| > It does say that they exaggerate their costs (presumably so as to argue for patent laws); that lots of those costs are perverse (e.g. bribing doctors); and that the patent laws inhibit innovation in lots of ways. That's certainly true. Pharma companies spend enormous sums of money on bribing doctors, so to speak (usually it's slightly indirect, because direct bribery is illegal). However, there's an interesting economics point here, which is that: A company should only spend a dollar on advertising it if expects to make 1 + epsilon dollars in return. Which is to say that each dollar of advertising spend shouldn't really be factored into the cost profile of the drug, since each marginal advertising dollar exists only to generate > 1 dollar of profit in return. This is a little bit difficult to wrap your head around, but it's true. One way to summarize this is that while advertising dollars may cause prices to be higher than they otherwise would be, they don't impact what companies ought to be willing to invest in. Although, that's of course only if you assume that all drugs are equally marketable. Which is almost certainly false. Hmm...will have to think about this a bit. > Now, if the insurance company has some way of, say, spending $2m to fund medical research that cuts the cost of treating X from $50k to $25k, then that would save them $2.5m in costs. (Making no reference to patenting or even selling the drug.) This is an interesting idea, but one problem I see here is that it would incentivize insurance companies to silo and keep secret their medical research, because better treatment would be a competitive advantage for them, and cheaper treatment would allow them to charge lower premiums, which is also a big competitive advantage. > The uncertainty might be handled with a research consultant who makes "educated guesses" as to the expected value of different research paths. That's exactly what pharmaceutical companies do :). |