[Congressional Record Volume 151, Number 75 (Wednesday, June 8, 2005)]
[Extensions of Remarks]
[Page E1159]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             FINANCING DRUG RESEARCH: WHAT ARE THE ISSUES?

                                 ______
                                 

                        HON. DENNIS J. KUCINICH

                                of ohio

                    in the house of representatives

                        Wednesday, June 8, 2005

  Mr. KUCINICH. Mr. Speaker, I would like to bring the following 
article to the attention of my colleagues. The article details the 
reasons that the U.S. pays excessively high prices for prescription 
drugs. The Free Market Drug Act gets at the heart of the problem 
outlined below.

   [From the Center for Economic and Policy Research, Sept. 21, 2004.

             Financing Drug Research: What Are the Issues?

                            (By Dean Baker)


                           Executive Summary

       Rising drug prices are placing an ever larger burden on 
     family budgets and the economy. The Center for Medicare and 
     Medicaid Services estimates 2004 expenditures at $207 billion 
     (more than $700 per person), and projects that annual 
     spending will grow to more than $500 billion by 2013 (more 
     than $1,600 per person). The immediate cause of high drug 
     prices is government granted patent monopolies, which allow 
     drug companies to charge prices that are often 400 percent, 
     or more, above competitive market prices.
       Patent monopolies are one possible mechanism for financing 
     prescription drug research. Rapidly increasing drug costs, 
     and the economic distortions they imply, have led researchers 
     to consider alternative mechanisms for financing drug 
     research. This paper outlines some of the key issues in 
     evaluating patents and other mechanisms for financing 
     prescription drug research. It then assesses how four 
     proposed alternatives to the patent system perform by these 
     criteria.
       The most obvious problem stemming from patent protection 
     for prescription drugs is the huge gap it creates between the 
     cost of producing drugs and the price. In addition, to making 
     drugs unaffordable in many cases, high drug prices also lead 
     to enormous economic inefficiency.
       Patent monopolies cause economic distortions in the same 
     way that trade tariffs or quotas lead to economic 
     distortions, but the size of the distortions are far greater. 
     While trade barriers rarely increase prices by more than 10 
     to 20 percent, drug patents increase prices by an average of 
     300-400 percent above the competitive market price, and in 
     some cases the increase is more than 1000 percent. Simple 
     calculations suggest that the deadweight efficiency losses 
     from patent protection are roughly comparable in size to the 
     amount of research currently supported by the patent system--
     approximately $25 billion in 2004. Projections of rapidly 
     rising research costs, and therefore a growing gap between 
     price and marginal cost, imply that the deadweight loss due 
     to drug patents will exceed $100 billion a year by 2013.
       As economic theory predicts, government granted patent 
     monopolies lead not only to deadweight efficiency losses due 
     to the gap between the patent protected price and the 
     competitive market price, but also to a variety of other 
     distortions. Among these distortions are:
       (1) Excessive marketing expenses, as firms seek to pursue 
     the monopoly profits associated with patent protection--data 
     from the industry suggests that marketing costs are currently 
     comparable to the amount of money spent on research; (2) 
     wasted research spending into duplicative drugs--industry 
     data indicates that roughly two thirds of research spending 
     goes to developing duplicative drugs rather than drugs that 
     represent qualitative breakthroughs over existing drugs; (3) 
     the neglect of research that is not likely to lead to 
     patentable drugs; (4) concealing research findings in ways 
     that impede the progress of research, and prevent the medical 
     profession and the public from becoming aware of evidence 
     that some drugs may not be effective, or could even be 
     harmful.
       In addition, the patent system for financing prescription 
     drug research poses large and growing problems in an 
     international context. Disputes over patent rules have 
     increasingly dominated trade negotiations. Furthermore, 
     problems of enforcement have persisted even after agreements 
     have been reached. These problems are likely to worsen 
     through time, as the pharmaceutical industry seeks to 
     increase the amount of money it extracts from other countries 
     through patent rents.
       This paper examines four alternatives to the patent system:
       (1) A proposal by Tim Hubbard and James Love for a 
     mandatory employer-based research fee to be distributed 
     through intermediaries to researchers (Love 2003); (2) A 
     proposal by Aidan Hollis for zero-cost compulsory licensing 
     patents, in which the patent holder is compensated based on 
     the rated quality of life improvement generated by the drug, 
     and the extent of its use (Hollis 2004); (3) A proposal by 
     Michael Kremer for an auction system in which the government 
     purchases most drug patents and places them in the public 
     domain (Kremer 1998); and (4) A proposal by Representative 
     Dennis Kucinich to finance pharmaceutical research through a 
     set of competing publicly supported research centers 
     (Kucinich 2004).
       All four of these proposals finance prescription drugs in 
     ways that allow most drugs to be sold in a competitive 
     market, without patent monopolies. These proposals also would 
     eliminate many of the economic distortions created by the 
     patent system.
       These proposals, along with other plausible alternatives to 
     the patent system, deserve serious consideration. Current 
     projections for drug spending imply that patent supported 
     prescription drug research will lead to ever larger 
     distortions through time. For this reason, it is important to 
     consciously select the best system for financing prescription 
     drug research, not to just accept the patent system due to 
     inertia.

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