In a free market, drugs are cheap, government-granted patent monopolies make them expensive

from Dean Baker

This simple point was left out of a Washington Post article on the legal battle surrounding the Biden Administration’s efforts to negotiate lower prices for drugs purchased by Medicare. This point is important because the drug companies are definitely not trying to get the government out of the market, as the industry claims.

The industry is effectively insisting that the government is obligated to give it an unrestricted monopoly for the period of its patent duration. Also, since patent monopolies provide enormous incentives for corruption (they are equivalent to tariffs of many thousand percent, or even tens of thousands percent), drug companies often find ways to game the system and extend effective protection beyond the original patent life.

Anyhow, portraying this as a situation where the industry wants the free market and the Biden administration wants government intervention is 180 degrees at odds with reality. The industry wants very strong government intervention so that it can make big profits.

It’s also worth noting that the amount of money at stake here is potentially enormous. We will spend well over $600 billion this year on drugs. These drugs would likely cost less than $100 billion in a free market. The difference of $500 billion is more than eight times as large as President Biden’s requested funding for Ukraine.