On December 7, 2006, the voters of Oregon passed Measure 44 by a 78% majority. The passage of this measure means that all Oregonians without prescription drug coverage can join the Oregon Prescription Drug Program which is a state-run program that buys prescription drugs in bulk and negotiates for lower prices using volume as leverage. I do not question the reasonableness of this measure or program - given the inadequate access to health insurance in the U.S. and Oregon it is incumbent for states to try and find reasonable solutions in the absence of sound federal policy. But it does raise a question that I think is important in how the government provides incentives to pharmaceutical companies and the perverse incentives programs such as the OPDP might provide.
The fact that the OPDP exists is evidence of the extremely high cost of prescription drugs. Why do drugs cost so much? Partly it is a function of the cost of research, development, trials and manufacturing, and partly it is a function of the fact that for most newer drugs the companies have a monopoly on the market. This monopoly power is granted to companies by the U.S. government in the form of patent protection precisely to incent these firms to invest in research on new drugs so that medical care and treatment can be ever improved. But what do profit maximizing drug companies focus on when exploring new drugs? Drugs for which they anticipate huge markets. These markets are where there are a lot of potential users of a drug and who have money or insurance to buy it. This means that the drugs that are important to the companies themselves (e.g. Viagra) may not be the ones that society might deem most valuable in term of, say, how many lives can be saved or extended (e.g. Anti-Malarial drugs).
So the question that seems important to ask is what drugs are the most commonly sought after drugs in the OPDP? I doubt, for example, that Viagra is one of them (though I would probably be surprised). I think the most commonly sought after drugs are those that treat diseases and illnesses that are more common among lower income individuals like, for example, heart disease. Are there others? Maybe ones that treat diseases associated with common income related illnesses like obesity and diabetes, liver disease, etc. I am not a health economist and I don't have the answers to these specific questions but here is the rub. If programs such as the OPDP lower the margin drug companies receive on these types of drugs it provides further incentives to devote even more resources to finding the next Viagra or drug that deals with health complications associated with aging. So, in a nutshell plans such as OPDP may lower the cost of these drugs but may also stunt the progress on finding better more effective drugs.
This is, of course, no reason to stop the OPDP, rather it is a reason to again think about how we may benefit from one comprehensive health care solution for all Americans rather than a patchwork of state and federal programs. Perhaps it is also time for the federal government to be more proactive in sponsoring research into drugs to combat less-profitable illnesses.