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Home Publications Blogs Beat the Press Has Anyone at the NYT Heard of Drug Patents?

Has Anyone at the NYT Heard of Drug Patents?

Sunday, 02 January 2011 09:20

It seems not from this article on how drug companies are now giving out coupons to cover part of the patients' co-payment for expensive brand drugs. The logic is simple: the patent monopoly allows the company to sell the drug for a price that could be several hundred times its cost of production. This gives it an enormous incentive to try to get patients to use their drug and for doctors to prescribe it. This means that it can be very profitable to give out coupons that get around the co-payment which insurers charge as a disincentive to use expensive drugs.

This is the sort of gaming that economic theory predicts would result from government intervention in the market, like a patent monopoly. If this sort of behavior occurred in response to a government intervention intended to help low and moderate income people, like for example rent controls, the coverage would likely include comments from economists ridiculing such ill-advised interventions in the market. However, this piece includes no discussion whatsoever of the fact that the resources wasted in this gaming, and the possible negative health outcomes from people using less than optimal drugs, are entirely the result of patent monopolies. None of this would be occurring if drug research was financed through other mechanisms and drugs sold at their free market price, which would typically be less than $10 per prescription.

Comments (1)Add Comment
Economist Baker Wants a Death Panel for Drug Coupon Discounts
written by izzatzo, January 02, 2011 10:42
Any economist knows that many more would die without drug discount coupons from Big Pharma. How could pharmaceutical companies possibly stay in business without aggressive first, second and third degree price discrimination enabled by drug patents? If they can't capture all the consumer surplus, they'll just pull out and create a massive death panel.

Just because health insurers don't have any consumer surplus left to extract, doesn't mean there's no surplus left for Big Pharma to extract by going around insurers with coupons.

This is patriotic, red-blooded American Free Market Competition between two monopoly sectors of health care - to capture the last scrap of consumer surplus left with perfect price discrimination, right down to the individual patient.

While Americans dared suspect they were colluding with other with denied claims, exploding prices and co-pays, all along each was undercutting the other with a fierce competitive flow of coupon discounts, passing the gains on to customers one at a time, based on a detailed demographic profile that picked each one off the demand curve, leaving zero surplus gain for the customer.

Just when Big Pharma is ready to issue massive life-saving coupon discounts to gain sales otherwise lost due to outrageous prices, along comes Mr Whose Your Nanny to claim that real competition based on very low incremental cost of production and distribution would yield lower prices for everyone. What socialist rubbish.

Stop Communist Competition now. Take a copy of your personal demand curve to the local pharmacist to prove that the unit prescription price exceeds your willingness to pay, then demand a discount in lieu of a lost sale.

Stupid liberals.

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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.