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Home Publications Blogs Beat the Press Patent Monopolies Lead to Corruption, # 21,508

Patent Monopolies Lead to Corruption, # 21,508

Sunday, 20 January 2013 09:08

The NYT has an article on how Amgen managed to get a provision into the budget deal signed at the start of this year which could get it $500 million in additional revenue from Medicare over the course of the decade. The piece reports that this was a victory for Amgen's extensive lobbying network on Capitol Hill.

This sort of corruption is exactly what economic theory predicts when the government gives companies monopolies in certain markets, as it does with patent protected drugs. When a company can sell a drug at prices that are several thousand percent above the marginal cost of production it has enormous incentive to pressure politicians to allow it to sell the drug in contexts where it may not be the best treatment for a disease.

Comments (5)Add Comment
written by Kat, January 20, 2013 10:26
Here is more on Amgen's 762 million "record settlement"
As you can see, in light of the revenues from their product, it is just the price of doing business.
Medicare paid a lot for these drugs. You can take with a grain of salt politicians' claims of desire to cut wasteful spending.
written by fuller schmidt, January 20, 2013 11:05
Thank you for the link, Kat.
written by ezra abrams, January 20, 2013 2:53
silly logic here
A law that may or may not have benefits should be abandonded cause some people figure out how to break it with bribes ?
is that really your logic ?

I really like what you say about soc sec, but I really think you are not well informed about drug development.

It is really, really hard - the science and regulations (for safety) are very difficult; the idea that people would commit huge sums to make something that is almost trivial to reproduce (with modern analytical tools, the reverse process of taking a pill, figuring out what chemical(s) are in it, and setting up a mfr plant, is really easy, even for mAbs where the only diff cult is the post translational glycosylation - and mass spec and HPLC can do even that relatively cheaply)
The continued benefits of the "fiscal cliff" deal
written by Jennifer, January 20, 2013 5:04
Another day another completely ridiculous aspect of the fiscal cliff deal exposed. I've seen it estimated that the money lost in the "tax extenders" just about equals the money gained by the increased taxes. It has never been clear to me how knowledgeable politicians were about the tax extenders--subsidies for NASCR, rum, really? Nobody wanted to call that out? But it sounds from this article that this particular deal was carefully kept wrapped, as if they knew somebody might make a fuss. Economic theory may predict the high cost of drugs because of patent monopolies. However it does not follow that that said patents are to be manipulated to the nth degree to make the public pay for private profit. That's a characteristic of a shamelessly corrupt political system. Even in the context of a crappy patent system we should be able to do better.
written by watermelonpunch, January 20, 2013 10:33
Sorry ezra abrams... I used to believe that "oh but it takes so much money to bring to market a wonderful drug to help patients".

Until I learned all the things these companies were spending their money on, where it was going, and just how much.

I didn't see the premise of this as being -a throw the baby out because of a few bad apples being bobbed out of the bathwater.
The system is broken. (ie: the system where drug company lobbyists actually write the laws that get passed in their favour!)

It's like "everyone's doing it" so everyone has to, and huge waste occurs in the process, while people suffer.

And it's a vicious cycle, because they spend more money to make sure they can make more money, in order to spend more money on lobbying, in order to make more money, to spend more money on lobbying & advertising direct & via doctors, in order to make more money, to spend more money...
Like a sick & twisted merry-go-round.

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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.