Now That We All Agree that 10 Percent Tariffs on Imports are Bad, How About 1000 Percent Tariffs on Prescription Drugs?

Photo by Christina Victoria Craft

Readers are undoubtedly confused by the reference to 1000 percent tariffs on prescription drugs. We don’t call our protection for prescription drug companies “tariffs,” we call them “patent monopolies.” But government interventions in the market don’t care what we call them, they have the same effect.

Like tariffs on imports, government-granted patent monopolies hugely raise the cost of prescription drugs, often making the price ten or even a hundred times as much as the free market price. In a free market without patents or related protections, drugs would almost invariably be cheap. It’s rare that it would cost more than $20 or $30 per prescription to manufacture and distribute drugs, and often considerably less. Patent monopolies allow drug companies sell drugs for hundreds or even thousands of dollars per prescription.

This would be a bad story if we were talking about smartphones or running shoes, but it is an especially bad story when we are talking about drugs that people need for their health or even their life. As it is now, because of patent monopolies people often have to struggle to get the money they need for life-saving drugs or battle with insurers to cover the costs. This would not be the case if drugs were selling for their free market prices.

In addition to hugely raising the price of prescription drugs, patent monopolies also provide enormous incentives for drug companies to mislead the public about the safety and effectiveness of their drugs. We saw this most clearly in the opioid crisis, where the drug companies misled the public about the addictiveness of the new generation of opioids, but this is a recurring problem. Economics teaches us that people respond to incentives and patent monopoly prices provide an enormous incentive to push drugs as widely as possible even if it means exaggerating their benefits and downplaying their risks.

The drug companies usually silence anyone raising questions about their patent monopolies by insisting that we would not be able to develop new drugs without this incentive. This is not true. While we do have to pay for the research involved in developing drugs, the federal government spends over $50 billion a year on biomedical research through the National Institutes of Health and other agencies.

Most of this money goes to more basic research, which drug companies then build on to develop new drugs and vaccines. But there is nothing natural about this division of labor. The federal government could double or triple this spending and look to replace much or all of the patent-monopoly supported research now being undertaken by the pharmaceutical industry.

There are several big advantages of going this route. First, all the new drugs developed could be sold as cheap generics the day they are approved by the FDA. No one would then have to struggle to come up with tens of thousands of dollars for life-saving drugs or beg their insurer to pick up the tab.

A second big advantage is that all the research could be fully open. The government could require that all research findings be posted on the web as soon as practical, imposing a rule comparable to the Bermuda Principles in the Human Genome Project. That means no one would have the incentive or ability to lie about the effectiveness and safety of new drugs. The data would all be available for any researcher to evaluate.

A third advantage is that the funding could be used to support research into new uses of older drugs and also dietary and environmental causes of disease. Since this research is unlikely to result in a patentable product, the pharmaceutical industry has little interest in pursuing it.

At the moment there is little interest in policy circles in advancing alternative mechanisms for financing drug research. Senator Bernis Sanders has proposed legislation that would set up prize funds to buy out patents and make new drugs available as generics, but he has found few allies in this effort.

We actually have a great example of a vaccine developed through this open-source model. Drs. Peter Hotez and Maria Elena Bottazzi, along with their colleagues at Baylor College of Medicine and Texas Children Hospital, developed a Covid vaccine, Corbevax. This vaccine has now been administered to well over 100 million people in India and Indonesia, protecting them against serious illness and death from Covid.

While this vaccine would likely sell for around $5 booster shots in the United States, as opposed to more than $100 for the Pfizer and Moderna boosters, the FDA refuses to approve it based on the clinical trials done elsewhere and the bridging studies it accepts from the drug companies. If the FDA would grant approval, it would provide a great example of the potential benefits of an alternative model of drug development.

Anyhow, it may be a long time before we have public funding for the development of new drugs, but it would be a huge first step if we could start to have the discussion. Most policy-oriented people can understand how a 10 percent tax on imports can be a bad thing. Somehow we have to also get them to understand how a 1000 percent tax on prescription drugs can also be a bad thing. Learning is possible.

This first appeared on Dean Baker’s Beat the Press blog.

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