Graeme’s

You can get new post notifications through RSS, email, Twitter or Facebook

Two more objections to pharmaceutical patents

Posted by Graeme in Economics at 1:25 pm on Monday, 23 November 2009

My wife suggested an addition to my list of bad incentives created by pharmaceutical patents. It is actually one of two closely related problems. These are possibly the most harmful of all as they can lead to patients directly getting worse treatments, as well as wasting money.

The high margins on in-patent drugs make it profitable for pharmaceutical companies to spend heavily on influencing doctors.

Kickbacks

The problem of doctors receiving kickbacks has received a lot of publicity. Although many countries are tightening up I doubt it can really be stamped out: as long as reps are on commission or have targets to meet, they have a strong incentive to use every possible way of influencing doctors.

The problem is worst in the third world, but given that pharmaceutical companies make most of their profits in developed markets (the US, Europe and Japan are the major markets), they have every incentive to find ways around the rules in those countries. The evidence shows that even small gifts can affect prescriptions (see section 2.2), so limits on the value of gifts are not a complete solution.

Influencing the flow of information

There is a more subtle (and legal) method of influencing doctors, and this is the job of those expensive pharmaceutical sales forces: drawing doctors attention to all the favourable research on the drugs they are trying to sell, so that the overall-flow of information is strongly biased.

Of course, one hopes that doctors also keep up with published peer-reviewed research. There are problems with that:

The good reasons pharmaceutical companies have forspending far more on sales and marketing than they do on R & D, are not good for the rest of us. The fact that more of the extra margin they get from patents is spent on marketing than on R & D is, my other major objection to pharmaceutical patents.

One question is whether this is really the fault of patents. I would say yes, because the high margins are necessary to fund it. Suppose you can make something for £10 and sell it for £100, it is well worth spending £50 on encouraging someone to buy just one more. If you can only sell it for £15, then you can only justify spending very little to get an extra sale.

Comments(0)