Prescription Drugs: Where's the Free Market?

...Such abuses should not be surprising to anyone who appreciates the value of a competitive market. The root cause of all of these problems is government-granted patent monopolies that allow the pharmaceutical industry to sell drugs at prices that can exceed the cost of production by a factor of a hundred, or more. Last fall, Wal-Mart began selling hundreds of generic drugs for $4 per prescription. The vast majority of brand drugs could also be profitably sold for $4 per prescription, if it were not for the patent monopoly granted by the government.

As a result of patent monopolies, drug companies can sell drugs for hundreds of dollars that cost them a few dollars to manufacture. This situation invites the sort of corruption that NYT documents regularly in its pages.

Drug patents do serve a purpose: they provide an incentive to the industry to develop new drugs. However, there are other ways in which this research can be financed. The federal government already spends nearly $30 billion a year on biomedical research conducted through the National Institutes of Health. By doubling this amount, it could probably replace the research conducted by the pharmaceutical industry, most of which currently goes to develop copycat drugs (another problem of the patent system).

As another possible alternative, Nobel Laureate Joe Stiglitz has suggested a prize system, in which the government would buy out patents at prices determined by their usefulness. The patents would then be placed in the public domain so that all new drugs could be sold as generics.