Transcript Center for Economic and Policy Research

The Benefits of Publicly
Financed Clinical Drug Trials
By Dean Baker
Co-Director
Center for Economic and Policy Research (CEPR), Washington, D.C.
Outline
1)
The Problem of Monopoly Pricing
a) Deadweight Loss
b) Third Party Payers
c) Assymetric Information
2)
Publicly Funded Clinical Trials as a Solution
3)
International Issues
Deadweight Loss
$200
$180
$160
Price per Prescription
$140
Protected Price
$120
$100
$80
$60
Deadweight Loss
due to Patent
Protection
$40
$20
Competitive Price
$0
0.00
0.20
0.40
0.60
0.80
1.00
Prescriptions
1.20
1.40
1.60
1.80
Billions
2.00
Basic Drug Facts
1)
3.5 billion prescriptions in the U.S. each year
2)
Average generic costs $34; Average brand drug
costs $120 – Walmart generics cost $4
3)
Spending will hit $330 billion in 2012 (CMS),
perhaps $30 billion w/o patent protection.
Protection in clothes/steel 10-30 percent,
protection in prescription drugs – 1000 percent
Third Party Payer
1)
Insurers – Insurance companies try to
avoid paying, patients use legal and
political action
2)
Government – almost 40 percent of costs
are paid by government, more that 30
percent by the federal government
(Medicare drug benefit)
Asymmetric Information - Drug
companies know more than doctors or patients
1)
Conceal evidence that reflects badly on
their drugs (Vioxx)
2)
Detailers push drugs (the pernicious use of
free samples)
3)
Advertising to consumers
Solution – Bring price down to
marginal cost
1)
Prize Fund Proposals
2)
Direct Public Funding of Research
3)
Public Funding of Clinical Trials (Lewis,
Reichman and So, 2007)
Basic Plan
1)
2)
3)
Limited number (8-12) of long-term (8-12
years) master contracts
Should support @ $20 billion a year of
research – could fully replace private level
of funding (much less that potential saving
on drugs to government)
Contractors could conduct own research
or contract out
Continued, next slide
4)
All findings (either by contractors or
subcontractors) must be fully public and
available for other researchers
5)
Patentable findings are put into the public
domain, subject to “copyleft” rules
Continued, next slide
6) Compensation for publicly paid tests
Price controls
b) Contracts that turn control over patents to
government (payments based on use)
a)
7)
Drug companies could do their own tests
a)
b)
c)
Price controls could apply regardless
Drug companies will have to compete with generics
FDA should give greater scrutiny to drugs not tested
by independent testers
Advantages of Publicly Funded
Clinical Trials
1)
2)
3)
4)
5)
Lower cost drugs – prices would be a nonissue
Honest research findings
Eliminate unnecessary duplicative
research (copycat drugs)
Better research (huge databases)
Drive out detailers, direct to consumer
advertising
International Aspects
1)
Wealthy Countries – treaties to share in
expense (Love and Hubbard)
2)
Middle-income countries and lowerincome countries pay less or nothing
(scaled to income)
Conclusion

Current system of patent protection for
drugs leads to enormous economic
inefficiency and inferior health outcomes.
 Publicly funded clinical trials can be an
effective mechanism for bringing prices
closer to marginal cost. They can both save
money and improve treatment.