December 19, 2013
The NYT had a great piece about how drug manufacturers contribute money to charities that help people meet co-payments on drugs. The way the deal works is that a drug company will charge a very high price, let’s say $50,000 a year, for a drug that may be of limited value compared to lower cost competitors. To discourage its use insurers require a 20 percent co-payment, which would mean patients have to cough up $10,00 a year.
This sort of co-payment would keep most people from using the drug. In order to prevent this outcome, the drug company gives money to its favored charities, which in turn make the patient’s co-payment. This gives the patient no reason to go with a cheaper drug. The drug company in this story nets $40,000 instead of $50,000, but they still come out way ahead on a drug that probably costs less than 1 percent of this amount to produce.This is exactly the sort of arrangement that one would expect when the government grants patent monopolies and other forms of protection that prevent market competition.
Addendum:
Some comments noted that the drug highlighted in the piece, H.P. Acthar Gel is not protected by a patent. This is true, it has a different form of government monopoly, data exclusivity. This will last into 2017, hence the ridiculously high price.
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