A Patent Solution:
How to Provide a Medicare Drug Benefit

Economics & Law — By on May 16, 2006 at 12:36 am

Earlier this year, the U.S. government’s implemented the Medicare Part D drug subsidy program which provides prescription drug coverage for the 42 million elderly and disabled Medicare beneficiaries. With the government now footing the bill, it is expected that the demand for prescription drugs will increase dramatically over the next several years.
In the short term this is good news. Higher demand means more profits which drives stock prices even higher, improving the economy and 401Ks. But the long term consequences may prove to be detrimental. Some financial analysts caution that the program could become a costly expense that could entice the government into imposing price controls on medicines.
There is a solution, however, that could benefit the government, the pharmaceutical companies, and, most importantly, the taxpayer. Rather than bore you with elaborate detail (which I admittedly don ‘



  • IBreakCellPhones

    Well, I can’t see a fatal flaw in it right off the bat, but I’d like to make an addition to it–have the patent protection clock start when the drug is approved, not when the patent is approved. That gives the company a full seventeen years to recoup the R&D invested in it as opposed to the five or six that they get nowadays.

  • http://www.burtonia.com/blog Jeff Burton

    Under your plan, consumers end up paying (they always do). What you are proposing is basically granting a perpetual monopoly to the drug company (a patent is a temporary monopoly), along with the monopoly profits that go along with it. The people who buy the product pay for that. All your proposal does is shift the burden from taxpayers to people who buy drugs, which are two heavily overlapped sets.

  • http://www.senrable.com Erica

    The problem is that then the regular insurance companies end up footing the bill in addition to non-insured consumers. That will result in raised premiums and consumers will pay twice – through taxes and increased premiums.

  • http://www.ogresview.mu.nu Ogre

    I’m missing something in your example. If the company normally makes $1 million in profits, but then “loses” $2 million in 2006, their net profit in 2006 is zero, isn’t it? Extending the sales for 2 more years would simply mean 2 more years of selling something for zero profit?

  • http://fireandhammer.blogspot.com Dennis

    Who decides the basis for what the company lost by selling to the government?

  • http://w Joe Carter

    IBreak have the patent protection clock start when the drug is approved, not when the patent is approved.
    Do pharmaceuticals not get to use

  • http://TheEverWiseBoonton.blogspot.com Boonton

    Let

  • http://TheEverWiseBoonton.blogspot.com Boonton

    To some extent this is true. What it mainly does is provide a way for users of

  • http://dory.typepad.com/wittenberg_gate Dory

    First a disclosure of bias: Hubby works for a major pharma company.
    To add information about the patents: Pharmaceutical companies keep their compounds secret as long as possible, but once they begin studies or trials that will be published or will be carried out by outside sources, the compound is at risk and they are in need of patent protection. This is usually around ten years before there is a product ready for market, and the 17-year patent clock is ticking all that time. One delay in the clinical trial phase, such as an FDA request for more clinical trial data, can cost the company millions in profits. This forces the company to set a price that will, if all goes well, reap acceptable profits in the few years left on the patent. If that is unlikely, there is no point in developing the drug and none of us will have it at any price.
    We see pharmaceutical companies making huge profits, but I think it is important to remember that the cost of research, trials, and FDA approval are so high, that only a huge company can afford to put up the money needed for that length of time or have that much money at risk. (Most patented compunds do not end up being a marketable drug.) We hear that a certain drug makes a company a billion dollars and we think it is outlandish, but when you look at the research and development costs of these companies, their profit margins are lower than many other industries.
    Small pharma companies that discover a hopeful compound usually end up partnering with a major pharmaceutical company or selling the patent to them. They simply can’t afford the development process. I think that solutions that make the development and approval process less expensive would introduce more competition and creativity in the industry, (by allowing smaller compamies to participate more fully), and encourage more new drug development and lower prices.

  • http://TheEverWiseBoonton.blogspot.com Boonton

    True Dory, (BTW I too work for a major pharma company). However when you write that pharma companies have high profits but the cost of R&D is high….remember profits are calculated after the costs of R&D, failed drugs, clinical trials and so on are deducted from revenue. I don’t object to making even obscene profits but the fact is pharma companies have been enjoying what economics call ‘economic profit’. This may change, there is talk that many companies are having trouble finding new drugs for their pipeline….perhaps the low hanging fruit (the billion dollar drugs you can discover for $750M or less) have been plucked already.

  • Doc

    Here’s a better idea. Eliminate all gov’t involvement in medicine, including regulation of training, provision of services, research and production of medicines, etc. Competition would skyrocket, prices would plummet, and there would be no need for a Medicare prescription plan. No need for Medicare, for that matter. Patents could run forever, for all I care; medicine would still be cheap.
    If I want to buy my medicine from or have my appendix taken out by the village idiot, I should be allowed to do so; this is America, not Communist China!

  • http://TheEverWiseBoonton.blogspot.com Boonton

    Errr, if patents ran forever then that would hardly square with eliminating all gov’t involvement in medicine.