21 February 2012

Mandated Heath Market Inefficiencies

We cannot permit America to be the "pay line" for every worldwide drug and device development program.  The same pill sold here in America for $25 is $2 in Canada and other nations.  The cost of reproduction is covered by the $2, but development is not.  The free market would normally prohibit this activity since people would simply buy the drug in Canada and re-import it here, but the drug and device makers lobbied Congress to make that illegal. 

A good portion of these sort of inefficiencies could be eliminated simply by removing patent protection for drugs.  If the US eliminated the patent system, drug companies wouldn’t be able to prevent competitors from selling identical drugs on the cheap (although competitors would not be able to recreate any placebo effects that occur with brand names).

Of course, this action is opposed because it would lead to less drug research, particularly in the treatment of rare diseases.  But, were this the case, the market would work as effectively as it should.  One of the problems the US faces in regards to medical care is that everyone wants a drug to solve their medical issues.  Between patent law, health insurance mandates, and anti-competition laws, the US government has managed to effectively subsidize research for diseases that would not ordinarily merit research.

One effect of this effective subsidy has been the increase in unhealthy behaviors.  Since people are implicitly promised health care and medicine no matter what, it would be reasonable to expect people to take more health risks.  And, given the current obesity epidemic, it seems that this is certainly the case.  As such, removing the effective subsidy of drug research would help to encourage people to live healthier because drug companies would be much less inclined to research drugs that cure rare or complex diseases.  Thus, by removing subsidies, health becomes cheaper.


  1. I wonder at teh value of having treatments for rare and complex diseases since most medical practitioners are incapable of diagnosing such maledies. Most medical practice focuses on the common health problems, not the rare ones. So few doctors have any experience at all with rare problems and continue to treat rare problems as if they were merely forms of common ones.

  2. @Prof. Hale- I do too. I don't want to be callous about it, but how can it be a good idea to encourage the development of expensive cures for rare diseases? Especially, as you noted, when many rare diseases are misdiagnosed? Also, how does it make sense to not incentivize healthy behaviors and habits?

  3. Also, how does it make sense to not incentivize healthy behaviors and habits?

    To incentivise healthy behaviors implies that you know what those behaviors are and that you have the moral authority to tell other people how to order their own affairs to conform you your likes. Our government overlords are today decideing that they have the force to accomplish the second one and the first one is whatever they say it is, no matter how many times they change their minds.

    if you accept the arguments of those in power, it is a short step to absolute control over every thing you do, say and think "for your own good". you can't have guns because that leads to lead poisoningin some people. you can't eat where you wnat because that makes you fat (even if you personally are skinny and could use a few extra pounds). You can't vote for constitutional restraint of the government because that is evidence of mental illness.

    The only solution is freedom.

  4. @Prof. Hale- What I mean is that subsidizing cures has tendency to disincentivize preventive measures, to some extent. Why eat healthy if you can just take a get out of bad health free pill?

    More to the point, subsidizing drug research and mandating prescription drug coverage by health "insurance" providers has the effect of subsidizing unhealthy practices. It seems to me that it would be more efficient to incentivize healthy behaviors by refraining from subsidizing unhealthy behaviors.