April 28, 2005

Free the Drug Market!

The usual complaint about the Republican "free market" approach to economic policy is that, in practice, it doesn't tend to be all that free. And more to the point, it doesn't seem like most corporations even want a truly "free" market. When companies like United are being bailed out to the tune of billions of dollars by the federal government, it's safe to say that corporations need government just as much as the reverse. So when I hear that the Chamber of Commerce wants to do things like pare down the Family Medical Leave Act, on account of it costing too much and being too much government intervention and hampering all that economic potential just ready to explode in an unfettered marketplace, well, excuse me while I roll my eyes and snort a bit.

So the "free market" is not always what it seems, and if we can be honest about how dependent companies already are on government support, it will lead to less freaking out about certain proposed government interventions. Dean Baker of the Center for Economic and Policy Research outlines one such proposal today. As we know, health care costs are chugging on upwards. And much of that upward-chug is driven by obscenely high drug prices. But, as Baker points out: "It is not difficult to find ways to reduce drug prices, since the reason that prescription drugs are expensive is that the government grants pharmaceutical companies patent monopolies." A few reforms, Baker argues, could solve a lot of our cost problems: We simply junk those patent monopolies and instead expand public funding for biomedical research:
The potential savings to the country and the government from having drugs sold at free market prices are enormous. The CMS estimates that the country will spend $521 billion on drugs in 2014. This figure could fall to approximately $160 billion, if drugs were sold in a competitive market. The savings accruing to the federal government alone would be approximately $140 billion a year by 2014, several times more than the additional research spending needed to replace the patent supported research by the pharmaceutical industry.
Now it's true that relying on public spending for research isn't "free market" in the ideal sense of the word, but neither are government-supported patent monopolies! The relevant question here is: which particular method of government meddling will keep costs down and lead to more innovation? Frankly, patent-protected pharmaceutical companies don't appear to be doing all that much innovating on their own; as Marcia Angell once pointed out: "Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs." If the Baker approach really can yield serious savings, there's certainly no ideological reason not to do it—it's simply swapping one form of government intervention for another, more efficient one.

(Note: Yeah, this post first appeared at MoJo; usually I never cross-post, but I tend to get really smart comments on health care here and wanted to see what you all had to say. So... fire at will.)
-- Brad Plumer 3:06 PM || ||