There Oughta Be a Law Dept.: Is there a way around the horrors of drug price extortion?

THERE OUGHTA BE A LAW (2/7/1946)

[Click to enlarge.]

by Ken

Okay, the cartoon feature There Oughta Be a Law (1948-84) was generally pretty lame. Still, isn't this what invariably comes to mind when horror stories like the latest drug price-extortion scandal break out? Of course, that's probably because the phrase predated the comic, unlike the comic it slavishly imitated, Jimmy Hatlo's They'll Do It Every Time (1929-2008), whose name -- as Don Markstein points out on Toonopedia -- became a common catch phrase in its own right.

And, sure enough, they will do it every time, just in pretty much the way that Mylan "has hiked prices for EpiPen as frequently as three times a year over the past nine years." to the dismay of allergy sufferers who count on EpiPens to bring them back from the life-threatening peril of anaphylactic shock -- not because of significant cost increases or such understandable economic reasons, but for the most compelling reason known to free-market enthusiasts: because they can.

Naturally, as is noted in the above-linked AP report, the company is trying to massage the wretched PR outbreak with some palliative measures. However, "there is no change in the price of the treatment, however, which is what has drawn ire both in Congress and from families that have had to shell out increasingly large sums for the potentially life-saving treatment." After all, aren't corporations bound by law, and possibly by God, to do everything they can to maximize profits?

It's not likely, though, that your average CEO relishes the prospect of having the company name featured alongside images of, say, kids dying from a peanut allergy. The trick, it seems, is to exercise just enough self-control over the price increases, and to do them sufficiently out of the limelight, to attract minimal attention. In other words, as is so often the case, the unforgivable offense here is getting caught. One wonders how much of the U.S. economy now consists of damage control.

The public-interest problem here is what kind of law there ought to, or even might, be to distinguish between allowable and unallowable drug profits. And Ian Welsh thinks he has a "Simple Fix for Intellectual Property Laws": mandatory licensing.

"Let's say," Ian writes,

that someone has genuinely created something new–and we’ll skip the fact that most drug research actually uses massive government subsidies. Let’s say we want them to make money for doing so, in order to encourage people to keep innovating.

How would mandantory licensing work?

If a company has beneficial control over the patent or copyright:

For X years (I’d suggest seven), anyone who wants to use their patent or copyright must pay them 100 percent of the manufacturing cost of making the product.*

[There are two footnotes. First: "When one looks at EpiPen, today, it is not a case of patents, it is a case that FDA trials would cost 1.5 billion.  Competitors should simply be able to copy the EpiPen design and forgo trials beyond confirmation that they have." Then: "This number would have to be different in industries like software and pharma where unit manufacturing costs are often close to zero. The principle is simple: you make back your investment and get a good profit, but your invention/idea is available for all to use at a reasonable price as soon as possible, so society benefits fully and you don’t price gouge."]

After that, anyone who wants to make their product must pay 10 percent.

You can fiddle with the numbers and years, and yes, patents are usually only small parts of final products and there are details around that which need to be fixed, but the principle of mandatory licensing is what matters.

If "beneficial control" is had by an individual rather than a company ("meaning most of the profits are actually going to them, not to a corporation"), Ian says he'd "extend the period by two or three times, to encourage individual innovators and to try and keep all IP from winding up in the hands of corporations." He notes that "an individual often needs more time to fully exploit a new invention or copyright item."

Ian argues that mandatory licensing would help achieve the purpose of patents and copyrights: "mak[ing] people more likely both to invent something and to share the details," by making sure that they're paid and that they're "incentivized" to share ("100 percent monopoly profits for X years is a lot of money, but it avoids the 'jack it up by thousands of percents' problem"). What's more, the plan --

makes markets actually work how they’re supposed to. In economic theory, competitive markets are supposed to drive costs and profits down because if anyone has high profits, someone else will enter the market. Strict monopoly intellectual rights make it impossible for markets to work the way they are supposed to.

Now "simple" as the proposal may be, it leaves us a lot to talk about, and really not much of it has yet been talked about in the comments left on Ian's post, which tend to dwell on things he's said along the way rather than the proposal itself. He's at least given us something to talk about.

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