Drug Research and Subsidies

I was a bit surprised to see this passage:

There are no simple solutions to high drug prices, which are primarily a function of the nation’s patent and drug safety laws. Companies that can bring effective and innovative therapies to market are rewarded with a limited period of strong pricing power. The purpose of these laws is to encourage companies to take the necessary risks to research and develop products that can deliver substantial health benefits to patients. The only way to hold down prices without simultaneously compromising the incentive for medical progress is to encourage more product competition where that is possible while also allowing purchasers to combine their buying power in order to increase their leverage with the manufacturers of patented products.

in James Carpetta’s recent piece on price restraint in pharmaceuticals at RealClearPolicy. Although I agree with it in broad, general terms, I think there are other alternatives than those.

First off, I’d like to see a little empirical evidence to support the theory. The theory is as he stated it—that patents encourage more R&D. Do they really? Or do they suppress it? Or are they unrelated to R&D spending? You substantiate a theory with evidence. If the evidence doesn’t actually support the theory, the theory is wrong no matter how attractive. I think there’s reason to doubt the theory for a simple reason: R&D spending by pharmaceutical companies rises with inflation not with revenue. If revenue were actually an incentive for increased R&D spending, you’d think it would rise with revenue. Here’s an alternative theory: the subsidies are incentivizing lobbying rather than research.

Here’s an alternative. I realize this is heresy but the federal government could be employing more researchers directly and doing more of its own research. That isn’t as outlandish as it sounds. 50 years ago the federal government was much more in the goods and services production business than it is now. Now the federal government mostly outsources stuff like that. That’s not a law of nature.

Here’s yet another alternative. Change our patent law to expire after a certain amount of revenue has been realized rather than after a certain amount of time has elapsed. That’s completely constitutional—the constitution just says that a patent needs to be limited in duration not that it be fixed in duration.