The Business of Medicine Jessica Flanigan

The Business of Medicine

Jessica Flanigan

DOI:10.1093/oso/9780190684549.003.0006

Abstract and Keywords

Policies that prohibit manufacturers from charging high prices for drugs potentially hinder patients’ access to drugs. Popular concerns about high drug prices cannot generally justify policies that interfere with voluntary exchanges between patients and pharmaceutical manufacturers because the pharmaceutical industry is normatively different from other industries. And even if drug manufacturers did have special duties to promote patients’ health, such duties could not justify limits on drug prices. Intellectual property protections also consist in government interference with voluntary transactions between patients and manufacturers. Whether this form of interference is justified will depend on whether intellectual property laws benefit patients more than alternative systems or whether patents protect producers’ rights.

Keywords:   prescription drug prices, medical innovation, intellectual property, price gouging, regulatory reciprocity, patents

Though every human life is beyond price, lifesaving drugs are not. New pharmaceuticals are prohibitively expensive for many patients, and in many countries, public officials not only regulate which drugs are available, they also regulate drug prices and intellectual property rights. Where there are relatively fewer regulations of drug prices, critics of the industry decry high prices. For example, in 2015 the New York Times editorial board condemned the pharmaceutical industry for charging “astronomical” drug prices “for no reason other than the desire of drug makers to maximize profits.”¹

The editorial was prompted by Turing Pharmaceuticals’s recent increase in the price of Daraprim, a sixty-two-year-old drug used to treat parasitic infections, from $13.50 per pill to $750 per pill after the company purchased the rights to produce it. In the same editorial, the editors also cited Valeant Pharmaceuticals’s decision to steeply raise the price of two drugs that are used to treat heart conditions, Eli Lilly’s decision to charge patients in the United States more than $11,000 a month for its new lung cancer drug, and Pfizer’s decision to charge almost $10,000 for a drug that treats advanced breast cancer. Philosophers echoed the New York Times editorial board’s condemnation of pharmaceutical companies that charge high prices.²

Elsewhere, public officials regulate the pharmaceutical industry to limit price inflation and make drugs more affordable. Yet industry advocates argue that regulation stifles innovation and delays access to potentially lifesaving drugs. Arguments on behalf of patients’ rights of self-medication and manufacturers’ economic freedom also undermine calls for regulations that ensure affordability since patients and manufacturers may voluntarily agree to pay and charge high prices for drugs.

(p.167) If patients’ physical well-being and public health cannot justify government interference, can patients’ financial well-being and public budgets justify interference? In this chapter, I argue that rights of self-medication require that patients not only be permitted to purchase and use pharmaceuticals, they also support a more general presumption against interfering with transactions between patients and pharmaceutical manufacturers. Not only do policies that prohibit manufacturers from charging high prices for drugs potentially hinder patients’ access to drugs, they also violate producers’ rights. To make this case, I consider three justifications for enforcing prohibitive pharmaceutical regulations that do not appeal to matters of health but rather relate to the business of medicine. Can financial considerations justify policies that interfere with voluntary exchanges between patients and pharmaceutical manufacturers?

First, I ask whether the pharmaceutical industry is normatively different from other industries because drug manufacturers have special duties to patients and citizens. In response, I argue that the pharmaceutical industry is not normatively different from other industries, and that even if it were, it would not justify policies that prohibited producers from charging high prices for drugs because, in general, people do not forfeit their entitlement to set prices when selling their property even if they are in industries that provide lifesaving products.

Second, I consider whether public officials may prohibit manufacturers from charging high drug prices on the grounds that patients do not voluntarily pay high prices for lifesaving drugs. I dispute the claim that patients’ decisions to pay high prices are not voluntary, and I argue against price caps for pharmaceuticals. However, public officials can and should take non-prohibitive steps to reduce the cost of new drugs. For example, officials may address high drug prices by adopting a certification system that would lower the cost of drug development.

Third, intellectual property protections also consist in government interference with voluntary transactions between patients and manufacturers. After all, if a patient wants to purchase a drug from a generics manufacturer while another manufacturer holds the intellectual property rights to produce and sell the drug, public officials are empowered to interfere with their transaction for the sake of the intellectual property owners. Whether this form of interference is justified will depend on whether a system of pharmaceutical patents is defensible. This depends on whether intellectual property laws are warranted by an appeal to the good they do or by an appeal to people’s rights.

If pharmaceutical patents are justified on the grounds that they benefit patients and consumers on balance, then the burden of proof lies with manufacturers to show that patents do promote well-being on balance. If pharmaceutical patents are justified on the grounds that producers have the right to profit from (p.168) what they create, then it is a separate question whether a twenty-year period of patent exclusivity would achieve this goal. Public officials may respect producers’ entitlements either by upholding patents or by providing prizes for pharmaceutical innovations.

But before we address the patent system, we should first consider safer ways that public officials and the industry may expand access to lifesaving drugs while also respecting patients’ rights. These reforms include policies that hold the pharmaceutical industry to the same moral standards of other industries, though public officials may also use their purchasing power to negotiate for lower drug prices as long as they also allow access to private prescription drug plans and a global pharmaceutical marketplace. A certification, or at least a system of regulatory reciprocity, would also address high drug prices while respecting patients’ rights of self-medication more than existing approval policies.

6.1 Single Standards for Industry

When business ethicists and commentators call for greater regulation of the pharmaceutical industry, they often appeal to the idea that manufacturers have special duties to promote public health. On the basis of this premise, some call for voluntary self-regulation by the industry. Insofar as these arguments are used to justify policies that are coercively enforced by public officials, proponents of this view implicitly assume that the industry not only has special duties but that their duties are so weighty or urgent that they are enforceable.

People may claim that people who work in the pharmaceutical industry have special obligations to ensure widespread access to affordable drugs because drugs are morally different from other products, since people need some drugs to live. Others suggest that people who work in the pharmaceutical industry have special role obligations as health professionals, based on the idea that businesses have a duty to benefit all stakeholders. Or people claim that people in the pharmaceutical industry have duties of fairness to reciprocate for the benefits that taxpayers and public officials have provided them by providing citizens with affordable access to drugs. In this section, I argue that these attempts to hold the pharmaceutical industry to higher moral standards do not succeed in general, and they certainly cannot justify a duty to provide widespread access to affordable drugs. Instead, I suspect that many of these intuitions about the special status of the pharmaceutical industry are better understood as the product of widespread psychological biases related to ideas about sacredness or betrayal aversion.

Consider first the idea that drugs are morally different from other products because they save and preserve people’s lives. This is a common argument in (p.169) favor of the claim that drug companies have special duties. As Richard Spinello writes:

Few are concerned about the ethics of pricing a BMW or a waterfront condo in Florida. But the matter is quite different when dealing with vital commodities like food, medicine, clothing, housing, and education. Each of these goods has a major impact on our basic wellbeing and our ability to achieve any genuine self-fulfillment.³

Critics of the pharmaceutical industry echo this point when they argue, “this is not like lipstick or perfume, these are drugs that people need to live.”⁴ For the sake of argument, let’s grant that drugs are morally different from other products, at least when they are used to save and sustain lives or promote people’s most urgent and weighty interests. In this way, drugs are like food. People do not need access to all kinds of food, but they need affordable access to a sufficient amount of food, and, depending on one’s theory of well-being, the relationship between food and people’s important interests may justify treating food differently from other goods.⁵ Specifically, it would support policies that provided people a sufficient income to purchase food or policies that provided food directly to ensure that people had the basic capability to survive and pursue other projects. Similarly, if drugs are different in this way, perhaps public officials should provide people who cannot afford necessary medicines with drugs. But just as it would be a mistake to impose universal limits on the price of food or for public officials to regulate the prices of all foods in virtue of its importance for people’s overall well-being, it is also a mistake for officials to control or cap the price of all drugs to ensure that people in need have access to drugs.

Another reason that the pharmaceutical industry may be held to higher standards than other industries is the industry itself is intrinsically different from other industries. For example, some people argue that health professionals have special obligations to promote public health, that businesses have responsibilities that correspond to their social role, or that industries that benefit from public subsidies have heightened duties to contribute to citizens’ well-being.

(p.170) Consider first the claim that pharmaceutical companies have special obligations in virtue of their role obligations as members of the healthcare industry. In general, role obligations refer to the duties that people have in virtue of an “institutionally specified social function,” such as an occupation, which is important either to the furtherance of a community’s values or as an independently good cause.⁶ Since health is generally seen as a good cause and valued by the community, people attribute special role obligations to health professionals and hold them to higher standards of praise and blame. On these grounds, some argue that the pharmaceutical industry has special obligations in virtue of their membership in the health profession.⁷

The claim that health professionals have special role obligations does not imply that they must be entirely altruistic in their devotion to healthcare, but that they have duties to promote health that people in ways that other industries do not. We may think of this as a kind of moral division of labor, where members of the health professions take on a greater share of responsibility for citizens’ health. Dan Brock and Allen Buchanan write that it is “stubbornly one-sided” to view physicians either as “self-interested economic accumulators or as devoted altruists,” but that physicians can adopt both perspectives and ought to balance their public spirit against their private motives.⁸ For this reason, physicians may have a duty not to encourage patients to use unnecessary medicines, even if they could profit by prescribing them.⁹ These duties may be especially salient to physicians, especially when they pledge to protect patients’ health and thereby consent to take on special duties, but they may apply to other members of the health professions too.

One response to this argument is to deny that, as a conceptual matter, being in the health professions gives a person special duties to promote health. People in the apparel industry do not have special obligations to balance people’s interest in being stylish against their interest in selling clothes. Bankers do not have a duty to ensure that everyone receives the lowest possible interest rates on loans rather than to try secure the best rates they can. One might reply that members of the healthcare industry are different because they provide vital services. But people are also in need of food and housing and cannot afford them, and few think that grocers and builders have special duties that other citizens lack to provide affordable access. If anyone has a duty to provide food and housing, it is taxpayers and members of the political community, not builders and grocers. Even if many health professionals thought of themselves as having special duties and (p.171) consented to acquire such duties, one may simply disavow his or her membership in the profession and redefine her role as a “lifestyle professional” or a researcher, thereby disavowing the special duties of health professionals as well.

But say we grant that people in health industries had special duties in virtue of their role. Perhaps drug companies would therefore have special duties to promote patients’ health too. Nevertheless, such an argument would not necessarily justify special duties for pharmaceutical companies to change their behavior or special regulations of the industry, for three reasons.

First, the pharmaceutical industry already promotes people’s health more than other industries (including many parts of medicine), so it seems that insofar as they have duties to promote health they already satisfy them. For example, Frank Lichtenberg finds that drugs increased life expectancy (and lifetime income) in the late twentieth century by 0.75–1.0 percent per year in the United States.¹⁰ Unless other health industries were expected to increase life expectancy by as much or more, it would be disproportionate to claim that pharmaceutical companies were required to promote health even more by providing affordable access to their products when other health industries do not promote health as well as the pharmaceutical industry already does.

Second, even if people in the pharmaceutical industry did have special obligations in virtue of their role as health professionals, such an argument would not necessarily justify policies or regulation that required drug companies to promote public health or to provide affordable access to drugs. In order for special obligations to justify public policies, one would need to show not only that they had such obligations but also that their obligations were enforceable. That is, public officials would need to show that manufacturers were liable to be interfered with in virtue of their professional role. Here again, attempts to justify regulations by an appeal to special obligations would not only require holding the pharmaceutical industry to higher standards than others, it would also require that health professionals were more liable to be interfered with relative to people in other industries in virtue of their professional role. Even if we granted that the health industry had special obligations, it would not follow that public officials should disproportionately limit the freedom of those who chose a socially useful profession by becoming health workers.

Third, if it were true that people in the pharmaceutical industry had special duties to limit their profits for the sake of public health, such a principle would also justify the claim that physicians are obligated to provide their services at an affordable rate or to serve low-income communities, rather than charging (p.172) market prices to patients. Some political philosophers, such as Norman Daniels and Gillian Brock accept this conclusion.¹¹ Arnold Relman argues in favor of reducing the profit motive in healthcare by controlling the growth of specialty practices.¹² But this point illustrates that the price of crafting policy to reflect the pharmaceutical industry’s seeming obligations to limit profits is higher than it may appear because to justify limits on pharmaceutical pricing, such an argument would also have revisionary implications for physicians’ occupational freedom.

Relatedly, some business ethicists may argue that all businesses have special obligations not because they provide vital services but because their actions affect people who have a stake in the outcome of a business’s choice. For example, Jeffery Moriarty argues that CEOs and other employees with fiduciary duties to shareholders have a moral obligation to decline excessive compensation, but while such an argument may justify limits on executive pay in the drug industry, it would weigh in favor of profit-seeking business practices.¹³ In contrast, proponents of “corporate social responsibility” advance this argument when they argue that the pharmaceutical industry is not socially responsible insofar as they charge prices for drugs that severely limit consumers’ access to drugs. They therefore conclude that manufacturers should provide assistance to low-income consumers to avoid public outcry and accusations of price gouging.¹⁴ Other business ethicists think that corporations have special duties to promote the well-being of all stakeholders in addition to their general moral obligations and contractual duties to shareholders and customers, which would require that they consider the interests of whomever could benefit from using their products.¹⁵

These calls for corporate accountability and deference to stakeholders often appeal to the negative publicity that is associated with charging high drug prices (p.173) or the potential for regulatory intervention.¹⁶ But while it may be strategically useful for members of the pharmaceutical industry to voluntarily self-regulate and to act as socially responsible corporations that consider the interests of all stakeholders, these considerations would not establish that such corporations actually have special responsibilities from a moral perspective. I grant that it may be useful for corporations to act as if they have special responsibilities, but establishing that they actually have special responsibilities would require further argument. For example, it may be true that manufacturers face public criticism when they sell expensive drugs, but it would not follow that criticism was warranted unless it were unfair to charge high prices for drugs.

Here again, critics of the pharmaceutical industry hold it to higher standards than other industries. Classic examples of unethical businesses include banks that fraudulently sold financial instruments, energy companies that used accounting methods that misrepresented their profits, mortgage lenders that discriminated against racial minorities, automakers that concealed deadly manufacturing defects, factories that polluted their communities and caused people to get sick, and pharmaceutical manufacturers that developed expensive drugs that treat small populations while neglecting to develop affordable drugs for larger populations with more urgent needs. One of these industries is not like other. With the exception of the drug industry, classic examples of businesses that neglect to consider stakeholders or fail to act in a socially responsible way either committed fraud or violated people’s rights. For example, it is fraudulent to construct financial instruments that carry high risks but to tell consumers and regulators they are safe investments. It violates people’s rights against being poisoned to pollute their water supply and make them sick. Yet the drug industry encounters moral criticism on the grounds that it doesn’t benefit as many people as much as it theoretically could.

Perhaps the pharmaceutical industry is different because many pharmaceutical innovations begin in publically financed institutions, such as nonprofit organizations, universities, or research institutes. Early research often relies on public grants. And many people in the pharmaceutical industry also rely on their publicly subsidized education to develop new drugs. And drug development relies on the cooperation of public hospitals and patients with publically provided health insurance. Finally, public officials enforce intellectual property laws that make it possible for manufacturers to profit by selling drugs. As President Barack Obama argued in 2012, profitable companies are profitable because of the efforts of taxpayers and public officials, so taxpayers and officials are therefore entitled to tax profitable companies to further develop public goods.¹⁷

(p.174) In this spirit, we might reconstruct an argument that pharmaceutical companies are especially indebted to the public good because they have greatly benefited from public institutions. Fair play theorists argue that a citizen could have duties of fairness to provide benefits if he accepted benefits, even if he did not consent to acquire those duties by accepting the benefits.¹⁸ I do not think that people can acquire special obligations in this way, but some people make an argument like this when they argue that the pharmaceutical industry has special duties to assist people because they accept the benefits of intellectual property protection and public subsidies for research.¹⁹ But fair play arguments are usually limited to contexts where the benefits are non-excludable because otherwise the beneficiary could refuse the benefit and any accompanying obligations. So the fair play argument could not support the claim that pharmaceutical companies have special duties simply because they accept public benefits, like intellectual property protection, because public officials could feasibly exclude them from receiving those benefits. Instead, officials may give drug companies the opportunity to accept benefits, such as patent protections, only if they consent to take on further obligations to benefit the political community (more on this in a bit).

On the other hand, one might think of publically financed research as a nonexcludable benefit that drug companies accept, which gives them special duties to the taxpayers who finance public research. If publically funded research must remain nonexcludable and publically accessible to all under current conditions, then fair play arguments, if successful, would be valid justifications for the claim that the pharmaceutical industry has special duties. But research needn’t be public; it is only that researchers judge that the benefits of publicizing their publically subsidized research likely outweigh the costs. But say drug companies did accept nonexcludable benefits from the public. It still wouldn’t follow that they had special duties of fairness to promote the health of patients in particular, since they would not be free riding on their efforts but rather the efforts of taxpayers and researchers. So even if people could acquire duties by accepting benefits, in these circumstances companies would have duties to taxpayers and researchers, not particular patients. And their duty would be to fairly contribute to research, not to provide affordable drugs.

(p.175) Another drawback of arguments that ground an industry’s special duties in duties of fairness is that often the people who are most in need of the benefits that the pharmaceutical industry can provide are also the least likely to contribute to drug development by participating in public institutions. Specifically, people who live in poor countries that do not subsidize drug development or effectively enforce intellectual property rules may have especially urgent need for access to drugs and pressing health problems, but they do not contribute to public schemes that benefit the pharmaceutical industry. Similarly, people with severe disabilities and children do not contribute to the kinds of public goods that make pharmaceutical research possible, but they can often benefit the most from the kinds of goods that the drug industry provides. Paradoxically, if we accepted the claim that the pharmaceutical industry had special duties of fairness to promote people’s health or to provide affordable access to drugs, fulfilling those duties may benefit those who are least in need of the benefits.

For these reasons, the kinds of arguments that are generally deployed to justify special duties for people in certain industries do not support the claim that the pharmaceutical industry has special obligations. So why do people think that drug companies have special duties to promote people’s health and provide affordable access to drugs? James Huebner presents several psychological explanations for the widespread intuition that pharmaceutical companies have special duties to patients. He first argues that the intuition that pharmaceutical companies have special duties to provide lifesaving drugs is an expression of more general intuitions about sacredness or the idea that some things are valuable in a way that should be insulated from market forces.²⁰ For example, researchers find that consumers reject arguments in favor of market-pricing systems for pharmaceuticals (e.g., the argument that high prices are necessary to fund further research and development) but accept the same arguments in favor of market pricing for computer software.²¹ The taboo against selling things that are seen as sacred is not unique to pharmaceuticals. People also oppose markets in sexual services, non-vital organs, votes, citizenship, and gestational surrogacy, often out of concerns about sacredness. Yet we should be wary of arguments from intuitions that are grounded in taboos related to bodies, feelings of disgust, or thoughts about impropriety, since these intuitions often do not withstand further scrutiny.²² Furthermore, as Martha Nussbaum argues, judgments (p.176) that are grounded in feelings of disgust or taboo often reflect harmful prejudices and can be used to justify discriminatory policies.²³

Huebner also argues that people distrust the pharmaceutical industry in light of public instances of corporate misconduct, but they also expect the pharmaceutical industry to promote health because of the nature of their products.²⁴ These circumstances induce feelings of betrayal aversion—a psychological phenomenon where people hold people or companies that are entrusted to protect them to higher moral standards than people or companies that are not explicitly charged with a protective role.²⁵ Huebner speculates that this impulse is sometimes expressed as the view that pharmaceutical companies have special duties, whereas people would not attribute special duties to industries that do not sell products related to health or safety. Betrayal aversion may be rational. If people do not feel qualified to evaluate the safety of drugs, they may instead express high expectations for manufacturers in order to establish the expectation that pharmaceutical companies will primarily aim to promote health. Yet even though it may be rational to act as if pharmaceutical companies have special duties, it doesn’t follow that they in fact have special duties.

So people’s tendency to think that drug companies have special duties to protect people does not establish that those duties exist. Further argument is necessary. And when we consider the arguments for the claim that pharmaceutical companies have special duties to promote people’s health or to provide affordable drugs, we find that more general arguments on behalf of special (p.177) duties cannot justify special duties in these cases. Specifically, even if people did acquire special duties when they consented to them, accepted benefits, or took on a professional role, these considerations would not support the claim that drug companies currently have special duties to promote patients’ well-being by providing affordable drugs.

6.2 Private Options and the Global Marketplace

Despite people’s discomfort with placing a price on lifesaving drugs, people pay for pharmaceuticals in every country, either as taxpayers or as consumers. Prices are determined in different ways and vary worldwide. In some countries, such as Switzerland, Canada, and India, public officials enforce caps on the price of pharmaceuticals to ensure affordable access.²⁶ In other countries, such as Australia, the United Kingdom, and Japan, drugs are provided through a national insurance program or pharmaceutical benefit scheme that directly negotiates the prices of drugs on behalf of all citizens so that manufacturers must provide drugs at a low price to access the national market.²⁷ In Germany, (p.178) a set of statutory nonprofit insurance collectives pool their bargaining power to negotiate with manufacturers for low drug prices.²⁸

Some drug prices in the United States are notoriously high, and prices vary between patients in the United States more than other countries. Usually, pharmaceuticals are initially more expensive in the United States than in other countries, but generic drugs are less expensive.²⁹ Some citizens receive publically provided health insurance, and the US government controls the price of drugs for low-income Medicaid patients and veterans, but not for senior citizens and disabled people who access drugs through Medicare.³⁰ For patients with private insurance plans, insurance benefit managers, HMOs, and hospital formularies independently negotiate with manufacturers for lower prices, which causes people with different private insurance plans to pay different prices for the same drugs. Uninsured patients are generally charged the highest prices for drugs.

Debates about pharmaceutical pricing are sometimes characterized as debates about the merits of a regulatory approach like the European model versus a more market-based approach to pricing like the United States’ system.³¹ We should be careful, however, in accepting this characterization because it is somewhat misleading. Drugs may seem more expensive in the United States simply because the United States is often among the richest countries included in most surveys of drug prices, and prices reflect each nation’s income level rather than particular (p.179) policy choices or regulations.³² And even in countries that directly limit the price of drugs, providers negotiate prices within a global marketplace and pay manufacturers for their products. And even in the United States, intellectual property requirements and healthcare policy affect drug prices. The question is not whether the pharmaceutical industry should be a fully socialized industry or an anarchic free market (though both of these options have a few proponents) but whether policies such as price caps and price controls should limit pharmaceutical prices.

Public officials can directly control the price of drugs in their countries in two ways. First, they may directly prohibit manufacturers from charging high prices for drugs. Or they may use their purchasing power to negotiate for lower prices. In this section, I develop an argument against price caps and price controls on the grounds that they would unduly limit peoples’ rights of self-medication and economic freedom. However, if people voluntarily joined insurance collectives to negotiate lower drug prices, it would not violate people’s rights of self-medication or anyone’s economic freedom. And insofar as public officials may permissibly provide publically funded healthcare to citizens, they too may permissibly negotiate with drug companies to purchase drugs for lower prices.

Ian Maitland’s thorough and compelling case against price controls and price caps in the pharmaceutical industry serves as the foundation of my argument. Maitland argues that “other things equal, whatever [pharmaceutical pricing] regime saves the most lives, relieves the most suffering, and brings the greatest improvement in the quality of our lives is the morally superior one.”³³ Maitland then makes the case that a market-based approach to prices is morally superior because price controls create shortages and discourage pharmaceutical companies from investing in drug development. Since drug development can potentially save so many lives, even if price controls or caps did expand access in ways that enabled more people to use therapeutic or lifesaving drugs, if limits on pricing deterred investment, Maitland suggests that they would do more harm than good.

At this point it may be helpful to revisit an argument from a previous chapter, where I drew an analogy between cases of exploitation and circumstances where desperate patients are granted access to unapproved drugs. Zwolinski’s defense of practices that seem like impermissible forms of exploitation is relevant to this discussion too. Zwolinski describes a paradigmatic case of price gouging—after a hurricane people transport ice to an area that has lost power and charge $12 (p.180) for each bag of ice that usually costs less than $2.³⁴ But as Zwolinski argues, laws that prohibit price gouging effectively punish the only people who are willing to assist those who are stranded without power. By arresting the alleged price gougers, no one has incentive to bring ice to people in need, and those who are willing to pay $12 for a bag of ice (e.g., so they can refrigerate insulin) are left without any means of purchasing ice. If people were allowed to charge high prices for ice, more people would enter the market and the prices of ice would fall in response to increased demand. Zwolinski develops a similar argument against usury caps on lending terms.³⁵ Zwolinski’s case for price gouging does not neatly translate to the case of pharmaceutical pricing because public officials prevent competition by upholding patents for new drugs. But the case against prohibiting people from charging high prices does apply to the pharmaceutical industry insofar as limits on prices deter drug development.

Maitland also considers that market pricing for drugs could prevent some people from accessing drugs at an affordable price, but he replies that even if the sick have a right to access affordable pharmaceuticals, it is not drug makers’ responsibility to provide it.³⁶ One may argue that the drug industry does have a responsibility to provide affordable pharmaceuticals to people in need because they are well placed to do so. But manufacturers are only well placed to provide affordable drugs because they have invested in developing the drugs in the first place. To claim that they are responsible for providing affordable drugs because they are able to provide the drugs violates the arguments for single standards of industry obligation, which I developed in the previous section, since other industries that create useful or even lifesaving products do not incur duties to provide them at low prices in virtue of creating the products in the first place.

And as Maitland points out, to say otherwise could potentially encourage people not to pursue drug development so that they can avoid unwanted obligations to forgo profits in order to provide people with affordable drugs.³⁷ So while it may seem exploitative to charge high prices for lifesaving drugs, it is not necessarily wrongful exploitation since providing patients with the opportunity to purchase lifesaving drugs does not make them worse off than they would have been without the option to purchase the drugs.³⁸ Instead of relying on drug companies to provide affordable access, public officials could alternatively subsidize pharmaceuticals (as most public insurance options do) or provide prescription drug vouchers for low-income patients to purchase drugs that (p.181) treat life-threatening conditions and subsidies for manufacturers to produce low-cost drugs. Such a political intervention to address unaffordable drug prices could preserve some of the benefits of a pharmaceutical market while improving access for economically disadvantaged patients. The same considerations apply in the global context as well. If people have general humanitarian duties to promote global health, then everyone in the global community has these duties, not just the manufacturers of drugs that can improve global health.³⁹

Another concern regarding price caps or price controls for drugs is that there is no principled way to determine whether a drug is appropriately priced besides considering whether people will pay for it. If the just price of a drug is not the price that people are willing to pay, then what is it? The very same people who claim that a human life is priceless, also claim that $51,000 is too much to charge for cancer treatments. If manufacturers do not set a price on these drugs, public officials will. And if public officials prohibit manufacturers from selling an expensive drug and also refuse to provide it, then they place a price tag on a person’s life at whatever cost savings they achieve by negotiating low drug prices in exchange for market exclusivity.

Since there is not a clear “just price” for lifesaving drugs, and since those who provide lifesaving drugs generally benefit patients more than most other people, even if they do charge high prices, there is a strong moral presumption against policies that impose price regulations on drugs as a condition of sale. On the other hand, philosophers raise three objections to market pricing for lifesaving goods that are worth considering before we address collective negotiations. These objections are generally framed in the context of labor and lending regulations, but they would apply with equal force to arguments against price regulations for drugs. First, some may argue that the decision to pay high prices for drugs is not voluntary if patients lack acceptable alternatives. Second, one may argue that it is wrong for drug companies to exploit patients by charging high prices for drugs when patients depend on drugs to survive. Third, others may argue that market pricing in lifesaving goods is often incompatible with a commitment to human dignity.

Serena Olsaretti argues a person cannot voluntarily agree to an exchange if she lacks acceptable alternatives. In response to Robert Nozick’s defense of a broadly laissez-faire system of labor regulation, Olsaretti argues that people do not voluntarily choose undesirable outcomes when the only reason that they are making an undesirable decision is because all the alternatives are worse.⁴⁰ One (p.182) could apply Olsaretti’s general argument against unregulated pricing to pharmaceutical pricing on the grounds that people in need do not voluntarily choose to purchase extraordinarily expensive drugs when their lives depend on using the drug. Yet while Olsaretti takes this insight to justify policies that limit systems of market pricing on the grounds that capitalism is often the reason a person must engage in a market transaction or suffer unacceptable consequences. For pharmaceuticals though, people’s lack of acceptable alternatives to high drug prices is not a result of laissez-faire economic policy, it is a result of disease. So even if patients do not voluntarily pay high prices for drugs, it is not clear that the remedy in this case is to prevent them from paying high prices for drugs because doing so would not address the underlying reason that their alternatives to high prices were unacceptable.

Another argument in favor of regulating prices is that some markets are wrongfully exploitative even though they do not make patients worse off. Consider for example Jeremy Snyder’s claim that employers can have duties to refrain from paying low wages to employees who rely on a job to meet their basic needs because relationships of dependency generate special duties to refrain from sacrificing dependents’ basic well-being for the sake of profit.⁴¹ We may extend this argument against the practice of charging high prices for drugs in the following way. Patients rely on drug companies to meet their basic needs, so drug companies have special duties to ensure that patients’ needs are met foremost before they consider their own bottom line.

On Snyder’s account, the failure to consider a dependent’s basic need expresses an unacceptable level of disregard that is morally worse than the disregard people express toward non-dependents.⁴² However, at the point that a patient initially encounters an expensive drug, she is not in a relationship of dependence with the manufacturer just as an employee is not in a relationship of dependence with her employer before she is hired. Moreover, even if drug companies were required to put their patients’ needs before their bottom lines, lest they express an offensive attitude toward them, such an argument could not straightforwardly justify price controls or caps. To establish this, one would need to show not only that people should consider the basic needs of dependents but also that public officials were entitled to limit patients’ and providers’ options to ensure that people express appropriate regard for each other by considering the needs of their dependents.

A final objection to Maitland’s defense of market pricing appeals to a Kantian ideal of treating people as ends in themselves and not merely as means to profit. For example, Norman Bowie defends a more general Kantian approach (p.183) to business ethics that appeals to this principle.⁴³ Elsewhere Bowie argues that transactions are unfair when sellers and consumers have unequal bargaining power and that “the obligations of manufacturers rest upon the demands of social justice.”⁴⁴ Bowie may therefore conclude that it is wrong for drug companies to charge high prices because in doing so they treat patients as means and flout the demands of social justice by making people who are already disadvantaged by illness even more disadvantaged by causing material depravation. On this account, manufacturers would not be entitled to charge high prices if their prices were only possible because consumers lacked the power to negotiate for lower prices due to their unequal circumstances.

Yet Bowie’s approach to markets rules out many markets that are mutually beneficial but also inherently unequal. For example, markets in services that rely on expertise, such as tax preparation or preparing a mortgage, are premised on the assumption that consumers are less knowledgeable about the thing they are purchasing than the providers, yet they do not treat consumers unfairly in virtue of this fact. Similarly, markets in lifesaving therapies, including certain pharmaceuticals, are necessarily unequal because only the consumer’s life is at stake, but the presence of unequal bargaining power is insufficient to establish that a market treats people unfairly. Moreover, even if a broadly Kantian approach could establish that it is wrong to treat a person as a mere means, it is not always wrong to treat people as means, as long as they are also respected as ends in themselves. One way to treat a person as an end in herself is to respect her choices rather than seeing her as an instrument for the furtherance of overall well-being. In this way, Kantian considerations would support policies that permitted manufacturers and consumers to freely negotiate the prices of drugs, not restrictions on drug prices.

There are also ways of responding to Bowie’s concern about unequal bargaining power that do not require price controls or caps. For example, patients increase their power to negotiate by purchasing prescription drug plans that collectively negotiate for lower drug prices on behalf of their members. Collective negotiation is not incompatible with Maitland’s argument against price controls or caps. Patients are not obligated to disadvantage themselves in the market so that manufacturers have incentives to develop new drugs. Insofar as public officials may permissibly tax citizens to provide people with public healthcare services, they may also collectively bargain to provide members with lower prices.⁴⁵ (p.184) More inclusive and generous public health systems would have more power to negotiate for lower prices to the extent that they provided access to a greater number of patients.⁴⁶

On the other hand, public officials may not use their power to prohibit the sale of expensive drugs or unapproved drugs outside the context of a national health plan in order to achieve lower drug prices. In these cases, they would violate citizens’ rights of self-medication, which include the right to purchase any drugs without government interference. Just as public officials are not entitled to paternalistically prohibit people from accessing dangerous drugs on the grounds that they have negative side effects, public officials also are not entitled to prohibit people from purchasing drugs out of concerns about negative financial side effects either. This argument supports policies that would promote greater access to drugs within and across borders, such as recent proposals that would allow American consumers to legally import drugs from Canadian pharmacies.⁴⁷

6.3 Drug Prices and Deregulation

Though the pharmaceutical industry does not have special duties to promote public health, and it is not wrong to charge high prices for lifesaving drugs, it is also not wrong for public officials and insurance providers to negotiate for lower drug prices, as long as those policies do not violate the rights of consumers or manufacturers. In addition to removing price regulations that prevent consumers from purchasing drugs that are not provided by their healthcare plans, public officials and insurance providers may also take steps to provide affordable access to drugs by removing regulations that not only violate rights of self-medication but also make drugs more expensive.

Existing limits on patients’ rights of self-medication potentially inflate the cost of drugs in five ways. First, premarket approval policies increase the fixed cost associated with drug development. Second, approval requirements prevent manufacturers from developing affordable drugs. Third, prescription requirements make drugs more expensive for consumers. Fourth, existing standards of liability prevent patients from waiving their rights to seek damages in case they are injured by using a drug, even if they were informed of the risks and consented to use the drug. Fifth, manufacturing regulations potentially prevent consumers (p.185) from purchasing drugs from low-cost providers and maintain monopolies that empower manufacturers to charge high prices for a drug even after its patent expires.

Manufacturers often cite the high cost of premarket approval policies as an explanation for the high cost of drugs. It is costly to conduct the required safety and efficacy tests and to navigate the approval process, which can cost up to $2 billion. So in addition to concerns about drug loss and drug lag, the approval process also limits access to drugs insofar as manufacturers pass the costs to consumers.⁴⁸ The high cost of development contributes to the overall cost of drugs because the cost of developing any particular drug does not correlate with the market price of that drug; rather, more profitable drugs subsidize the development of less profitable treatments that could nevertheless provide a greater therapeutic benefit and investment in the development of drugs that may either fail to gain approval or be unprofitable. For this reason, it would be a mistake to focus exclusively on the development costs for a particular drug when evaluating whether the price of that drug is reasonable.

Regulatory agencies also withhold approval for drugs that are less effective (but cheaper) than existing drugs. This means that consumers who are willing to compromise effectiveness for cheaper drugs never get the chance to access those drugs.⁴⁹ This standard discourages companies from developing cheaper drugs where expensive drugs already treat a condition. In this way approval requirements also contribute to high drug prices because they do not consider the financial benefits of a drug when weighing the costs and benefits of approval. Such policies also violate rights of self-medication and potentially have negative health effects since patients who cannot afford expensive drugs are prevented from using less effective but cheaper drugs, so they are left without options. In other words, poor patients are left without treatment because they cannot afford the most effective treatment

Short of full rights of self-medication, officials could address the high costs and negative health effects of the approval process by adopting a policy of (p.186) regulatory reciprocity, where drugs that are approved in one jurisdiction can be sold across borders.⁵⁰ Such a policy would permit greater price competition and expand access for low-income consumers.⁵¹ A policy that only granted FDA approval to drugs approved by EMA or the FDA, and vice versa, could save the pharmaceutical industry as much as $672 million per year.⁵² Some public officials have recently taken up the cause of reciprocity explicitly in an effort to expand affordable access to pharmaceuticals for American consumers.⁵³

Prescription drug requirements also potentially make pharmaceuticals more expensive. When consumers are required to obtain prescriptions to use a drug, they must not only pay for the drug but also the doctor’s visit required to get a prescription. Especially for uninsured patients, the additional cost of obtaining a prescription can be prohibitive.⁵⁴ But even patients with insurance must pay a price to obtain a prescription to use a drug since doctor’s visits often require patients to leave work and pay copays for the visit and prescription.

Prescription requirements can also contribute to higher drug prices because they reduce demand. This may seem counterintuitive at first. The primary predictor of drug price is whether there is a specific demand; the most expensive drugs are those that treat chronic or fatal conditions, with high demand and low competition.⁵⁵ If demand for drugs decreased, one might expect the price to fall as well. But pharmaceutical prices are not sensitive to demand in this way. Limited demand usually leads to lower prices because vendors use lower prices to increase demand. But when the supply of consumers is limited by prescription (p.187) requirements, drug manufacturers cannot lower the price to increase demand. So since they cannot lower the price and profit from more widespread use, they respond by charging more for the drug to compensate for the artificially limited demand. There is some evidence that the cost of prescription requirements is substantial. For example, Peter Temin estimates that switching powerful cold medicines from prescription only to over-the-counter status saved consumers over $70 million per year, and estimates the consumer surplus to be over $770 million per year.⁵⁶

Another domestic reform that could potentially reduce drug prices would be to permit manufacturers to limit their liability for adverse drug reactions. For example, Richard Epstein proposes a contractual model of medical liability where physicians might be permitted to provide risky medical services to patients who waive their right to hold the physician accountable for adverse effects.⁵⁷ To the extent that malpractice insurance and legal costs contribute to rising healthcare costs, such contracts might reduce these costs. Similarly, if legal costs contribute to the cost of certain drugs, permitting patients to absolve manufacturers of liability could address such costs. These reforms might be especially attractive if patients were permitted to access any drug without authorization.

Finally, manufacturing regulations also contribute to high drug prices. Not only do regulatory agencies prohibit pharmaceutical companies from selling unapproved drugs, they also prohibit unauthorized manufacturers from selling drugs. Open manufacturing within states and across borders would enable greater price competition. Specifically, as long as manufacturers do not fraudulently represent their process or products, they should not require an expensive license or approval to manufacture pharmaceuticals. Rather than preemptively limiting the production of drugs, regulators should instead monitor drug manufacturing to ensure that producers accurately depict their products and provide certification for producers that adhere to industry standards. However, manufactures should not be disqualified from producing pharmaceuticals on the grounds that they are in a foreign country or because they are compounding pharmacies.

The example of 17P, a drug that prevents premature labor, illustrates how pharmaceutical regulation can exponentially increase the cost of a drug.⁵⁸ In 2003 a study conducted by the National Institute of Health found that (p.188) prescribing a form of progesterone called 17P early in pregnancy could significantly reduce women’s risk of preterm birth.⁵⁹ Unfortunately, 17P was no longer manufactured because better drugs had been developed for the conditions it was originally designed to treat (uterine cancer and hormonal problems), and 17P remained off-label for prematurity. Fortunately, physicians could still prescribe the drug to be made by individual compounding pharmacies rather than by drug manufacturers. Sold in this form, 17P cost $10 per shot, and pregnant woman received weekly shots of 17P for four months during pregnancy if they were at risk of premature labor. As evidence grew that 17P was an extremely effective prematurity treatment, the FDA encouraged drug companies to develop and manufacture a prematurity drug under the ODA. The agency then granted KV Pharmaceuticals approval and orphan drug status for their manufactured version of 17P, which is called Makena.

Once approved, KV Pharmaceuticals received exclusive rights to manufacture and market all drugs treating prematurity for seven years and immediately sent letters to compounding pharmacies threatening FDA censure for independently compounding the drug.⁶⁰ Moreover, KV Pharmaceuticals charged $1,500 per weekly shot, instead of $10. KV Pharmaceuticals explained that the 150x cost increase was justified because of the cost of drug development, testing, and post-market monitoring, as well as the expected benefits.⁶¹ Joanne Armstrong, writing for the New England Journal of Medicine, estimated that “the cost of treating all 139,000 patients who could benefit from (17P) … is $41.7 million. Substituting Makena … would bring the estimated cost to $4.0 billion.”⁶²

This example is not unusual. The aforementioned objections to Turing Pharmaceuticals’ and Valeant Pharmaceuticals’ pricing policies also demonstrate how manufacturing licenses can increase the cost of existing drugs. The manufacturers of Makena claimed they expected to spend $200 million developing 17P for sale and bringing it through the approval process, and that these development costs explained the high price. By approving Makena, regulators granted exclusive manufacturing rights to KV Pharmaceuticals, thus protecting KV Pharmaceuticals (p.189) from competition. Even if having a uniform manufacturing process for drugs like Makena would promote safety (there is no evidence to suggest that 17P was unsafe), the benefit of uniformity comes at a high financial price for patients and society. But there is another price as well. If the high cost of drugs like Makena discourages some patients from using it, then more high-risk pregnancies might result in premature births. Premature infants are more likely to die in their first year of life, be severely disabled, or suffer from conditions such as autism. In this way, the financial price translates into a devastating human price as well.

Makena’s price increase was so egregious that KV Pharmaceuticals eventually lowered the price in response to criticism, and the FDA stated that it would not enforce restrictions on 17P manufacturing by compounding pharmacies. The agencies’ reversal demonstrated that manufacturing restrictions were unnecessary after all and that compounding pharmacies could effectively provide treatment. Similar cases continued to provoke public outcry for the next ten years. Then Turing Pharmaceuticals CEO, Martin Shkreli, purchased the rights to manufacture Daraprim, a drug that treats parasitic infections, and increased the price more than fifty-fold overnight.⁶³ Again, the price increase was met with near universal public outcry. But as Alex Tabarrok noted at the time, Daraprim was widely available in Europe and India. If the FDA permitted foreign manufacturers to export approved drugs to the United States, then it would not have been rational to raise the price of Daraprim.⁶⁴

Rather than adopting a policy of reciprocity, the FDA decided instead to grant expedited review status to generic drug manufacturing applications, which will hopefully go some way toward reducing drug prices.⁶⁵But compared with policies like legal compounding and regulatory reciprocity, expedited approval alone is likely to fall short of the goals of affordable access and self-medication. More generally, steep increases in the cost of generic drugs illustrate that intellectual property law is not the only cause of high drug prices.⁶⁶Stories like these also show there are other regulatory burdens that make even generic drugs expensive and remedies that could expand access in addition to intellectual property reform.

(p.190) These proposals are speculative. The removal of administrative barriers to access may not effectively lower drug prices. But there are other reasons to support these proposals as well. In addition to approval requirements and prescription requirements that violate patients’ rights of self-medication, other regulations violate manufacturers’ and consumers’ rights to sell and buy pharmaceuticals across borders.

6.4 Lifesaving Innovation and Patents

The pharmaceutical industry is very profitable compared with other industries. For example, Pfizer, the world’s largest drug company, reported a 42 percent profit margin in 2013.⁶⁷ I have argued that public officials can address high drug prices in part by expanding access to drugs and reducing regulatory barriers to self-medication while still preserving many of the benefits of a competitive pricing system. Yet these proposals will not address the most significant cause of high drug prices—intellectual property law.

Governments currently enforce intellectual property laws that protect manufacturers’ rights to create the products they invented for twenty years. Most pharmaceuticals are patented.⁶⁸ For many of the years between the date a patent is filed and when a drug is approved, the drug cannot be sold, so manufacturers have only a limited period of time to profit from the drugs they develop that are eventually approved and sold to a large number of patients.

Governments enforce protections for patents to promote innovation, and there is good evidence that patents do promote innovation. For example, in Norway, researchers previously were granted patents on their own research known as “the professors’ privilege.” Then Norway changed its patent policy to be more like the patent rules of American universities, where patents were granted to institutions instead of individual researchers. Economists noted a 50 percent decline in entrepreneurship and patenting rates and patents for university researchers.⁶⁹ On the other hand, patents can also hinder basic research by preventing people from researching an idea, hindering follow-on research and more diverse applications of research into new compounds or technologies.⁷⁰ (p.191) Though researchers do suggest that patents do not meaningfully deter cumulative innovation for drugs, these results only dispute the claim that patents deter follow-on innovation, not that innovation in the drug industry is on balance optimized by the current patent system.⁷¹

Other research that is focused on the pharmaceutical industry suggests patents at least distort pharmaceutical innovation. For example, part of the success of ODA was that it used patent protections to promote more innovation for drugs that treat rare diseases.⁷² Patent protections also direct researchers to focus on developing cancer drugs that treat later stages of the disease since they have a shorter trial and approval process and hence a longer patent life.⁷³ More generally, less regulated drug classes are less innovative in part because researchers can enjoy a longer period of intellectual property protection once their drugs are on the market.

Yet arguments in favor of a patent system seem contrary to the ideals of self-medication and free exchange between patients and providers. By enforcing patents, public officials prohibit people from selling drugs to willing patients. There are four potential responses to this seeming tension between intellectual property and the ideals of self-medication:

1. 1. Public officials do not have the authority to enforce pharmaceutical patents, and anyone should be permitted to manufacture and sell any drug.
2. 2. Public officials should enforce pharmaceutical patents in ways that promote innovation on balance.
3. 3. Public officials should enforce pharmaceutical patents in ways that promote widespread access to drugs.
4. 4. Public officials should enforce pharmaceutical patents in ways that respect the intellectual property rights of researchers and manufacturers.

The first solution acknowledges that there is a genuine tension between patents and pharmaceutical freedom and resolves the tension on the side of self-medication. This solution would entail a radical revision of our current approach to intellectual property more generally. And as I will argue, the best case for intellectual property enforcement is patents for pharmaceuticals, in light of the enormous benefits associated with innovation. If public officials rethink their (p.192) role in enforcing intellectual property law, drug patents should be the last form of intellectual property that merits reconsideration.

The second solution acknowledges that there is a real tension between intellectual property and the ideals of self-medication but holds that existing policies are justified because they promote innovation. I am sympathetic to this solution. The third solution also acknowledges a real tension between intellectual property and self-medication but proposes reforms that would better balance the need for innovation against patients’ interests in purchasing generic medicines through prizes and patent buyouts. These second two options are broadly consequentialist. They rely on the assumption that public officials are justified in enforcing some intellectual property requirements but also that manufacturers do not have particularly weighty rights to prevent other people from manufacturing products that they invented.

The fourth solution resolves the tension in favor of intellectual property rights. On this view, manufacturers have weighty rights to prevent people from manufacturing products they invented. It is unclear, however, that this system can be justified because unlike people’s natural rights, intellectual property rights may quite plausibly be limited.

First consider whether public officials are entitled to enforce intellectual property law in the first place. Unlike other forms of property, it is unclear whether people have pre-political rights to intellectual property.⁷⁴ It would clearly be immoral to assault, deceive, or murder someone in the absence of laws against assault, fraud, and murder. It would also be wrong, quite plausibly, to steal someone’s physical possessions or to prevent him from carrying out financial contracts with others. But unlike the right to control one’s body or labor, using another person’s idea need not involve interference with anyone at all. For example, many scientific discoveries are roughly simultaneous, so a producer may develop a patented therapy without ever interacting with the people who initially patented the therapy, but patents will prevent him from selling it to consumers.⁷⁵

If people do not have pre-political intellectual property rights, then either public officials may not permissibly interfere with the pre-political rights people do to enforce patents or public officials may use whatever legitimate power they have to interfere with people’s choices to enforce patents that promote innovation or access. Some philosophers argue that public officials may not prevent people from exercising their property rights, freedom of expression, or economic freedom to protect an intellectual monopoly even if having patents do (p.193) promote well-being on balance.⁷⁶ Michele Boldrin and David Levine explicitly extend this argument to the pharmaceutical industry and make the economic case against the current system of patents.⁷⁷ Consider an analogy to illustrate the moral argument for this point. If a wealthy person injures his victim by dropping a large gold brick on his arm in order to give him the brick as a gift, the wealthy person has violated his victim’s rights, even if he benefited the victim on balance.⁷⁸So even if the victim accepts the benefits of the gold brick, the wealthy person still acted wrongly and would owe compensation and apology to his victim. Similarly, if public officials violate people’s rights to manufacture drugs and sell them to customers and consumers’ rights to purchase and use drugs from any manufacturers, and these are pre-political rights, then even if such a system of rights violations benefited people on balance, it would not be justified and public officials would owe people compensation for the rights violation that a patent system entails.

If we accept the claim that public officials do not have the authority to violate people’s rights to benefit people on balance—for example, by promoting pharmaceutical innovation—then public officials either must refrain from enforcing patents or compensate those whom they harm. Officials could refrain from enforcing patents by adopting a system of open licensing, where anyone can manufacture a patented drug. Open licensing may be particularly beneficial in developing countries where the patent system effectively prevents large numbers of people from using therapeutics.⁷⁹ And patents do not always drive innovation in fast-paced, technical fields, nor is it clear that they promote productivity on balance.⁸⁰ Patent holders can gain a competitive advantage by impeding others’ innovation rather than developing innovative technologies themselves.⁸¹

On the other hand, officials’ refusal to enforce patents for drugs would prevent people from developing innovative, lifesaving therapies and very likely cost (p.194) lives on balance. Whatever health gains open licensing could bring would be small compared with the losses of abandoning a system of patents. Recall Frank Lichtenberg’s research that found drugs substantially increased life expectancy and lifetime income in the late twentieth in the United States.⁸² Lichtenberg also finds that pharmaceutical innovation is a primary cause of increased longevity in the twenty-first century, accounting for almost three-fourths of the gains in life expectancy from 2000 to 2009.⁸³ And elsewhere, Lichtenberg finds, predictably, that factors that decrease expected drug prices also decrease innovation, such that “a 10 percent decline in drug prices would … be likely to cause at least a 5–6 percent decline in pharmaceutical innovation.”⁸⁴ Patents maintain high drug prices, and, in so doing, they also preserve incentives to create innovative, lifesaving therapies that substantially promote longevity and income.

For this reason, one may acknowledge the tension between rights of self-medication and free exchange on one hand, and patents on the other, while accepting that the rights violation entailed by intellectual property protections are justified. If so, then public officials may have most moral reason to enforce some intellectual property protections. This is not to say, however, that the existing system of patents and prizes is optimal or that officials should not also consider other ways of promoting innovation, such as prizes.

6.5 Patents and Prizes

If public officials enforce patents for pharmaceuticals, a patent system may aim either to promote long-term innovation and well-being on balance or to ensure greater access to beneficial therapeutics for the worst off. If the goal of a patent system is to promote medical innovation and overall health, there is no principled reason to believe that the current twenty-year system is optimal. The benefits of the current patent system are clear—manufacturers have huge incentives to create new drugs because if they are approved, the manufacturer can sell it without competing with other manufacturers, and the government will protect their monopoly by enforcing their intellectual property rights.⁸⁵ Furthermore, (p.195)intellectual property protections empower manufacturers to profit from their products, and manufacturers are more likely to develop drugs that are likely to be profitable.⁸⁶

But as I suggested above, patents can also prevent innovation to the extent that manufacturers divert resources from development to marketing to maximize the value of a licensed product. The costs of litigation and patent enforcement, which are associated with preventing generic manufacturers from selling drugs at lower prices, may also divert resources from further drug development.⁸⁷ More worryingly, like the approval process, the patent system also deters small firms and researchers from developing innovative therapies because the legal costs of maintaining a patent can be prohibitively expensive, and new entrants to the pharmaceutical markets face costly legal challenges to their own patents as well.⁸⁸Pharmaceutical “patent trolls” may profit from the system of patents rather than developing new drugs, thereby contributing to the price of drugs without expanding the range of options for consumers.⁸⁹ These considerations suggest that the current patent system likely does not promote innovation as well as a system of intellectual property protections could.⁹⁰

Against this backdrop, some researchers wonder whether patents really do promote innovation relative to alternative systems of intellectual property protection.⁹¹ There are few circumstances where public officials intervening in a market to deter competition is the recipe for innovation. Proponents of the current system say that drugs are different because they are easy to manufacture, but the fixed costs of development are high. However, this consideration is an (p.196) argument for lowering the fixed cost of development, such as costs associated with the approval process, not an argument for further deterring competition within pharmaceutical markets.⁹² Public officials and manufacturers are not required to show that a patent is necessary for innovative research to occur. We might imagine a system that requires evidence of innovation for a patent to be approved, but the existing system only requires novelty. The consequence of the current system is a proliferation of patents that do not necessarily reflect greater medical innovation.⁹³

Another critique of innovation-based justifications for pharmaceutical patents is that even if patents promote innovation, the law is not crafted in a way that benefits people on balance. For example, despite efforts such as the ODA to focus attention on rare diseases, the current system nevertheless creates incentives to develop drugs that will treat high-income people or large groups of people. So researchers and manufacturers are unlikely to develop therapies that treat people who are unable to pay for medicine in the present regulatory climate.⁹⁴

And currently, patent law is not crafted in a way that benefits those who have the most to gain from access to drugs. For example, trade agreements such as the General Agreement on Tariffs and Trade and proposals such as the Trans-Pacific Partnership aim to extend many of the intellectual property rules enforced in the United States to developing countries.⁹⁵ And while there is some evidence that these international agreements may be necessary to encourage manufacturers to develop drugs for a global marketplace, it can also be counterproductive insofar as navigating cumbersome legal requirements discourages drug development.⁹⁶ On the other hand, it is not clear that international patent agreements made the global poor worse off by making drugs more expensive. Evidence from (p.197) India suggests that prices remained low despite patents.⁹⁷ Another analysis suggests that Indian patients were not made worse off by new patent laws, because pharmaceuticals were generally unaffordable even in the absence of a patent system.⁹⁸

Alternatively, a prize model may benefit patients more than a patent system in some contexts. One prize model consists of awarding large sums of money to those who create new treatments for pressing medical problems. The treatments are then sold and priced by public officials. For example, Thomas Pogge and Aidan Hollis propose a Health Impact Fund to finance drug innovation for rare diseases that primarily affect low-income populations.⁹⁹ The Health Impact Fund is designed to encourage development for neglected diseases by providing patent holders with upfront rewards in exchange for open licensing of their new patents. Essentially, it enables manufacturers to trade their patent protections for up to ten years of annual rewards based on whether their drug effectively treats neglected diseases for needy populations.

One benefit of a prize model like the Health Impact Fund is that it can address more urgent needs, and once the initial innovators are paid, it allows people to access drugs in ways that are insulated from market forces that could make beneficial therapies unaffordable for poor populations. A drawback of the prize model is it relies on a predetermined specification of the value of a new therapy; whereas market-based pricing mechanisms may better reflect how people value having additional access to new drugs. Another drawback is that in order to promote innovation, drug manufacturers must trust that prizes for innovation commensurate with the lifesaving effects of a new drug will be available years in the future. In light of these concerns, Allen Buchanan, Tony Cole, and Robert Keohane propose a Global Institute for Justice in Innovation, which would be established by multilateral treaties and granted legal authority, as a more credible institutional mechanism for encouraging innovation in the treatment of neglected diseases.¹⁰⁰

(p.198) Other solutions are available as well. Some propose using advanced market commitments to incentivize drug development by guaranteeing manufacturers that they will have access to a market if they develop drugs for it.¹⁰¹ Officials may also address affordability if they subsidize affordable access to pharmaceuticals directly without changing patent law and also subsidized translational and basic research for drugs.¹⁰² James Wilson proposes that public officials should refuse to pay for drugs that are patented because money spent on paying for drugs that are protected by a monopoly could be better spent assisting patients in need, and future patients can still benefit from drugs when they are available without a patent.¹⁰³ Nicole Hassoun suggests a rating system that evaluates companies’ effects on poor populations in order to encourage them to extend drug access to the world’s worst off.¹⁰⁴

Patent buyouts may also address high drug prices. If patent holders could choose whether to sell their patents to governments, then a patent buyout system could preserve existing incentives to innovate while enabling public officials to expand access to lifesaving medicines sooner than a patent would allow. Michael Kremer argues that officials could use auctions to determine market prices for patents.¹⁰⁵ Kremer notes that buyouts are especially desirable in the pharmaceutical buyouts because patents substantially contribute to the high price of drugs relative to other industries where manufacturing is more expensive and also because pharmaceuticals have a high social value.

For any of these proposals, including the patent system, considerations of moral risk and the relative moral wrongness of causing versus allowing harm should remain at the forefront of debates about pharmaceutical innovation. Intellectual property systems require public officials to violate producers’ and consumers’ rights to make and purchase potentially therapeutic drugs in order (p.199) to promote innovation. These rights violations are difficult to justify, so there should be a presumption against any policy that interferes with patients and consumers to produce better health effects on balance. For this reason, the enforcement of any intellectual property system is morally risky, and the moral risks are compounded by the enormous effects that the global system of intellectual property rules have on all patients, including economically disadvantaged people in developing countries. The stakes are so high that public officials should be extremely reluctant to interfere with producers of generic drugs in developing countries in order to protect the intellectual property claims of producers who refuse to sell drugs in those markets at prices that would enable people to use their products.

To the extent that policies that interfere with producers’ and consumers’ choices to promote innovation are justified, it would be by an appeal to the enormous good that they produce for all people. But if public officials persist in upholding an intellectual property system, they must compensate the producers and consumers whose rights are violated by intellectual monopolies. Producers can be compensated by having access to patent protections within the same system of intellectual monopoly that prevents them from producing patented drugs. However, officials should also compensate consumers for the harms of the patent system, even if consumers and patients benefit on balance. For example, one way public officials could compensate consumers for the ways that the patent system violates their rights to purchase and use drugs would be by providing subsidies for using expensive patented drugs, thereby offsetting some of the harms of a system of intellectual monopoly. Depending on whether enforcing a system of intellectual property genuinely promotes innovation, access, and well-being, public officials may judge that, all things considered, they ought to violate people’s rights by enforcing a system of intellectual property and compensate people rather than refraining from enforcing patents altogether.

If policies that interfere with patients and manufacturers rights for the sake of the greater good are justified in theory, it is still clear that the existing system of pharmaceutical patents promotes the goals of innovation and expanded access as well as alternative systems might. That said, I’m unsure about the best solution in light of the available evidence. Whatever the solution to problems of affordability and innovation though, it should be justified on the grounds that it works, not on the grounds that industry professionals support it or that it has been the status quo policy for so long. When lives are at stake, public officials should be open to revisionary solutions. These solutions include a non-prohibitive approval system, fewer burdensome regulations, and rights of self-medication, which would reduce public officials’ ability to restrict access to lifesaving therapeutics. And for the same reasons, public officials should also rethink intellectual property laws that empower manufacturers to use the legal system to restrict effective access to lifesaving therapeutics. Though high drug (p.200) prices do not violate patients’ rights in the way that approval and prescription requirements do, policies that prevent manufacturers from selling generic drugs to willing consumers can violate rights if existing intellectual property regulations for drugs are unjust.

At this point one may wonder if I am holding the pharmaceutical industry to double standards when it comes to intellectual property while rejecting double standards for the industry elsewhere. However, the foregoing proposals for patent reform proceed from the assumption that neither manufacturers nor consumers have pre-political rights to publically enforced and regulated intellectual property protections. Unlike other circumstances, where people’s bodily rights and freedom of contract should in principle extend to their rights of self-medication and freedom to sell drugs, so far, I have assumed that public officials would not violate more general rights by enforcing a patent system or by financing a prize model for drugs. Furthermore, it is not as if the current system of intellectual property holds the drug industry to the same standards as other industries since the norms of patent enforcement tends to vary between industries. For these reasons, if people do not have pre-political claims to intellectual property enforcement, different standards for different industries would not be objectionable as long as treating different industries in different ways promoted greater innovation and/or access for consumers.

6.6 Patents and the Rights of Producers

So far I have assumed that manufacturers do not have pre-political rights to prevent other people from copying their inventions. But some philosophers argue producers do have pre-political claims to receive compensation for their investment in the initial idea and that public officials ought to respect their claims by upholding intellectual property rules. There are three arguments in behalf of the claim that pharmaceutical manufacturers deserve compensation for innovation. First, personality theorists argue that intellectual property protections are justified as a way of respecting each person’s entitlement to control his own life and to develop long-term projects without interference. Second, Lockeans argue that producers have a claim to control their ideas and to profit from their ideas because they mixed their labor with the ideas. And Ian Maitland argues that even if there are not pre-political property rights, manufacturers do have pre-political rights against deception, and changing patent laws would constitute a form of deception by public officials against manufacturers.

Personality-based justifications for intellectual property protections are not well suited to justify property protections for pharmaceuticals. According to this account, intellectual property protections enable individuals to develop (p.201) long-term plans and creative projects, and to protect author’s reputations and freedom of expression.¹⁰⁶ For example, Seana Shiffrin describes the possibility that an artist’s creation could reflect poorly on the artist if other people reproduce it in an unauthorized way.¹⁰⁷ Though as Shiffrin notes, concerns about a creators’ interest in expression could be addressed by requiring that unauthorized works be labeled as such. And Shiffrin also notes that personality theorists also must explain why a creator’s interest in self-expression is so strong that it outweighs others’ interest in use. In any case, even if concerns about freedom of expression and personal development could justify some forms of intellectual property protection, they are unlikely to justify unrestricted pharmaceutical patents for decades. And even if creators were entitled to maintain the rights to control their creations, they would also be entitled to alienate those rights. So individual researchers who would have a personality-based claim on intellectual property protection could also be required to alienate their claim to control their intellectual property as a condition of working for a pharmaceutical company or receiving financial support for their research.

A more promising justification for patents is the Lockean approach. On this view, each creator is entitled to receive some of the value of his or her creation.¹⁰⁸ The thought is that just as people’s rights over physical creations can be justified when people use their labor to improve on what is available in the state of nature (or in the absence of a property system), so too may people have rights to some of the value that they produce through intellectual labor. For example, Lockeans argue that people who mix their intellectual labor with the world to create value have a claim on it or that property rights are an extension of the rights that people have to their own labor.¹⁰⁹ Critics reply that unlike physical property, intellectual property is non-rivalrous; each person can effectively use and benefit from the use of an idea without hindering another’s ability to use it, so insofar as property rights are justified on the grounds that they promote effective use of the commons, such a justification cannot support intellectual property regulations.¹¹⁰

(p.202) Bryan Cwik develops an alternative Lockean account of intellectual property rights that captures some of the appeal of the personality theory and does not rely on the assumption that creators are entitled to the value that they produce relative to a baseline state of nature.¹¹¹ Cwik’s argument goes like this. Each creator uses her intentional capacities as productive capacities to produce goods. In this way, creations are the expressions of a creator’s decisions to use her time and resources and skills to achieve a particular goal. On his account, all property systems are grounded in the value of giving people the ability to control and exercise their productive capacities to create something of value. Public officials should require that creators give their consent for the use of their labor, and property rights are a way of protecting a creator’s ability to set the terms of their labor. The primary way to do this is to protect people’s ability to trade, which enables each person to use her productive capacities to meet other goals beyond her own abilities. So too, Cwik concludes, intellectual property rights give people greater control over the use of their labor by enabling them to control their (on his account, inalienable) rights their lives through the use of their productive capacities.

If intellectual property rights for pharmaceuticals could be justified, the autonomy-oriented arguments that Cwik develops are the most promising. Pharmaceutical companies employ many people and each one uses her capacities to manage her time and skills and communal resources to create drugs. So insofar as people are entitled to control their lives by making long-term plans that enable them to invest time, skills, and resources for an extended period of time (e.g., works in progress), perhaps a similar justification could support some intellectual property protections for manufacturers as well. But even if we granted Cwik’s argument in favor of intellectual property rights for creators who use their productive capacities to create something of value, it is a separate question whether existing intellectual property protections could be supported by Cwik’s argument. As he notes, his account is

[a]‌ highly idealized picture [that] ignores all the ugly parts involved. A perhaps glaringly obvious rejoinder to all of this is that the picture … is so far from the reality of [intellectual property] as to be farcical. In the real world, IP is the special province of giant, multinational media companies and pharmaceutical corporations. IP institutions primarily function to protect their interests not the interests of small inventors and artists.¹¹²

(p.203) And while Cwik is then quick to point out that small firms and individuals do hold a great deal of intellectual property rights, insofar as his argument in behalf of intellectual property rights is grounded in the interests of individuals, it is less clear that these considerations could justify strong protections for corporations or how those protections should be enforced even if it could. Again, even if intellectual property rights were justified in principle, current intellectual property laws are unlikely to reflect whatever pre-political property claims people would have according to Cwik’s argument.

Finally, Ian Maitland briefly presents an argument that even if people do not have pre-political intellectual property rights, manufacturers do have intellectual property rights because public officials would break their promises to pharmaceutical manufacturers if they changed existing patent laws in an effort to promote greater innovation or expanded access.¹¹³ Two responses are in order to this justification for intellectual property. First, public officials could introduce intellectual property reforms for new patents that did not break their promises to existing patent holders, so Maitland’s argument would not preclude patent reform. Second, Maitland’s justification assumes that public officials are entitled to enforce existing patents. But if public officials are not entitled to enforce existing intellectual property laws, then by issuing patents, they were making promises they had no entitlement to carry out. In this way, public officials may be required to break their promises to manufacturers, which would violate the letter of the law to promote a more just legal system on balance.¹¹⁴

6.7 Conclusion

Drug companies are not especially obligated to provide affordable drugs to people in need. On the other hand, they are also not especially entitled to public protections of monopolies that enable them to collect enormous profits by charging high prices for lifesaving drugs in some cases. Insofar as public officials aim to address high drug prices, they should first consider the removal of regulatory barriers, such as approval requirements and manufacturing restrictions, rather than price controls and prohibition. Patent reform is a potentially more promising but also more risky way of addressing high drug prices. If officials are unwilling to risk the benefits that pharmaceutical patents have enabled, they may also (p.204) consider providing prizes for the development of lifesaving drugs that serve low-income populations. In any case, officials should proceed with great caution when enforcing or reforming intellectual property provisions for new drugs. In light of the moral risk associated with patent reform and the harms of existing regulations, officials may therefore reasonably prioritize policies that address high drug prices while also expanding patient’s rights of self-medication.