Patent Monopolies Lead to Corruption #43,781

Thursday, 29 August 2013 04:55

The New York Times had an article reporting on how the two largest dialysis clinics are lobbying to increase reimbursements from the government. The issue stems from a change in the way the government paid for an anemia drug.

The government had been paying per dosage of the drug. As economic theory predicts, the huge mark-up over the free market price provided by patent monopolies encouraged the massive overuse of the drug. The government swtiched to a flat fee per treatment, which led to a sharp cutback in the drug's usage. The government is now proposing a cutback in reimbursements based on the fact that this drug is being used in much smaller doses. If the research had been funded in advance and the drug were produced and sold in a free market, this sort of problem never would have arisen.

At one point the article includes the bizarre statement:

"The multibillion-dollar dialysis industry has been accused  by medical researchers and former employees of putting a higher priority on profits than on care before ...."

Wouldn't any reasonable person assume that a corporation will always put profit as its top priority? That is pretty much what they claim to do, so this hardly qualifies as a "accusation." It's sort of like accusing a linebacker of tackling quarterbacks.

It is worth noting the amount of money the government pays for dialysis. The article puts it at $32.9 billion a year. (CEPR's really cool budget calculator shows this to be just less than 1.0 percent of federal spending.) This amount is more than 40 percent of what the federal government spends on food stamps each year.