Bill Proposed To Make All Pharma Patents Public Domain

from the well,-that-would-shake-things-up... dept

We've written a lot about pharmaceutical patents, since pharma is often area that's a sticking point for fans of the patent system. There are a number of reasons why patents in the pharmaceutical industry don't make sense, despite protests from many. Studies have shown that patents are actually holding back the development of new drugs, making research more difficult and skewing research efforts away from what's most important for helping keep people healthy, to what's patentable. Nobel Prize winning economist, Joseph Stiglitz, for years has been talking about how patents harm medical innovations. One of his proposed solutions is to set up a bounty system for important cures -- and it appears that at least someone in Congress thinks this is a decent idea. Against Monopoly points us to the news that Senator Bernie Sanders has proposed a law in Congress that would set aside $80 billion a year to give to pharmaceutical companies in exchange for putting their patents in the public domain, in order to create competition for developing the drugs.

First of all, there's almost no chance that this proposed bill goes anywhere, so any discussion over the pros and cons isn't likely to make much of a difference. There are some interesting ideas set forth by the bill, but in the long run, it's not a very good idea and would likely fail for a number of easily predicted reasons. What I do like about it is the idea of encouraging competition within the drug space, so that the pills may be more affordable to a wider audience. Competition tends to be a good thing, and it can also create more incentives for real innovation.

Unfortunately, just about everything else about this bill would likely cause problems. It's not entirely clear how this bill gets funded. $80 billion is pretty significant chunk of change. If the plan actually worked, and created new, more affordable drugs that saved many more lives, you could make a compelling argument that the net benefit to the economy would far outweigh the $80 billion (see Murphy and Topel's research for support on that). However, it's still not going to be easy to get people to buy into it. More importantly, it's not entirely clear how you'd allocate this money fairly. Any system like this where the gov't is giving away money is going to be gamed by the pharma companies in one way or another. It'll be so lucrative that it will be nearly impossible not to have the system gamed -- especially when it's going to involve a bunch of bureaucrats trying to determine the value of a specific drug. Finally, the bill seems to be entirely focused on pharmaceuticals -- which is part of the problem today. With so much healthcare policy focused on pharma, people forget that new technologies may start to make pharmaceuticals obsolete. Then we're left with an $80 billion subsidy for an industry that should be going away. I'm all for the economic incentives that come from innovation prizes, but building a huge mis-targeted gov't bureaucracy around them seems risky. Really, it seems to just be replacing one system of gov't subsidies with a different one, and that hardly seems likely to fix the problems currently facing the healthcare space.

Filed Under: congress, patents, pharmaceuticals, prizes

Prize Insurance Puts A Price On Conventional Wisdom

from the what-a-deal dept

Since the first X-Prize competition, we've seen more and more interest in this model as a way to spur innovation. However, there are still a lot of questions about the competition model, in terms of efficacy and utility for private industry. While businesses are interested in the concept, the exact model remains unclear. Economist Alex Tarbarrok relates an interesting point about how the X-Prize was funded. Apparently, the group behind it didn't actually raise the prize money, but rather it bought an insurance contract that would pay off in the event that someone actually won. And who wrote the insurance contract? None other than the established experts in the field: Boeing and McDonnell-Douglas. It just so happened that these companies thought the prospect of a successful launch was basically nil, so they gave the organization a very generous price on this insurance contract. The fact that the prize was ultimately claimed is a good indication that even the established leaders in a field don't always have the best grasp of what advances are just around the corner. It also suggests a possible business model, whereby middlemen attempt to arbitrage the disparity between what the establishment deems possible and what individual inventors think they can accomplish.

Filed Under: prizes, x-prize