November 16, 2004

Free Market Drug Act Promises Large Savings to State Governments

For Immediate Release: November 16, 2004

Contact: Debi Kar, 202-387-5080 

The recently introduced Free Market Drug Act (FMDA) would provide billions in savings to state governments, according to a new study by the Center for Economic and Policy Research (CEPR). The FMDA would allow states to purchase drugs for state employees and Medicaid beneficiaries at sharply reduced prices. While the projections developed in the study show that all states would see substantial savings, New York, California, and Texas would be the biggest winners. Over the years 2009 to 2013, these states would save $9.3 billion, $7.1 billion, and $3.7 billion, respectively.

The Free Market Drug Act, which was introduced this fall as H.R. 5155, would essentially double the amount of federal money that goes to support biomedical research. Current funding is provided primarily through the National Institutes of Health. While most current funding supports basic research, the additional funding would be used to actually develop and test new drugs, bringing them through the Food and Drug Administration's (FDA) approval process.

New drug patents developed with this public funding would be placed in the public domain, so that the drugs could be produced in a competitive market, free from government patent monopolies. In a competitive market, prices would fall on average by approximately 60 to 70 percent. In some cases, the price decline would be 90 percent or more. Drugs are almost invariably cheap to produce. Government-granted patent monopolies make them expensive.

If new drugs were sold as generics it would eliminate the incentive to conceal evidence of harmful effects, such as Merck's recent efforts to conceal the risks of Vioxx. If drugs were sold as generics, it would also eliminate the incentive to produce counterfeit drugs, which has become a growing concern for the FDA. (A brief description of the Free Market Drug Act can be found on the website of Representative Dennis Kucinich, the bill's lead sponsor.)

The CEPR study, authored by co-director Dean Baker, projects a path of potential savings to state governments, if the bill were passed in the near future. The projections assume that states would first begin to experience substantial savings in 2009, as drugs developed through this new system first appear on the market. The savings are assumed to increase rapidly, as more new drugs are sold as generics. Increased competition from new, generic drugs would also lower prices on existing drugs.

To view the full paper click here.