Drug Patents – A Tax on Consumers and Corporate Welfare for Big Pharma

March 16, 2014 § Leave a comment

My friend, Milton Lower has alerted me to the scandal of drug patents.  I try to be reasonably informed about significant public policy issues but, this time, I was either asleep or failed to monitor the right sources of information.

Dean Baker, an economist and the impresario of CEPR (Center for Policy Research), a web site where he posts readable and insightful commentary on economic issues, has been writing about the evils of our system of drug patents for more than a decade.  I suggest that you do a Google search for “Dean Baker drug patents”.  You can then sample some interesting factual information about this subject.

To give you an idea of the significance of this issue, consider this statistic:  If the excess (unearned)  profits showered on Big Pharma by our system of drug patents were distributed to consumers of drugs it would add an estimated 3% to our annual GDP.  And, instead of recognizing this problem and trying to solve, or at least mitigate it, our government, including the Obama administration, has not only supported the progressive extension of the period of time during which a patent protects the owner from competition from 15 years to 20 years, but also has promoted trade policies that coerce other countries to conform their patent protection to ours.

Baker advocates separating drug patents from other types of patents, such as industrial processes.  Patents are a small percentage of the cost of patent protected processes used for manufacturing, but they are the main component of drug pricing.  The cost of producing drugs is minimal.  They command high prices solely because they are monopolies protected by our patent laws.

Our patent laws are not only overly protective, they are also administered in ways that border on the absurd.  If you want a grin, just Google “peanut butter and jelly sandwich”.  The Wikapedia recounts how Smuckers obtained a patent on a PBJ.  A federal appellate court had to conclude that this stretched the patent laws too far.

The claimed justification for this system is that, without patent protection, the costs of drug research and testing would not be economically feasible.  Baker and others have proposed alternative solutions for this problem.  One, proposed by Bernie Sanders in recently filed legislation, would establish a government prize fund to be awarded to researchers based on competitive applications.  It would be substantial and would be granted on condition that drugs resulting from the research would be available to consumers based on free market prices.  Others have proposed variations on this model:  up-front financing for the research based on competitive applications followed by free market pricing for the results.  Here is a link to Bernie’s proposal:

http://www.huffingtonpost.com/2012/05/19/bernie-sanders-prescription-drug-prices_n_1528332.html

It includes a video of Bernie Sanders defending his proposal.

After reading some of the facts about this issue, it seems obvious to me that, instead of trying to force this flawed system on other countries, we should reform it to make it more sensible and just for our own citizens as well as for those in other countries.  As Bernie Sanders says, Americans should not be dying of medical conditions for which effective medicine is available, solely because they cannot afford to buy the medicine.

Bob

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