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Home Publications Blogs Beat the Press Take Away the Patent Protection: The Answer to Uwe Reinhardt's Question

Take Away the Patent Protection: The Answer to Uwe Reinhardt's Question

Friday, 08 June 2012 08:51

In a blogpost in the NYT Uwe Reinhardt asked how much we would be willing to pay to extend a person's life by a year. The examples he refers to in the piece involve drugs that are very expensive, but can be expected to extend life.

This is an unfortunate way to frame the issue. With few exceptions drugs are cheap to produce. The reason they are expensive is because the government gives drug companies patent monopolies. This allows them to charge very high prices for drugs that extend life, since anyone else will be arrested and thrown in jail if they manufacture the drug and offer to sell it at a lower price.

If we adopted a different mechanism for financing drug research, for example expanded government funding for research (we already spend $30 billion a year through the National Institutes of Health) or established a prize fund that would buy out patents, as advocated by Nobel Prize winning economist Joe Stiglitz, then we would not face this situation with drugs. Almost invariably the drug in question would be cheap and making it available to someone who needed it to extend their life would be a no-brainer.

This doesn't remove all the hard questions. There would still be an issue as to how much we are willing to spend to find cures to cancer and other deadly diseases. We also would face situations where life-saving measures actually did involve substantial resources, such as when highly skilled physicians must spend many hours carrying through a complex operation. However, if we had a better system for financing drug research many of the cases that might pose the moral dilemma raised by Reinhardt would disappear. 

Comments (11)Add Comment
written by James, June 08, 2012 10:28
Pharma's goal is to make as much profit as possible. Look at how hard we fought for any type of reform. Take away their pattent aka gov't welfare that they have enjoyed for all these years and that we gov't (Medicare & Medicaid) cannot afford will generate this GOP talking point:

"You are attacking economic liberty. You are attacking the foundation for invention."

Thanks for devoting your time to illustrate the point.
written by fuller schmidt, June 08, 2012 11:02
Reinhardt is quoted a lot for someone thinking so shallowly.
written by dilbert dogbert, June 08, 2012 11:20
just noodling but wouldn't economic theory predict the development of an underground trade in life extending and expensive drugs that are cheap to produce? The illegal trade in recreational drugs comes to mind.
written by John, June 08, 2012 11:30
Maybe the use of patent-protected drugs as an example is unfortunate because it raises an issue that you are concerned about, but the underlying question Reinhardt poses is still very important. How much money will we, though our public health plan, spend to extend life? The cost of care largely depends upon the cost of medical professions and the cost of drugs, issues that you have challenged conventional thinking on. Of course we can do more with less if costs come down, just as we can do more with more money if costs go up. At the end of the day, we have to decide what we're willing to pay. We need to come to some sort of agreement as to how much we're willing to pay, no matter what things happen to cost.
written by Cujo359, June 08, 2012 1:17
I think another alternative would be to shorten the time patents apply to drugs, and to require more in the way of innovation for any new patents. If drugs were available five years after they were designed far less expensively, that would save some lives, and quite a bit of money.
Willing to Pay?
written by James, June 08, 2012 1:43
"At the end of the day, we have to decide what we're willing to pay. We need to come to some sort of agreement as to how much we're willing to pay, no matter what things happen to cost."

Interesting? Convincing?

I am willing to pay for a Bugatti Veyron (base $1.7 million) for $17,000.

Willing to pay for a Manhattan penthouse ($2 million) for $200,000.

How come the cost doesn't come down to what I am willing to pay or do I have to pay the high cost?

written by Kat, June 08, 2012 1:52
It would be infinitely easier to have this discussion if drug prices were to come down and if research were less corrupted. As it stands, those who argue against aggressive end of life care are often viewed with suspicion. And while lower cost measures, such as hospice and palliative care may actually be the life extending option: http://www.nytimes.com/2010/08...care.html, it is hard to get this message across when the difference in costs between options is so stark.
Thanks Cujo 359.
written by OJCsr, June 08, 2012 3:31
You are certainly correct. A patent can and should be regarded as a reward for revealing the secrets of the invention. Too many patents (especially software) don't reveal new knowledge and the reward, in terms of time allowed for a monopoly, is too great. Serious reform is desperately needed. Allowing the government to buy patent rights, perhaps by a prize, seems to be a workable part of a solution, but surely is not sufficient.
Insurance as Rationing
written by Ron Alley, June 08, 2012 4:09
Prof Reinhardt states:

But for many families in the lower half of the nation’s income distribution, third-party payment would make the difference. And to the extent that such third-party payment is tax-financed, the question arises whether there is a maximum price above which future Americans situated further up in the income distribution will not be willing to buy additional life-years for their poorer fellow Americans, especially if the latter lead lifestyles that detract from good health.

The preferred method of providing health care is just a form of rationing. The employees of successful corporations who enjoy employer provided group insurance financed in substantial part by tax subsidies merely recognizes that those employees are so valuable to the economy that their health care needs deserve special attention. While the employees of less successful businesses that do not provide health insurance, are obviously of lesser value and their health care needs are not a priority.
written by Chris, June 09, 2012 9:45
If drug research was conducted by the government, drug companies would be turned into generic drug sellers. Would this save society money overall? One might doubt it. If drug companies using patents were "cleaning up" financially, this might be believable. But most drug companies' stock price has not risen much in the last ten years. Certainly no more than the S&P500. This would suggest that drug companies are not making excessive profits.
written by John, June 11, 2012 8:30
James, you're making my point...
You, individually, aren't willing to pay the price demanded by the market for a Bugatti or a penthouse. So you don't buy them and you don't get them.
We, as a society, aren't willing to pitch in to buy you these things either. So you don't get them.
We, as a society, ARE willing to pitch in and buy people a baseline amount of health care (via Medicare, Medicaid, subsidies implicit in the emergency room mandate).
If you, individually, want more than social baseline health care, you are free to pay out of pocket for them. If the cost is too high for you, you don't get it.
Just because the price doesn't fall to what you are willing to pay, doesn't mean the market has failed. The market rations all on its own - the scarce goods and services go to those able and willing to pay for them. This isn't controversial.
The debate is on how much public health care we, as a society, are willing to provide.

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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.