Tag Archives: patents

The Public Good

Americans need to reclaim the concept of the public good, and nowhere is that more important than in health policy.

Law Professor Fran Quigley has a new book coming out that examines the interface–or more accurately, the lack of an interface–between Big Pharma, Congress and the common good. Quartz recently published a review of the book, and began by referring to the infamous “Pharma Bro,” Martin Shkreli, who purchased a life-saving drug that had been on the market for some time, and jacked up the price astronomically–because he could.

Shkreli is not an outlier, according to Indiana University law professor Fran Quigley’s new book Prescription for the People. The pharmaceutical industry jacks up prices on life-saving drugs to extort windfall profits from desperate patients as a matter of course. That’s an immoral way to treat medicine, Quigley argues. The solution? Stop treating medicine as private property—and start treating it as a public good, like education or infrastructure.

It’s one thing to allow private companies and markets to set prices for items like big-screen TVs or cars, Quigley explains via email. In those cases, “purchasers can compare prices and walk away from the transaction if they wish.” But a patient with cancer or a child diagnosed with Type II diabetes can’t just walk away. “That kind of choice is not present when the good in question is life-or-death and there are no options for comparison shopping,” he writes.

 One of the great virtues of Quigley’s book is its explanation of the major role government plays in drug research. Big Pharma has long justified high prices by citing the costs of R & D; as Quigley points out, much of that research is funded with our tax dollars–but drug companies, not taxpayers, enjoy the return on that investment.

Furthermore, drug companies don’t actually funnel the bulk of their profits into research and development. Case in point: Reuters has reported that Pfizer made $45.7 billion in revenue in 2014, of which it spent $14.1 billion on sales and marketing and $8.4 billion on research.

The book details the various ways in which drug companies’ concern for the bottom line takes precedence over concern for the public’s health, and it goes into considerable detail about the perverse public policies that have facilitated those companies’ profitability.

The genesis of those favorable policies? Follow the money.

How did we get to this point? “In the last 40 years, the pharmaceutical industry has deployed billions of dollars of lobbying and political campaign contributions” to change laws to their benefit, Quigley says. One of their most remarkable successes was the 1980 Bayh-Dole Act, which allowed corporations to patent publicly-funded research. This means that pharmaceutical corporations essentially receive monopolies to sell government-created products, “truly one of the most bullet-proof business models in modern history,” Quigley says.

Quigley also takes aim at current patent practices.

The US should even consider ending medicine patents altogether, Quigley argues. “The patent system fails miserably in making medicines available to those who need them,” he says. Studies show that 70% of newly marketed drugs make no therapeutic advances on existing medicines; they are “me-too” drugs that try to carve out a portion of already existing markets for things like cholesterol medication, without bringing any improvements to the table. Furthermore, patents prevent competitors from building on previous research. Expanding grants for patent-free, open-source research would focus medical research on innovation, and make research findings available to everyone immediately, Quigley argues.

Quigley is not the only observer who faults the current patent system; economist Dean Baker goes considerably farther:

Are corporate patent and copyright monopolies a form of government-licensed private taxation? Dean Baker of CEPR thinks so: “Government-granted patent and copyright monopolies are actually much more important in determining future flows of income than debt. In the case of prescription drugs alone, patent and related protections raise the price of drugs by close to $370 billion a year over the free market price, a bit less than 2.0 percent of GDP. This is considerably larger than the current interest burden of the debt, which is approximately 1.6 percent of GDP, net of money refunded from the Federal Reserve Board to the Treasury. These monopolies are effectively like privately collected taxes.”

The book is Prescription for the People.

I know Fran Quigley, I know both his passion and his meticulous attention to fact and evidence. He’s a clear writer and a clear thinker. You should buy the book.

The Tragedy—and Promise—of the Commons

The “tragedy of the commons” is a term often used by economists and ecologists;  it’s shorthand for situations where individuals who are acting independently and rationally in their own self-interest undermine the common good.

Indiana Law professor and activist Fran Quigley thinks the tragedy of the commons explains a lot about the state of American health care. As he explains in an intriguing new article he shared with me (not in print yet, so no link available)

Between the 15th to 19th centuries, the rich and the powerful fenced off commonly-held land and transformed it into private property. Land switched from a source of subsistence to a source of profit, and small farmers were relegated to wage laborers….

 More recently, a similar enclosure movement has taken place. This time, the fenced-off commodity is life-saving medicines. Playing the role of modern-day lords of the manor are pharmaceutical corporations, which have taken a good that was once considered off-limits for private profiteering and turned it into an expensive commodity. Instead of displacing small landholders, this enclosure movement causes suffering and death: billions of people across the globe go without essential medicines and 10 million die each year as a result.

Quigley points out that producing medicine for profit is a relatively modern phenomenon–and says it is time to reclaim this commons, and he spends several pages showing how medicines fit the definition of a public good.

The public health implications of access to medicines generate another core quality of public goods: positive externalities. One person’s consumption of an essential medicine provides clear benefits beyond the direct consumer. Vaccines, for example, prevent both the recipient from getting ill and also from spreading the disease to others. If a society vaccinates widely enough, the chain of disease transmission is broken, leading to the quintessential public good of herd immunity. Global distribution of the smallpox vaccine has led to the eradication of a disease that once infected 50 million people a year.

I hadn’t known that “Until well past the middle of the 20th century, few countries allowed individuals or companies to hold exclusive rights to produce medicines.” ( I was aware that pharmaceuticals are and always have been, as Quigley points out “the very opposite of a laissez faire market.”)  And I did know that the U.S. government is a major funder of medicine research.

Quigley is particularly critical of the notion that drugs can be patented, and points out that many countries limit the duration or scope of such patents:

Among governments and the public alike, medicines continue to be treated as a good quite distinct from consumer items like cell phones or flat-screen TV’s….Jonas Salk declined to pursue a patent for the polio vaccine, saying the patent belonged to the people. The creator of the first synthetic malaria vaccine donated the patent to the World Health Organization. As Salk said in 1952, “Would you patent the sun?”

Today, of course, major drug companies depend upon those patents for their profitability.

Economists call this process the transformation of a public good into a “club good,” like taking a public park and turning it into a gated dues-required golf course.

Quigley’s article is a fascinating history of how intellectual property protection overcame the previous widespread belief that medicines should be considered public goods, not consumer products. And he argues that

The history of pharmaceutical innovations, especially vaccine developments and life-saving treatments for infectious and chronic diseases, shows that the critical research behind these developments was created outside the patent system…The U.S. National Institutes of Health alone provides $30 billion annually for medical research, governments provide tax credits to support corporate research, and government health programs are bulk purchasers of patented medicines priced far above the costs of production. When it comes to medicines,  taxpayers of the U.S. and other research-supporting countries are the very opposite of free-riders: they pay to build the bus, fill it with fuel, and hire the driver, but still are asked to pay a prohibitive fare if they wish to take a seat.

In fact, a decade ago, U.S. economist Dean Baker crunched the numbers and estimated the savings to the U.S. government if its health systems could provide medicines without the artificial mark-up imposed by monopoly patents. The resulting savings could fund the replacement of all private industry research and development several times over, while still leaving billions of dollars in remaining public benefit. A significant source of those savings derives from eliminating the for-profit pharmaceutical companies’ expenses on marketing, a cost that exceeds their investment in research and development. As it happens, there are more efficient use of resources than funding television ads for erectile dysfunction drugs.

When the article is in print, I will share a link, because this abbreviated review doesn’t do it justice. But the question is, given the extent to which current practices are embedded in our economic system, can it be changed? Quigley admits the magnitude of the barriers, but he provides a surprisingly long list of reform efforts currently underway.

What struck me most while reading the article was how easy it is to assume that “the way things are” is the way they’ve always been, and the only way they can be—and how difficult it is to identify and protect a steadily shrinking commons in an America that has lost sight of citizens’ essential interdependence.