Monday, June 9, 2014

Patents Are Killing People

A recent Vox story on four ways we could decrease costs in American health care discusses allowing more immigrant doctors, letting nurse practitioners and physician assistants do more to treat patients, and following the state of Maryland in its move to "all-payer rate setting," where a government commission sets a price for each type of treatment (rather than each hospital and clinic negotiating its own price with insurance companies. See Steve Brill's Time magazine article for more on how these negotiations work.)

This would be similar to how Medicare negotiates rates so that they're in line with the actual cost -- including the costs of medical education and covering uninsured people -- but not as extravagant as the current "chargemaster" rates.

The fourth item discussed by Vox is curtailing pharmaceutical monopolies, and that's what moved me to write today. They mention the idea, proposed by economists like Joseph Stiglitz, of funding drug research through taxpayer-financed prizes, rather than by granting exclusive patents.

A large cash prize creates an incentive to innovate just as much as a patent does, but offers several important advantages. First, nobody needs to be priced out. All those $1000 hepatitis pills generate a lot of revenue, but also a lot of patients who end up with no pills at all. With a prize, the money is raised in a way that doesn't need to exclude anyone. Prizes can also direct R&D efforts at problems that are genuinely important, rather than ones that happen to interest a large market. The patent system is better at generating treatments for conditions that annoy rich people (baldness) than conditions that kill poor people (malaria).

Last but by no means least, a prize-based system would reduce the amount of money and effort firms currently spend on trying to game the patent system. Right now, for example, companies like AstraZeneca spend time doing things like reformulating the active ingredient from Prilosec into a quasi-new drug called Nexium in order to get a new high-margin product to sell. Prizes could be targeted at innovations with real health benefits, rather than the current mix of payoffs for innovation and payoffs for hacking patent law.
So, for instance, the need for new antibiotics or a universal flu vaccine could rise to the top, instead of more dubious ways to treat chronic conditions or cosmetic vanity.

A great example of the wrongness of the current patent system is the EpiPen. Anyone with a serious allergy, from peanuts to bee stings, should have a couple of these on hand every day. They pass their expiration dates fairly quickly, though (definitely within a year), and become ineffective whenever the liquid is discolored or cloudy.

The drug in question, epinephrine, is cheap, according to a doctor friend of mine. The thing that costs money is the one-shot, anyone-can-administer-it needle device. Sold in two-packs, the local price is almost $400.

Another friend, who recently has been having extreme reactions to insect bites and is going to be traveling in the South Pacific, was planning to buy one to take along until she saw the price and the fact that you have to buy two at a time. Her insurance only covers $20 of it.

The patent on the device doesn't expire until 2025. I wonder how many people will die because they didn't have an over-priced EpiPen?

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