The generosity on display from Pfizer as they decide to offer 70 medications for free to the jobless is the kind of generosity that really only a pharmaceutical firm can offer. The reason, of course, is that while the costs of developing a new medication are high, the marginal cost of producing additional pills is tiny. So insofar as a firm can identify people who would be genuinely unable to afford to buy medicine, there’s no real cost to the firm in giving the product away to those people. Indeed, it generates good PR. And good PR is important to pharmaceutical companies, in part because it’s a marketing-heavy business but more importantly because it’s a heavily-regulated business that benefits a lot from direct government expenditures on research and relies on government-granted monopolies (i.e., patents) for its business model.
But while this is nice to see, it’s also a reminder that financing medical research by providing firms with patent-generated monopoly profits is a very costly way of getting the research. And it’s not a method we arrived at by rigorously weighing the alternatives. Dean Baker has an essay in Boston Review that gets at some of this:
We could expand the public funding going to NIH or other public institutions and extend their charge beyond basic research to include developing and testing drugs and medical equipment. Or the government could contract out the research and development process to private firms and pay for the work up front so that all patentable results fall in the public domain. Or the government could construct a prize mechanism under which it buys up patents after the fact for a premium keyed to the patent’s usefulness.
It seems to me that ideally we should be looking to develop a mixed system. There are a lot of so-called “lifestyle” drugs, like pills that are supposed to prevent baldness, that it wouldn’t really make sense to have direct government funding of. But it’s still good, all things considered, that those pills are developed. They’re basically a form of high-end consumer good, and their creation is progress. Our current system is a good way of financing that kind of thing. But bringing more prizes and contracting-out into the mix for key medical priorities could help build a much more efficient system.
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