Overhaul the way medicines are innovated by de-linking R&D costs from drug prices

Judging by the national headlines in America today, one particularly effective way to make a killing in the corporate sector is to be a pharmaceutical company willing to use its monopoly to hike drug prices. That profit motive is all the greater in situations where the medicine is a lifesaving drug with no competitors or required by other laws, as in the case of the now-infamous EpiPen manufacturer.

As experts and advocates who’ve long worked in this issue area know, Big Pharma often justifies its exorbitant drug prices on exorbitant research and development costs for drug innovation—all the while keeping true R&D costs hidden from the public. (Indeed, even modest state-level efforts like Vermont’s to bring pharmaceutical companies’ rationales for their price increases into the sunlight are met with stiff resistance from the powerful drug lobby.) In the meantime, it’s the public at large at home and abroad, especially those in impoverished nations, who suffer due to flawed US intellectual property policies that prioritize corporate power and profits rather than human lives.

In response, one can look to many ideas to reform the medical innovation system—particularly the patents regime for pharmaceuticals, medical devices, and biologics. According to an important line of thinking that merits more attention, part of the solution should be de-linking R&D costs from drug pricing later in the pipeline.

Simply providing direct upfront funding to private researchers under contract is one possible measure, as Dean Baker explains hereAnother idea would be to offer prizes, not patents, for promising innovations. The Huffington Post explains the concept here:

Drug companies have defended these prices — and profits — arguing they are necessary to finance research and development into new medicines. Love and Sander’s solution is to replace drug patents — which grant pharma companies years of monopoly profits — with simple financial prizes. Got a cool innovation? You get a prize. How much depends on how many other innovations are out there and how much therapeutic value your new drug has. Since the market value for curing rare diseases is low, you also qualify for a prize boost if you can kill off an obscure affliction.

Under the Sanders plan, once an inventor creates a new drug, any company could manufacture and market it at whatever price the market demands. Competition would dramatically lower the costs to consumers — and the government, putting Medicare and Medicaid on stronger financial footing.  The program would be funded by a new fee on health insurance companies. Insurers, of course, would also be primary beneficiaries of the program, since ending the current drug patent system would dramatically reduce the prices of prescription drugs, saving insurers (and patients) lots of money.

Describing an earlier iteration of the prize fund concept in 2011, economist Dean Baker at the Center for Economic and Policy Research notes other valuable benefits for the country:

The Sanders prize fund bill would go far towards eliminating the problems that pervade the drug industry. First, it would end the nonsense around getting insurers or the government to pay for drugs. If drugs cost $5-$10 per prescription, there would be no big issues about who pays for drugs. This would eliminate the need for the paperwork and the bureaucracy that the insurance industry has created to contain its drug payments.

We would also end the phony moral dilemmas we create for ourselves with drug patents. Should Medicare pay $100,000 a year for a drug to treat a rare cancer in an otherwise healthy 80 year old? This dilemma becomes a quick no-brainer when the drug is available for $200 a year in the free market with no patent protection.

The Sanders prize fund could also put an end to many of the deceptive marketing practices that the industry now employs to push their drugs, overstating the benefits of their drugs and concealing potentially harmful side-effects. It is rare that a month goes by when there is not a scandal along these lines. If the drug companies no longer stood to gain billions in profits from such deceptive marketing, they wouldn’t do it. It would also likely reduce much of the waste in the current research process. Drug companies often spend large sums developing copycat drugs that are of little medical value, but can allow them to get a portion of a competitor’s patent rents.

Drug pricing in the U.S. is a huge, complex field with a myriad of resources and commentaries available. For this particular issue, they include “Bernie Sanders’ Most Radical Idea Is One He Almost Never Mentions,” The Huffington Post (2016); “Senator Sanders introduces two medical innovation prize bills in U.S. Senate to de-link R&D costs from drug prices, Knowledge Ecology International (2011); “Give prizes not patents,” New Scientist (2006); “Stiglitz Explains How Patent Protection Both Slows Growth and Increases Inequality,” CEPR (2013) and “Financing Drug Research: What Are the Issues?” CEPR  (2004).

For additional ideas, also see “Why doesn’t the federal government ensure reasonable prices for drugs developed with public funds?,” Just Care (2016); “Use the Bayh-Dole Act to lower drug prices for government healthcare programs,” Nature Medicine (2016); and “‘Government Patent Use’: A Legal Approach To Reducing Drug Spending,” Health Affairs (2016) and “Why ‘Government Patent Use’ To Lower Drug Costs Won’t Stifle Innovation,” Health Affairs (2016);