the authors' employer to charge less and, as a non-profit, accept a lower level of profitability?
Thanks for the links
written by JP, February 24, 2013 4:03
Dean's imbedded links and Jennifer's contribution made for some interesting reading. Thanks much...
a little clean-up for Jennifer's
@ezra abrams
written by Jennifer, February 24, 2013 6:32
Yes it's true there is a lot we don't know and the idea that the process itself might be to blame is coming under closer examination. In fact increasing it would appear that the newer drugs are no more effective then the older, cheaper, drugs. But even the patent issue plays into this, why do drug companies pursue certain drugs for certain conditions--because of where the money is. If you wanted to be really cynical you would say that under the current system it is more in drug companies interest to pursue medications that treat chronic conditions--i.e that need to be taken constantly--as opposed to cures. If a medication is going to cure something, it has limited shelf life, take it and be done with it. Under a prize-type system there would be a more equal incentive for all illnesses. It's also important not to take the numbers people, especially drug companies, throw out in terms of how much a drug costs. The majority of the time they pick things up from NIH and really are just running trials, the rest is marketing.
written by Fed Up, February 24, 2013 7:00

Figure 1

"However even with lower than projected costs, the United States still is spending far more per person on prescription drugs than other wealthy countries. In 2012 the United States was projected to spend $883 per person on prescription drugs.5 This is nearly twice as high as per person spending in other wealthy countries. Figure 1 shows the ratio of per person spending on prescription drugs in the United States to spending in Canada, Denmark, Germany, and the United Kingdom. For example, Canada spends a bit over 70 cents for each dollar spent in the U.S. per person on prescription drugs. The United Kingdom spends just under 40 cents, and Denmark only about 35 cents per dollar spent in the U.S."

And, "The reason that other countries spend so much less on prescription drugs is that their governments negotiate prices with the pharmaceutical industry. While governments are granting the industry patent monopolies that prevent competitors from selling the same drug at a lower price, they do not allow drug companies to charge whatever price they want. In principle, the U.S. government could adopt the same approach with Medicare. Medicare provides a huge market, far larger than most countries. This should allow it to negotiate prices that are the same or lower prices than what other countries pay."

When you do the economics of medications, could you break it down by name-brand vs. generic?

Does the USA spend about the same amount per person as other countries on generics?
Medicare Acceptance
written by JP, February 25, 2013 12:40
Medicare acceptance by a physician should always be verified and clarified. Some practices, called non-PAR, will accept Medicare, send them the bill and then send you a bill for the net due for the full amount.(After Medicare is deducted)
Be sure that your doctor accepts "Assignment" for Medicare and that he/she is a PAR member so that the amount billed to Medicare is all that will occur.
Be careful out there!

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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.