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June 18, 2007
Nulla mensa sine impensa
by Peter Pitts
Translation -- "There is no free lunch.”
More to the point, there is no “cheap” lunch. In other words, there are rarely simple answers to complex questions.
For example -- John Edwards’ suggestion that the government take away patent rights for companies that develop breakthrough drugs and instead, reward them with “prizes” from the government.
Except that, er, it doesn’t work and has significant unintended consequences.
Details. Details.
The “prize” model has been used in the past – in the old Soviet Union. It didn’t work. The Soviet experience was characterized by low levels of monetary compensation and poor innovative performance. The US experience isn’t much better. The federal government paid Robert Goddard (“the father of American rocketry”) $1 million as compensation for his basic liquid rocket patents. A fair price? Not when you consider that during the remaining life of those patents, US expenditures on liquid-propelled rockets amounted to around $10 billion.
Certainly not what Schumpeter had in mind when he wrote about “spectacular prizes … thrown to a small minority of winners.” Creative destruction indeed!
Does Candidate Edwards really want to replace a patent system that has allowed the average American lifespan to increase, over the past 50 years, by almost a full decade with a prize program that has a solid record of complete failure.
As Joe DiMasi (Tufts University) and Henry Grabowski (Duke University) have argued, under a prize program, pharmaceutical innovators would lack the incentive to innovate. To quote DiMasi and Grabowski, “The dynamic benefits created by patents on pharmaceuticals can, and almost surely do, swamp in significance their short-run inefficiencies.”
As DiMasi and Grabowski presciently observed in 2004, “The main beneficiaries in the short-term would be private insurers and public sector purchaser of pharmaceuticals … Governments and insurers are focused myopically on managing health care costs. They are not likely to be strong advocates for funding new drug development that can increase individual quality of life and productivity."
Sound familiar? Correct. Europe. Sound familiar? Correct. Evidence-Based Medicine.
To be sure, there will be other unworkable, ill-considered, and precarious suggestions for ways to “fix” the U.S. health care system. But a prize system may be the worse of them all.
Posted by peterpitts at June 18, 2007 10:17 AM
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