It takes both (monetary and fiscal policy)…and the drug market ain’t no market

September 23rd, 2015 at 11:38 am

One reason it’s been so hard to shift this economy out of second gear–why we’re still stuck with large output and employment gaps–is that there’s actually a cost to dysfunctional federal politics. The Fed’s holding up their side of the bargain, but it takes both monetary and fiscal policy. Over at WaPo.

The recent dust-up over price gouging in the market for pharmaceuticals points to an obvious problem. Medicines have characteristics of public goods, and the current system is horribly distorted. Like I said, prices don’t go up 5,000% overnight in functioning markets. There are various ways to nibble around the edges–and I’m not against trying them. But my strongly held sense is that it will take price controls and putting patents in the public domain to solve this. Over at the NYT’s Room for Debate.

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5 comments in reply to "It takes both (monetary and fiscal policy)…and the drug market ain’t no market"

  1. dwb says:

    Patents, technically, already are in the public domain. Daraprim (Pyrimethamine) has been on the market for 60+ years. The patent expired long ago. Some of these makers are abusing the process, buying up the rights and controlling distribution to prevent substitutes (I am not sure “generic” applies here since the patent expired). For well-known drugs like Daraprim which have been on the market for a long time, the barriers to manufacture equivalent product should be greatly reduced and the FDA and existing suppliers should get out of the way.

    No price controls. If it were limited to small market sole-source drugs which truly exhibit monopoly market characteristics, I would be ok with it. The government does nothing “fine.” It will bleed over into markets where there is robust competition (e.g. clairtin). When (not if) it bleeds over it will reduce the incentive to innovate. Regulated monopolies don’t innovate, they do not need to. Telling people there is no trade-off between price controls and innovation, frankly , I think is intellectually dishonest. There is always a trade-off, unless you assume a can opener.

    The real problem is that the FDA does safety and efficacy a bluntly with decades-old tools, and does not appear to consult FTC economists on the market impact of regulation and the barriers to entry. I highly doubt that the FDA really needs to control production as tightly as it does. For (truly) small market sole-source drugs, there are alternatives to price controls, like imports.

    • Jared Bernstein says:

      The Daraprim case is not a patent problem; it’s a monopolist/anti-trust problem–a different market failure, but a failure nevertheless.

      • dwb says:

        I think that is what I said, so we are in complete agreement there. As I said, the FDA designs safety and efficacy rules without regard to high barriers of entry or market structure. The “intellectual property” related to this drug is in large part created by the FDA rules themselves (been there, done that). What needs to be in the public domain is not the patent, its the “intellectual property” associated with the manufacture of this drug, so that any company can make this drug in a pre-approved way as needed. This is a drug that’s been on the market for 60 years, it’s pretty well known. This is not the only example of a drug whose patent has expired but where companies are buying up the rights, controlling distribution, and hiking prices.

  2. Richard Solomon says:

    Price controls?!? You think the pharma companies will take that lying down?!? Why should meds that sell for a few dimes or even nickels in other countries not sell for dollars here?!? My gosh, they’ll rev up their big guns in the House and Senate and fight like hell….

  3. dwb says:

    This is how healthcare gets more affordable: Competition.

    “compound drug”… so a drug with the same 2 active ingredients in a can be sold safely for $1 instead of $750 (and I believe the price was about $13.50 per pill before the hike to $750).

    If the market for drugs has a poor “design” its by the design of the FDA and regulations, it is not naturally that way.