Friday, May 15, 2009

Idea: Cut healthcare costs? Reduce the patent duration.

Brooks has a good essay today about the proposed underwhelming health care cost-cutting measures. I agree that none of the proposed changes sound like enough to take a reasonable bite out of our growing health care costs; and I doubt that for such a big problem there exists many easy fixes. But, there is one very easy fix that would have an huge impact -- cut patent duration times from 20 years to, say, 10. Of course, innovating companies will hate the idea of reducing their patents and boring-old manufacturers will love it but I guarantee that 10 years from now there will be an incredible drop in drug prices.

We have a fundamental problem that no one wants to admit: until some revolution in drug development takes place (e.g: if it turns out that siRNAs are a magic bullet) then we simply can not have guns, butter, and bandages -- at least we can't have every newfangled "bandage" being made at such an incredible pace.

We have an impossible expectation for our health care that we don't have for any other sector of our economy. We simultaneously want the free market to invent new treatments on a for-profit motive and then we want everyone to have access to the result. In contrast, we don't expect every driver in the country to have access to a Lamborghini just because they exist. We don't expect everyone to have access to the latest iPhone gadget just because they exist. But we do expect -- for good ethical and moral reasons -- that everyone should have access to whatever the latest, best treatments are. While this expectation is understandable, it's nevertheless schizophrenic: "Pharma: go be innovative, invest a lot of money to make amazing drugs! Oh my god, why are they so expensive?" We don't say: "Apple: go be innovative, invest a lot of money to make amazing phone! Oh my god, why are they so expensive?" (Actually some people do, but most just recognize that if the phone is too expensive they'll just do without.)

Health care is always going to involve an insurance middle man be it private, public, or all-messed-up-in-between as it is now. So, health care will always be a collective venture. It is simply irrational to expect that we can collectively afford every possible innovation, just as it would be irrational to expect that we could all collectively own the latest iPhone gadgets. Thus, the systemic way to change the collective system is to simply lower the profit bar. And this can be done by changing one simple variable: the duration of patents. Make patents last 10 years and drug companies won't build as many expensive drugs and, yes, more people will die of things that could have been prevented. But, recognize that this is already the case! The 20 year limit is totally arbitrary. Had it been set at, say, 30 years then there would exist, right now, more amazing but even more expensive drugs and therefore because the number is set at 20 and not 30 we are "heartlessly" letting people go untreated because of an arbitrary number. The number has changed before (upwards) and we can change it again, downwards -- at least for drugs -- if we collectively choose to. It's the only "easy" fix.

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