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Does the drug patent system make consumers spend more?
Tuesday, August 14, 2007
Proposals to reduce U.S. drug prices are gaining traction, but the discussions tend to end with threats that lower prices would leave drugmakers unable to discover new cures.
"Patient access to new life-saving medicines could be limited" if Medicare negotiated bulk discounts, said senior vice president Ken Johnson of Pharmaceutical Research and Manufacturers of America. And patent-protected monopoly prices "provide the necessary incentives to develop new life-saving medicines."
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Yet CEOs of drugmakers Pfizer and Merck have called drug pricing unrelated to research and development costs. They say prices are set to maximize revenue from customers and investors.
Current patents even discourage innovation, the Government Accountability Office concluded last November. They encourage companies instead to develop highly profitable "copycat" drugs in the same class of medications already treating high cholesterol, depression, allergies, heartburn or impotence.
So while research and development expenses grew by 147 percent from 1993 to 2004, there was just a 38 percent increase in new drug applications and a 7 percent rise in "new molecular entities" that differ significantly from existing drugs.
R&D isn't the only figure drug companies could reduce if prices fell, critics say. Their marketing expenses are higher than R&D costs. So are their profits, averaging consistently near 20 percent — about four times the percentage of revenue as other Fortune 500 countries.
A more radical proposal than bulk discounts is to eliminate the government's role in issuing patents.
"We'd have publicly financed research, contracted out to private companies," said proponent Dean Baker, co-director of the Center for Economic and Policy Research. "All research results would be public, and all drugs would be in the public domain," the way generics are now.
One reason for drug companies' lofty profits is the risk of spending $1 billion researching a drug that doesn't pan out. That risk would shift to the federal government, which routinely spreads risk over large populations.
The government, already a heavy research spender, would save $30 million a year on Medicare just with bulk discounts, Baker said. That alone is close to drugmakers' $39 million research expense.
"The idea is not without some merit, but it's such a different model, I'm not sure it would work," said Dr. Robert Fink, a Children's Medical Center pulmonologist and professor at Wright State University's medical school. "You'd essentially be destroying a whole industry's stock value.
"We need these conversations, though. The current system is problematic, and I'm not quite sure how to fix it."
Besides lowering drug costs, Baker said eliminating patents would lead to using the best drugs for a person's ailment, as opposed to drugs with the most advertising.
