According to the NYT, drug giant Eli Lilly knew that Zyprexa, a drug used to treat schizophrenia, had a number of serious side effects, but decided not to trouble doctors with this information. The NYT has done a great job over the last decade uncovering cases where the pharmaceutical and medical supply industries have engaged in unethical behavior to promote use of their products. This usually has meant concealing evidence of potential harm, but they also engage in a wide variety of unethical sales practices that often take the form of kickbacks to doctors for prescribing their products. What has been largely missing from the NYT coverage is any economic analysis of this issue. As anyone who has ever sat through an intro econ class should recognize, these sorts of abuses are exactly what we would expect when the government gives companies patent monopolies that allow them to charge prices that are far above the cost of production. Most readers will see this last sentence and comment that we need to give the companies patent monopolies in order to allow them to over research costs. This is not true, and the fact that so many people believe it shows the enormous failing of the media on this topic. Patents are one way in which to support research. There are many other possible mechanisms, including direct government funding, which we already do to the tune of $30 billion a year through the National Institutes of Health. Given the enormous cost of prescription drugs and medical supplies and the continuing patterns of abuses by companies seeking to maximize their patent rents, we should be having a national debate over the best method of financing research. As it is the topic goes virtually unmentioned. (Eduardo Porter provided an important exception, doing a piece on the topic in November of 2004.) Here's my outline of the issues. (I didn't give the whole story, Eli Lilly was also promoting off-label uses.)
--Dean Baker
