November 16, 2004
Free Market Drug Act Promises Large Savings to State Governments
For Immediate Release: November 16, 2004
Contact: Debi Kar, 202-387-5080
The recently introduced Free Market Drug Act (FMDA) would provide billions in
savings to state governments, according to a new study by the Center for
Economic and Policy Research (CEPR). The FMDA would allow states to purchase
drugs for state employees and Medicaid beneficiaries at sharply reduced prices.
While the projections developed in the study show that all states would see
substantial savings, New York, California, and Texas would be the biggest
winners. Over the years 2009 to 2013, these states would save $9.3 billion, $7.1
billion, and $3.7 billion, respectively.
The Free Market Drug Act, which was introduced this fall as H.R. 5155, would
essentially double the amount of federal money that goes to support biomedical
research. Current funding is provided primarily through the National Institutes
of Health. While most current funding supports basic research, the additional
funding would be used to actually develop and test new drugs, bringing them
through the Food and Drug Administration's (FDA) approval process.
New drug patents developed with this public funding would be placed in the
public domain, so that the drugs could be produced in a competitive market, free
from government patent monopolies. In a competitive market, prices would fall on
average by approximately 60 to 70 percent. In some cases, the price decline
would be 90 percent or more. Drugs are almost invariably cheap to produce.
Government-granted patent monopolies make them expensive.
If new drugs were sold as generics it would eliminate the incentive to
conceal evidence of harmful effects, such as Merck's recent efforts to conceal
the risks of Vioxx. If drugs were sold as generics, it would also eliminate the
incentive to produce counterfeit drugs, which has become a growing concern for
the FDA. (A brief description of the Free Market Drug Act can be found on the
website of Representative Dennis Kucinich, the bill's lead sponsor.)
The CEPR study, authored by co-director Dean Baker, projects a path of
potential savings to state governments, if the bill were passed in the near
future. The projections assume that states would first begin to experience
substantial savings in 2009, as drugs developed through this new system first
appear on the market. The savings are assumed to increase rapidly, as more new
drugs are sold as generics. Increased competition from new, generic drugs would
also lower prices on existing drugs.
To view the full paper click