December 07, 2018
Right, I meant “patents,” but the logic is the same. When you have a government intervention that raises the price above the free market price then you provide a lot incentive for gaming and corruption. The NYT had a very good piece on this topic just last week. Of course the tariffs on clothes that were being evaded/avoided in that piece were just 10-25 percent. By contrast, patent monopolies raise the price of drugs by the equivalent of several thousand percent. Therefore the incentive for corruption is correspondingly larger.
The NYT gives us the latest example in an article on Actelion Pharmaceuticals agreeing to a $360 million settlement in a case being investigated by the Justice Department. The accusation is that the company, which makes a drug to treat a rare lung condition, was making payments to a patient assistance charity as a way of giving kickbacks on its drug.
This is a mechanism that drug companies can effectively use to entice patients to use their drugs. If they give the money to an intermediary like the charity allegedly used in this case, the charity can then use the money to give patients a discount on the company’s drug. This can increase their sales without a general price reduction.
There would be no incentive for this sort of corruption if drugs were sold in a free market. Unfortunately there are not powerful interest groups to oppose patent monopolies as there are with tariffs on clothes, so we don’t see this sort of analysis in major media outlets.
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