Saving a Few Hundred Billion Dollars a Year on Prescription Drugs in America

Cost savings of a few thousand dollars per household that are eminently possible — if Big Pharma can be defeated or at least constrained much more. The main basic problem is the patent monopolies that allow pharmaceutical companies to charge exorbitant prices, and a main solution is to use direct public funding as a more efficient process at producing innovation.

Broadly speaking, a prescription drug in the United States goes through three main stages of development: On the front end, researchers make a scientific breakthrough in their labs, discovering the building blocks of a new drug. Then it goes through the second stage, which includes the often-costly process of clinical research and trials. Last, once the FDA has reviewed and approved it, the drug goes on the mass market, sold at drugstores and doctor’s offices.

The United States is already involved in the earliest stages of drug development. It’s the top funder of basic science research in this country through the National Institutes of Health, which has an annual budget of $37 billion, more than what the federal government pays for Head Start and Pell Grants combined. Most agree that this is money well spent: Every one of the 210 new drugs approved between 2006 and 2010 trace their origins back to government funding.

The government is also involved in the third stage, as a top purchaser of medicines. Through Medicare, Medicaid, the Department of Veterans Affairs, and other programs, the federal government pays for $300 billion worth of prescription drugs each year.

Where the system runs into trouble is in the middle of the process, when the government hands over a glittering prize: the multi-decade patents that give private companies a monopoly on life-essential products. Through a mechanism established by the Bayh-Dole Act of 1980, private companies are allowed to claim patents on promising compounds discovered with government funding–and that means exclusive rights to manufacture and sell the resulting drug for a period of 20 years and often longer.

This isn’t just an outdated model; it’s also deeply inefficient. Companies can price medicines at hundreds of times what it costs to make them (it’s how a hepatitis C medicine could cost $1,000 for each pill that is manufactured for a few dollars), and with the government providing a guaranteed market for the drugs, companies like Gilead and Pfizer have had years where their reported profit margins exceeded a staggering 40 percent. All of the Big Pharma companies average between 15 and 20 percent profit each year. Most Fortune 500 companies are happy to claim half of that. There is “absolutely no reason why the taxpayer should be forced to subsidize a private monopoly and have to pay twice: first for the research and development and then through monopoly prices,” Senator Russell Long insisted when Bayh-Dole was passed in 1980.


If the United States were to move towards a NASA system, the federal government would have to find up to $75 billion in its budget to replace what private industry spends on R&D. But that’s not an insurmountable obstacle. There should be plenty of money available. Baker and other economists calculate that a NASA for drug development, which would eliminate patents and the price markups for prescription drugs that come with them, would save Americans hundreds of billions of dollars every year thanks to drugs being generic-level cheap from day one. The savings to government spending alone would be more than enough to pay for every penny of the $75 billion that the private pharma industry claims it spends on R&D–and replace it with research that is more widely shared and targeted more at public health than at quarterly profits. In this alternate universe, scientists and labs could switch their focus away from developing yet another iteration of an erectile dysfunction drug towards tackling challenges like tuberculosis.


U.S. Could Eliminate Its Child Poverty for the Cost of the Republican Tax Scandal

Congressional Republicans preferred the giveaways to the rich and major corporations over eliminating what is arguably the biggest moral failure of world history’s wealthiest country — child poverty. The U.S. child poverty rate is over 20 percent, and it’s easy to see why when the last four decades have been full of unjust income redistribution from the bottom to the top.

Congressional Republicans are rushing to finalize their tax legislation before the holidays. They haven’t held a single hearing, in part because their plan is one of the least popular pieces of legislation ever. It’s easy to see why: The Senate version of the bill would raise taxes on most families making $75,000 or less per year by 2027, while tying a big bow on permanent tax cuts for millionaires and large corporations. And after years of panicking over the size of the deficit, Republican leaders are now planning to balloon it by a whopping $1.5 trillion over the coming decade.

That tells you a lot about Congress’ priorities—especially since, for less than the cost of the Republican tax plan, Congress could eliminate child poverty in the United States. Twice.

According to the U.S. Census Bureau, the 5.7 million poor families with children would need an average of $11,400 more to live above the poverty line in 2016. In total, the income needed to boost these families—along with the additional 105,000 children who were not living with their families—above the federal poverty level is about $69.4 billion per year in today’s dollars. Over ten years, that adds up to about 46 percent of what Congress plans to spend on its tax plan. There would be so much money left over after we boosted these kids out of poverty that the United States could also pay tuition and fees for all of them to get an in-state education at a four-year public university, and it still wouldn’t costs as much as the tax plan.

If Congress wanted to really let loose, and spend just 12 percent more than the tax bill does—for a total of $1.74 trillion—we could completely eliminate all poverty in America.

But instead of reducing poverty in the United States, Congressional Republicans are chipping away at the existing programs that support low-income people. Congress was so fixated on repealing the Affordable Care Act this summer that it ran out of time to reauthorize the Children’s Health Insurance Program (CHIP), which insures 9 million kids. It has been 73 days since CHIP’s funding expired, and more than half of states could run out of money in the first months of 2018. Some are already paring back services in preparation.

And now, House Speaker Paul Ryan (R-WI) and his fellow Congressional Republicans have announced that their next priority is cutting critical programs such as Medicaid, which provides health care to 2 in 5 U.S. children, and Social Security, which is the nation’s largest children’s anti-poverty program. To pave the way for these cuts, Ryan and friends are already rolling out poisonous rhetoric that paints low-income families as lazy and idle—even though Census data show that most families with children living in poverty do work, and are just being paid so little they can’t make ends meet.

These policies are obviously cruel. But, for a group of lawmakers who fancy themselves business-minded, they’re also stunningly financially irresponsible. Child poverty costs the United States a lot of money: an estimated $672 billion per year in lost productivity, worse health outcomes, and increased criminal activity.

Instead, congressional Republicans are choosing to saddle the nation’s kids with debt—the very thing they’ve repeatedly accused past administrations of doing—to finance a massive giveaway to the wealthy.

Imaginative Exercise in Spending $450 Million for the Public Interest

An interesting approach to how $450 million could be spent. I’d do it differently myself — I’d probably look to create public interest organizations that would lobby Congress intensely on issues with majority public support, and/or create a credit union that would provide low interest loans to democratic worker enterprises, to help show the viability of an economic system better than corporate capitalism.

In any case, I think we all should use our imaginations more, and this is an exercise that could demonstrate how.

Somehow, some way, someone paid $450 million, after buyer’s fees, for Leonardo da Vinci’s Salvator Mundi at Christie’s last Wednesday. Believed to be the last work by the artist in private hands, the painting’s price smashed all previous records. Since the price also seemed more on par with the education budget of a medium-sized country, Artsy asked a range of leaders from the arts, economics, bioethics, and development to tell us how they’d spend $450 million.

I have to decide whether I would use this money to try to end drug patents or copyrights. Since it is too early in the morning for such a weighty decision, I will put both on the table.

To do in drug patents, I would put up the money for nine orphan drugs trials. These cost around $50 million each, according to recent estimates from James Love, the director of Knowledge Ecology International. I would put all the trial results on the web so that other researchers and doctors would have the full benefit of this information (this would be subject to restrictions preserving the privacy of patients—economists know how to do this). This means they would know whether the drug is more effective for women than men, whether other conditions (e.g. arthritis or heart disease) had an impact on its effectiveness, etc. As it stands now, the drug companies only disclose information that helps them market their drug, so this should be a powerful precedent of how good science could be done. I would then place the successful drugs in the public domain so that they could be sold as generics from the day they approved. This would mean that instead of selling for $300,000 for a year’s treatment, the next cancer breakthrough drug (most new cancer drugs have orphan designations) can sell for $300. This will help to demonstrate the incredible corruption of our patent system in financing drugs. We have needlessly created a problem of drug affordability that would not exist with a more rational method of financing research.

On the copyright side, the point would be to show that there can be alternatives to copyright monopolies to financing creative work. My dream is a tax credit where each person would have some amount (e.g. $100 a year) to support the creative worker(s) of their choice. They could also give this money to an intermediary that supports creative work (e.g. an organization that supports blues musicians or writing mystery novels). The credit is modeled after the charitable contribution tax deduction, except it’s a credit. To get the money, creative workers or organizations have to register, like 501(c)3 do, just saying what it is they do. In this case a condition for getting money through the system is that a creative worker is ineligible for copyright protection for their work for a period time (e.g. 3 years) after getting the money.

With my $450 million, I would propose to try this at the city level, giving out $45 million a year for 10 years. The idea is that a city would run this with the requirement that recipients would have to physically be present at least eight months a year to be eligible to get the credit from the city’s taxpayers. This should turn the city into an artistic mecca, since musicians, playwrights, and other creative workers would want to make extra money, and also win more tax credits, by doing their work in the city.

I would take bids from different cities seeing how much they were willing to put up and how appropriate they might be to serve as a model. (Think of the bidding to be Amazon’s headquarters.) The result should be a large amount of new creative work that is available at zero cost over the web and a thriving city that took the leap.

Financing Prescription Drugs Using a Different System Without Harmful Drug Patent Monopolies

A new study finds that scientific breakthroughs are significantly as a result of collaboration. It used the development of five anti-cancer drugs to show how important researchers sharing information was, and it also strengthened the notion that beneficial scientific research tends to advance fastest when the results are fully open to view.

The study is evidence against the pharmaceutical research financing failure that is drug patent monopolies. Pharmaceutical corporations have an incentive to share as little of their research as possible to be granted their drug patent monopolies, as doing otherwise would risk threats to their profit margins through not receiving the patent. If the research findings are kept hidden from the public in this type of example, there is also a waste of resources to develop another similarly effective drug. This is notably seen with the Hepatitis C drug Sovaldi, which costs $84,000 for a 12 week course of treatment because the Gilead Sciences corporation has a patent monopoly on the drug. This is usefully contrasted with a high quality generic of Sovaldi selling for only $200 for the same three month course of treatment in India.

The U.S. government has the power to arrest people who sell Sovaldi in competition with Gilead Sciences, so the Abbvie corporation developed its own Hepatitis C cure drug known as Mavyret. Sovaldi was already an effective drug at curing Hepatitis C though, so the researchers that developed Mavyret could have been focused on other important research. This is, of course, a phenomenon that is continuously repeated with other drugs, and it prompts the logical conclusion of using a different system to finance pharmaceutical research.

A more ideal system would be to make drug patent monopolies illegal and have the U.S. government directly finance pharmaceutical research. The U.S. public already funds the National Institutes of Health with $30 billion annually, and even the pharmaceutical industry admits that is money well spent. PhRMA, the industry trade group, puts the amount that the pharmaceutical corporations spend on yearly research and development at only a somewhat higher total of $70 billion. This is in light of an important study revealing that pharmaceutical corporations spend more on stock buybacks that benefit the wealthy than they do on research and development. That is in light of the U.S. set to spend $450 billion (2.4 percent of GDP) on prescription drugs in 2017, an amount that would be $370 billion — half of the latest U.S. military budget approval — less if the patents and related unjust protections were removed from the pharmaceutical industry.

These large expenditures are especially significant considering that it’s been estimated that the U.S. will spend an even higher $610 billion a year on prescription drugs by 2021. With the current pharmaceutical system, that will mean that the U.S. could be spending about $120 billion on prescription drugs in 2021 instead of $610 billion.

The $370 billion possible to save currently though could be used in a variety of more productive ways than granting it to the pharmaceutical industry under the current financing system. For one example, the budget of the NIH could easily be boosted by a factor of five, making it $150 billion a year. What money remains is possible to spend on productive investment programs, such as an infrastructure project for clean and renewable energy. The U.S. economy is not doing that well for most of its people, but a significant improvement to that should be well-known — government investment to stimulate more demand.

The research done by the NIH could of course remain fully open for pharmaceutical companies and other organizations to use to develop drugs. Developed drugs could then be sold inexpensively without patent monopolies and the other unjust protections, which is how it should be done considering that prescription drugs are usually cheap to produce after their research process is completed. The firms developing valuable drugs should be rewarded for their innovative efforts, and they could be through the combination of governmental contracting, a publicly-funded prize system, and the demand of markets. That would almost certainly be a more beneficial system for the public interest than the current drug patent monopoly scandal, which is inefficient at advancing vital research and leaves many millions struggling to afford unnecessarily costly prescription drugs.


In his own (admittedly questionable) way, Thugnificent wasn’t a sucker for the pharmaceutical industry’s tricks. You shouldn’t be a sucker for their tricks either. [Image is from S3E12 of The Boondocks.]