Expensive Drugs and Multi-Million Dollar Salaries for Firefighters

January 19, 2022

In his column on health care this morning (much of which I agree with, since my wife had similar experiences), Ross Douthat argues that we should be willing to pay very high prices for prescription drugs and other medical innovations. The basic argument is that if a drug or new technology can save your life or the life of a loved one, wouldn’t it be worth paying hundreds of thousands of dollars, or even millions, if you had the money or could get an insurer or the government to pay it?

The answer is of course, “yes,” but it’s the wrong question. To see the point, firefighters often save lives at great risk to themselves. If we pose Douthat’s question, since they often save lives, wouldn’t it be worth paying hundreds of thousands of dollars, or even millions, to firefighters?

Perhaps we should pay firefighters an order of magnitude more money, but we don’t. The reason is simple. We don’t have to. We can find people who are willing to do the work and take the risk for much lower pay.

We should raise the same question about prescription drugs. Sure, the COVID-19 vaccines are fantastic and have saved millions or even tens of millions of lives, and prevented an enormous amount of suffering. In that sense, they are worth hundreds of billions or even trillions of dollars. But do we have to pay this sort of money to get vaccines?

There is plenty of evidence that we don’t. Peter Hotez and a team of researchers at Texas Children’s Hospital and Baylor University developed an effective vaccine on a shoestring. To be clear, this vaccine has not undergone extensive clinical trials, so it may yet prove less effective than preliminary results indicate, but the point is that we can get innovation without paying people billions of dollars.

In the case of the highly effective mRNA vaccines, these were done on the public dime. The researchers were of course paid for their work, but none of them got rich working on NIH grants. In fact, according to the New York Times, Dr. Katalin Kariko, one of the leading mRNA pioneers, never earned more than $60,000 a year in decades of doing pathbreaking work on government grants. The idea that we need to pay scientists outlandish salaries to get innovation is absurd on its face.

In fact, the quest for money can actually impede innovation. In a piece last week, the NYT described how progress in developing mRNA vaccines was slowed because Kariko was unable to arrange a collaboration with another top scientist because of a dispute over patent ownership. Patent battles can often block productive research.

Douthat’s experience with seeking care for his Lyme disease also should have acquainted him with another problem with our patent monopoly system of financing innovation: people have the incentive to lie. There are many products where patent monopolies allow companies to charge exorbitant prices precisely because they claim they will hugely improve a person’s health.

Often this is not true, but the prospect of big payoffs encourages drug manufacturers and device makers to make exorbitant claims for their products. We see this sort of marketing all the time, most dramatically with the opioid crisis, where manufacturers paid billions of dollars in settlements based on the allegation that they misled doctors on the addictiveness of the new generation of opioid drugs. If these drugs were selling as cheap generics, they would not have anywhere near as much incentive to lie about the safety of their products.

In short, there is no reason to believe that we have to create billionaires to get important innovations in health care. In fact, there are good reasons for believing that our system of patent monopoly financing (as opposed to open-source public financing) stifles innovation and leads to worse health care outcomes. The choice is not whether we are willing to pay lots of money to get better health care; the choice is whether we want good health care, or are we more interested in making a small number of people very rich.


Support Cepr


If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news