Dean Baker, from the Center for Economic and Policy Research, has a great piece up on called Firefighters and Prescription Drugs. Baker has frequently written in the past on the perversity of our current patent-based system for developing new drugs, and what alternatives there are. (See, for example, Financing Drug Research: What Are the Issues?)

Baker’s main point is that we have accepted the current system of using the incentive of a patent to spur research and development as inevitable and natural. It brings to mind the saying “the fish are the last ones to notice the water.” It’s vital to remember that there’s nothing natural or inherent about that system, however.

This is the system that has brought us more than 8 prescription drugs for heartburn, and more than 4 for erectile dysfunction, but no meaningful new treatments for diseases that are true scourges of humanity, like malaria and tuberculosis. Other systems might work much better at creating incentives to develop treatments, particularly for these neglected diseases that affect millions of people who happen to have the rotten luck to live in poor countries rather than in the U.S. where TV ads work to convince us all that we have restless leg syndrome, insomnia, and toenail fungus.

It’s telling that although all of the presidential candidates have talked about the greed of pharmaceutical companies, none have even dared to mention, let alone question, the conventional wisdom about how we develop drugs.

Baker offers a variety of proposals, such as increasing the budget for the National Institutes of Health, running all clinical trials through the NIH, etc. Publicly-funded medical research has a vital role to play — and we need to make sure that we don’t pay twice for drugs and medical treatments that are developed with public funds — once when we pay for the research, and again when we are forced to pay exorbitant prices for the drugs that result from that research. The discovery of Abbott Laboratories’ [NYSE:ABT] HIV/AIDS drug Norvir was made possible by an NIH research grant, yet that didn’t stop Abbott from quintupling the price of the drug. [PAL member SEIU Health & Welfare Fund is a plaintiff in an ongoing class action lawsuit against Abbott for this price increase. See more about that case here.)

Some highlights of the piece:

The most remarkable part of this story is we do not even have a public debate on how we finance drug research. The United States is currently spending almost $250 billion a year for prescription drugs. If drugs were sold in a competitive market, without government-imposed patent monopolies, we could save close to $200 billion a year. The $200 billion in higher drug prices buys a bit less than $25 billion a year in pharmaceutical research, according to the Congressional Budget Office. Paying $8 in higher drug prices for $1 in research does not seem like a very good deal.

Furthermore, as economists who don’t work for the drug companies will tell you, the huge markups created by patent monopolies are an invitation to corruption. When a drug company can sell a drug for $500 that costs it $4 to manufacture and distribute, it has an enormous incentive to mislead doctors and the public about the safety and effectiveness of the drug. And, when the drug company performs the research on the drug, and controls the dissemination of research findings, they also have the ability to act on this incentive.

Under the current system, we should not be surprised to find drug companies conceal evidence that their drugs might be ineffective or even harmful. Given the structure of the incentives that the government has created, we should be surprised if drug companies are not dishonest.

There are many different alternatives to patent monopolies for financing drug research. In fact, the US government already spends $30 billion a year on biomedical research through the National Institutes of Health. Virtually everyone, including the drug companies, agrees this government-funded research has been extremely valuable…

We should be having a serious national debate on the relative efficiency of the current patent system and various alternative mechanisms for financing drug research. Unfortunately, the drug companies are so powerful that few politicians are even willing to consider alternatives. In fact, the drug companies are so powerful that few media outlets would even print a column suggesting alternatives. In fact, the drug companies are so powerful that few economists would ever consider researching alternative mechanisms.

To read the full piece, go here

Hat Tip: Suddenly Senior