Economy

How Big Pharma Is Price-Gouging You

We pay roughly twice as much for our drugs as the average for other wealthy countries.

The United States stands out among wealthy countries in that we give drug companies patent monopolies on drugs that are essential for people’s health or lives and then allow them to charge whatever they want. Every other wealthy country has some system of price controls or negotiated prices where the government limits the extent to which drug companies can exploit the monopoly it has given them. The result is that we pay roughly twice as much for our drugs as the average for other wealthy countries. This additional cost is not associated with better care; we are just paying more for the same drugs.

This is not an issue about the free market. The free market doesn’t have patent monopolies. The monopoly power provided by a patent is a government policy to promote innovation. There are problems with patent monopolies in many areas, but nowhere is the issue worse than with prescription drugs.

Patent protected drugs are often essential for people’s health or even their lives. Allowing a drug company to have a monopoly where it can charge whatever it can force the individual, or more typically the insurer or the government, to pay makes little sense. This is like negotiating the pay of firefighters at the point where they show up at your burning house with your family inside. This would give us much worse fire service and many very wealthy firefighters.

A monopoly that allows drug companies to sell their drugs at prices that can be hundreds of times the free market price has all the problems economics predicts when governments interfere with the market. Drug companies routinely mislead doctors and the public about the safety and effectiveness of their drugs to increase sales. The cost in terms of bad health outcomes and avoidable deaths runs into the tens of billions of dollars every year.

Drug companies also spend tens of millions on campaign contributions and lobbying to get even longer and stronger patent protection. The pharmaceutical industry is one of the main forces behind the Trans-Pacific Partnership, and its demands for stronger patent protections are one of the main obstacles to reaching an agreement with the other countries.

We don’t need patent monopolies to support research. We already spend more than $30 billion a year financing research through the National Institutes of Health. Everyone, including the drug companies, agrees that this money is very productive. We could double or triple this spending and replace the patent supported research done by the drug companies. With the research costs paid upfront, most drugs would be available for the same price as a bottle of generic aspirin.

While the measures proposed by Hillary Clinton and earlier Bernie Sanders don’t go this far, they are a big step in the right direction.

This column originally appeared in the New York Times.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.