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Home Publications Blogs Beat the Press Washington Post Can't Even Talk About Alternatives to Patent Support for Prescription Drug Research

Washington Post Can't Even Talk About Alternatives to Patent Support for Prescription Drug Research

Sunday, 04 May 2014 07:29

Just as the media in the Soviet Union were not allowed to talk about alternatives to one-party rule, the Washington Post apparently can't raise the issue of alternatives to patent supported drug research in the United States. This should be apparent to readers of an article on Sovaldi, a new drug to treat Hepatitis C.

The drug is currently subject to a government granted patent monopoly which allows its manufacturer, Gilead Science, to sell a year's dosage for $100,000. By contrast, a generic version sells in India for about 1 percent of this price. As the piece tells readers:

"If all 3 million people estimated to be infected with the virus in the United States were treated with the drugs, at an average cost of $100,000 per person, the amount spent for all prescription drugs in the country would double, from about $300 billion in a year to more than $600 billion."

To put this number in context, the additional cost of Sovaldi due to the government granted patent protection would in this case be equal to more than 1.7 percent of GDP, or a bit less than 25 percent of after-tax corporate profits. In short, it is real money.

One might think that an article that raises ethical questions, as this one does, about how much we should be willing to pay for saving a person's life, might also ask the question about why this drug is so expensive in the first place. Not in the Washington Post.

The granting of patent monopolies is a government policy to provide incentive for innovation. There are other ways to provide incentives, like paying people directly. (Has anyone heard of the National Institutes of Health? They get $30 billion a year to do basic biomedical research.) The government also finances a large amount of research directly through the Defense Department, with military contractors paid to develop new weapons systems. So there is a great deal of precedent for the government paying directly for research.

Some economists, like Joe Stiglitz, a winner of a Nobel prize, have suggested a prize fund where the government would buy up patents and then place them in the public domain. Under either system, all new drugs could be sold as generics at generic prices.

This would meet the condition that the price would then equal the marginal cost, which is usually a high priority for economists. Economists and people who have been through intro econ classes usually get upset when government policies like tariffs raise the price of a product by 15-20 percent above marginal cost. In this case, the patent monopoly is raising the price by close to 10,000 percent above marginal cost.

All the economic distortions and incentives for corruption that we would see from a 15-20 percent tariff also appear when a patent monopoly raises the price by 10,000 percent, except they are several orders of magnitude greater. The company has enormous incentive to mislead patients and doctors about the effectiveness and safety of their drug and also to market for uses for which it may be inappropriate. Drug companies also have incentives to pay off politicians to get their drugs covered by public programs. And drug companies act all the time in exactly the way predicted by economic theory. (Think of Vioxx.)

It is incredible that alternatives to patent supported research were never mentioned in an article that poses ostensibly difficult ethical questions about how much a life is worth.Without the government granted patent monopoly such questions would not arise, unless the Post puts the value of human life at less than $1,000.

It is also amazing that, at a time where much of the intellectual class has been obsessed with Thomas Piketty's book, Capital for the 21st Century, which warns of a growing concentration of wealth and income, a policy that both creates enormous economic distortions and leads to upward redistribution of income, is not even a topic for debate.

It is probably worth mentioning that the Post gets substantial advertising revenue from the drug industry.


Comments (9)Add Comment
Do they want to sell it?
written by Bob Spencer, May 04, 2014 8:30
At that price, they create the appearance that they do not really want to sell the drug. I wonder why they would do that.
Willingness to Price Gouge Serves as a Deterrent to Hepatitus C
written by Last Mover, May 04, 2014 9:53

That's what a Very Serious Person would say. A $100k/ per year would deter anyone going forward to avoid hepatitus wouldn't it.

You see, that's how prices are supposed to work and send appropriate signals on the cost of something. How else can anyone calculate the cost of avoiding it if they don't know what they're avoiding?

Why is Dean Baker criticizing Gilead Science for providing this benefit voluntarily to society? How do you think 3M people got Hepatitus C in the first place?

Because the cure for hepatitus was underpriced at marginal cost, that's why. Any economist knows when something is underpriced you get too much of it from the demand side and not enough of it from supply side, which causes a shortage that drives the price up.

As for the 3M already infected, they deserve a hearty applause as heroes for contributing to this free market solution by driving the price up don't they.

If not for them there wouldn't be anyone to price gouge with obscene prices would there. There would just be are the rest who will obviously go to whatever effort necessary to avoid the disease due to the obscene price tag for its cure.

The moral of the story is clear America. Gilead Science and the free market are essential to providing market signals necessary to avoid disease.

If only they had been here earlier, then everyone would have avoided hepatitus wouldn't they. Who wouldn't at that price? And Gilead Science would stand proud for the outcome wouldn't it, boasting it didn't have to sell a thing to save 3M lives.
Stop blaming the victim
written by Andrew, May 04, 2014 11:18
Healthcare workers can get hep C from accidental needle sticks.

Babies can get hep C from their mothers.

Are they to blame for getting the virus?
comment on Last Mover
written by djb, May 04, 2014 1:35
of course you are kidding, right?

also much of the science upon which this drug is based is paid for by government and even the research on the drug itself is no doubt paid for mostly by government grants

weren't corp profits 1.9 trillion in q4
written by jim, May 04, 2014 1:45
how does 300 bill equal 25%? also curious they got 100k average off 84k drug
Reforms we used to do, are blocked from public discourse by our fake free press.
written by jaaaaayceeeee, May 04, 2014 2:23

Nothing's more hypocritical than pundits chastising voters for being so disaffected that they don't vote (while voters are offered only cheap social policy and couch cushion economic change).

IP reform, the trade deficit, utilities like the internet, health care costs alternatives, cyclical unemployment, increasing public revenue for public investment and public jobs, tax reform of corporate welfare and working taxpayers' subsidies to the wealthiest, financial reform, full employment policy, support for labor, districting, voting and campaign finance reform. The professional left isn't the problem.

These subjects are mostly relegated to editorials, with plenty of victim bashing and supply side (Eg. Rattner opposing corporate taxation) views in both editorial and news sections, for Rubinite balance of the extremes - as extreme as banana republics and growing oligarchies, where what matters is GDP or bust, not public good.
incentives for big pharma
written by Julian, May 05, 2014 2:27
This issue of pharma's distorted incentives arises in The Economist's latest piece on antibiotic resistance. It says:

"... as health officials struggle to keep old drugs working, the pipeline of new ones is running dry. No new class of antibiotics has been discovered since 1987. This is partly because research has failed to make breakthroughs, but also because pharmaceutical firms have had little incentive to seek new treatments as long as the old ones were effective."

The assumption of the author seems to be that only pharmaceutical companies can do the job required here by tempting them with super larger profits. Surely a case for what Dean's suggests are other and better ways to fund this kind of drug development.

Medical tourism?
written by Ronald Pires, May 05, 2014 7:37
For a thousand dollars, I could take a very nice trip to India. For a second thousand, I could buy a year's worth of generic Sovaldi while there.

Which of course means that the rich will NEVER pay the price for Sovaldi that the rest of us will pay.
We like the blog
written by Dave, May 08, 2014 3:51
But I have to turn this off for a while. I inevitably wind up thinking about more than I can handle. Good continued luck with getting the message across. It is important.

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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.