December 17, 2024
The New York Times ran an important investigative piece on how the opioid manufacturers gave kickbacks to pharmacy benefit managers (PBMs) to push their drugs, even in cases where they knew they could lead to addiction among patients. According to the piece, the PBMs recognized the danger of addiction, but encouraged doctors to ignore risks in prescribing opioids. They were rewarded for this with rebates from the manufacturers.
This is an important piece, but it leaves a key factor out of the discussion: The reason why opioids were so profitable to the drug companies was that the government gave them patent monopolies that allowed them to sell opioids at prices far above the free market price.
If these drugs were sold in a free market, like paper plates or ballpoint pens, there would have been little incentive for the drug companies to pay large kickbacks to push product. In fact, if drugs were sold in a free market, PBMs almost certainly would not exist. We don’t have food or clothing benefit managers. PBMs only exist because government-granted patent monopolies create an enormous gap between the prices charged by the drug companies and the cost of producing and distributing the drug.
It is a sign of how corrupt political debate has become that these patent monopolies, which are equivalent to tariffs of many thousand percent, are referred to as the “free market” in most discussions. Patent monopolies have a clear public purpose, to promote innovation, but they are nonetheless a major form of government intervention in the market. These government-granted monopolies cost us around $500 billion a year in the case of prescription drugs ($4,000 per family). They are not the free market.
There are alternative mechanisms for financing innovation, such as $50 billion a year we spend financing biomedical research through the National Institutes of Health. It would be good if we had a serious public debate on the relative merits of patent monopoly financing compared with alternative routes. The corruption resulting from patent financing would be an important factor in this debate; however, we can’t begin to have this debate until people in policy positions can speak honestly about the current policy.
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