Why Pharma´s Patents are a drug

Why pharma’s patents are a drug on the market

Dean Baker
Tuesday 31 May 2011 16.27 BST

Vermont Senator Bernie Sanders during his filibuster speech, on 10 December
2010, against the proposed extension of Bush-era tax cuts and other measures
agreed by President Obama with congressional Republicans. Photograph:
Guardian screeengrab from C-Span coverage
Drugs are cheap. There are few drugs that would sell for more than $5-$10 a
prescription in a free market. However, many drugs in the United States sell
for hundreds of dollars per prescription and, sometimes, several thousand
dollars per prescription. There is a simple reason for this fact:
government-granted patent monopolies.

The government gives patent monopolies to provide an incentive for drug
companies to carry through research. This is an incredibly backward and
inefficient way to pay for research. It leaves us paying huge amounts of
money for cheap drugs. It also often leads to bad medicine.

We can do better – and Senator Bernie Sanders has proposed a way. He has
introduced a bill to create a prize fund that would buy up patents, so that
drugs could then be sold at a free market price. Sanders’s bill would
appropriate 0.55% of GDP (about $80bn a year, with the economy’s current
size) for buying up patents, which would then be placed in the public domain
so that any manufacturer could use them at no cost.

This money would come from a tax on public and private insurers. The savings
from lower-cost drugs would immediately repay more than 100% of the tax.

The country is projected to spend almost $300bn a year on prescription drugs
this year. Prices would fall to roughly one-tenth this amount in the absence
of patent monopolies, leading to savings of more than $250bn. The savings on
lower drug prices should easily exceed the size of the tax, leaving a
substantial net reduction in costs to the government and private insurers.

The Sanders prize fund bill would go far towards eliminating the problems
that pervade the drug industry. First, it would end the nonsense around
getting insurers or the government to pay for drugs. If drugs cost $5-$10
per prescription, there would be no big issues about who pays for drugs.
This would eliminate the need for the paperwork and the bureaucracy that the
insurance industry has created to contain its drug payments.

We would also end the phony moral dilemmas we create for ourselves with drug
patents. Should Medicare pay $100,000 a year for a drug to treat a rare
cancer in an otherwise healthy 80 year old? This dilemma becomes a quick
no-brainer when the drug is available for $200 a year in the free market
with no patent protection.

The Sanders prize fund could also put an end to many of the deceptive
marketing practices that the industry now employs to push their drugs,
overstating the benefits of their drugs and concealing potentially harmful
side-effects. It is rare that a month goes by when there is not a scandal
along these lines. If the drug companies no longer stood to gain billions in
profits from such deceptive marketing, they wouldn’t do it. It would also
likely reduce much of the waste in the current research process. Drug
companies often spend large sums developing copycat drugs that are of little
medical value, but can allow them to get a portion of a competitor’s patent

The Sanders prize fund is not the only possible alternative to patents for
supporting research on prescription drugs. We could also go the route of
direct, upfront government funding where the government would contract for
the research in advance. We already spend more than $30bn a year on such
research through the National Institutes of Health. This is widely viewed by
health experts as money very well spent.

It would be possible to ramp up this funding by a factor of two or three
with the intent of replacing patent supported research. This direct funding
would have the advantage that all results would be fully available to
researchers and the general public, since that would be a condition of the
funding. Representative Dennis Kucinich introduced a bill along these lines
was introduced a few years ago.

At this point, we don’t have to decide on the best alternative to
patent-supported research for prescription drugs; what we have to do is to
get the debate started. The Centres for Medicare and Medicaid Research
project that we will spend almost $4tn on prescription drugs over the next
decade. This is almost $10,000 for every man, woman and child in the
country. It’s long past time that we did some serious thinking to ensure
that we are getting better value for this money. The Sanders prize fund bill
is an important step in this direction.