Major Breakthrough on Capitol Hill: Government May Make Drugs Cheaper

In keeping with their commitment to being ineffective, liberals have largely ceded the terms of major policy debates to conservatives. In particular, liberals have been happy to let the right say that they are the ones who want market outcomes, while the liberal do-gooders want the government to intervene to pursue their social agenda.

This is horrible politics and happens not to be true. Conservatives want the government to intervene in all sorts of ways, but their goal is to redistribute income upward, not to ensure people a decent standard of living. (Yes, this is the topic of my book, Rigged.)

The right’s interest in intervention is especially obvious in the case of prescription drugs. They want the government to make drugs expensive with longer and stronger patent monopolies.

The right’s love of government monopolies is challenged by a bill introduced in the Senate last month by Sherrod Brown, Elizabeth Warren, Bernie Sanders, Kirsten Gillibrand and several other prominent Democrats. This bill includes measures such as drug importation, which directly lower prices, but more importantly provides funding for research so that in the future, drug companies will not have patent monopolies on newly developed drugs.

Granting pharmaceutical companies the exclusive right to sell drugs that can be essential to people’s lives or health is a great way to redistribute income upward. To take one example, the Hepatitis C drug Sovaldi has a list price of $84,000 for a three month course of treatment. A high quality generic version is available in India for $300.

The basic story is that in a free market, drugs are almost invariably cheap — it is government granted patent monopolies that make them expensive. This matters hugely for both individual patients and the economy as a whole.

Those suffering from serious illnesses often face impossible financial burdens, even when they have insurance, as a result of having to pay for drugs that can cost tens or hundreds of thousands of dollars a year. Their cost would be a non-issue if they were sold at their free market price.

We will spend more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion is almost 2 percent of GDP, coming to almost $2,800 a year per family.

Patent monopolies on drugs lead to the sort of waste and corruption that economists predict when the government artificially inflates the price of a product. In the case of prescription drugs these problems are especially serious since the gap between the protected price and free market price is so huge.

Drug companies routinely mislead the public about the safety and effectiveness of their drugs in order to sell as much as possible. This can often have disastrous consequences for public health, as when Merck allegedly concealed evidence that its arthritis drug, Vioxx, could be harmful to people suffering from heart disease. This is a group that has considerable overlap with the population that suffers from arthritis.

In the same vein, the makers of opioid painkillers have been among the biggest lobbyists against legalizing marijuana. It turns out that marijuana is often a substitute for the addictive painkillers pushed by the pharmaceutical industry.

The list of offenses by the pharmaceutical industry is lengthy: payoffs to doctors to push their drugs in articles and lectures, payoffs to generic drug companies to keep competitors out of the market, payments to politicians to make patents stronger and longer both domestically and in international trade deals.

This is why the provision in the Senate bill to have the government start picking up the tab directly is so important. While the government already does spend more than $32 billion a year on basic research through the National Institutes of Health, the Senate bill would support payments to gain direct control over the end product either by buying out the patent or paying for the clinical testing and bringing the drug through the Food and Drug Administration’s approval process.

In both cases, new drugs could be sold as generics. No one would have to worry about mortgaging their house to pay for a loved one’s cancer treatment. Drugs would be cheap.

In addition, by making drugs available at free market prices the bill would largely eliminate the incentive to lie. The test results would be fully public so doctors and researchers could determine which drugs were most effective in specific cases, without the corrupting influence of corporate money. And, research would likely proceed more quickly since findings would be quickly available to the community of researchers, rather than being closely guarded secrets from which drug companies hoped to profit.

Realistically, this bill has almost no chance of passing in a Republican controlled Congress. Nonetheless, it is an enormous victory for clear-thinking over inertia. Democrats are embracing a way in which the market can be used to better people’s health and reduce inequality.

It is the Republicans who support big government in the form of patent monopolies. And their goal is to make the rich even richer.