The Washington Post has an editorial this morning decrying the fact that millions of people might have been wasting billions of dollars on heart medications that were no more effective than much cheaper alternatives. Its answer is better regulation from the Food and Drug Administration (FDA). Better regulation by the FDA would be nice, but the underlying problem is the perverse incentives created by government imposed patent monopolies. Since the firms that own the patent, and who stand to earn enormous patent rents, control the testing process, they have enormous incentive to conceal and/or distort research findings to promote their drugs. We can think that the government cops at FDA will be able to effectively police those sharp-minded wizards in the private sector, but my money is on the drug companies -- and thus far the evidence supports my case. The only way to clean up the drug industry is to take the money out. The testing should be done by independent firms who have no stake in the outcome. All data should be fully public so that researchers can analyze it independently and doctors can make their own assessment of the relative effectiveness of the different drugs available. The testing could be paid for by cutting the payments for drugs purchased through the Medicare drug program to the level paid by the Veterans Administration. This change provide great benefits to public health as well as the public's pocket books. The Post's editorial board would be looking in this direction if it believed in market incentives instead of government imposed marketing monopolies.
--Dean Baker
