February 24, 2013
The Washington Post gave us one of its classics, an opinion piece that struggled with the dilemma of the proper pricing of cancer drugs. While the piece tells readers how the prices of these drugs are bankrupting families, it never once mentions why the prices are so high. The word “patent” does not appear in the column. Of course without patent monopolies most cancer drugs could be easily copied and sold as low-priced generics.
Drugs are expensive to develop, but once they have been developed the cost of producing another dose is almost always very low. In the economists’ dream world, cancer drugs would sell at their cheap marginal cost.
Of course we would need an alternative mechanism for financing the research. Such alternatives do exist. We could have direct public funding similar to the $30 billion that we spend each year to finance research at National Institutes of Health. (That funding could even go through private drug companies, as long as all the research was fully public.)
We could also go the route of a patent buyout system, where patents would be purchased by the government and then put in the public domain. This method has been suggested by Nobel Laureate Joe Stiglitz and actually proposed in a bill by Vermont Senator Bernie Sanders. Unfortunately it is difficult to get information on such proposals in Washington.
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