Monday, August 31, 2015

Medicine as Information--some pretty wonderful policy implications

Many medications should be viewed as information in pill form.  One great example is Sofosbuvir, about which several things are true:
  1. It cures hepatitis C  pretty darn reliably
  2. The company that developed it charges something like $100,000 for a treatment regimen.
  3. All but about $300 of that cost goes to cover Research and Development costs, and profit for the company.
The important thing to see here is that the cost of curing one more person of Hep C is something like $300, but the cost to develop the drug was quite high, so if we don't let drug companies charge lots of money, nobody's going to develop a drug like this in the first place.  Unfortunately, at $100,000 per cure, a lot of people are going to go un-cured.

Fortunately, there is a solution here that literally makes everybody happy.  The government (the folks that pay for a TON of Hep C treatment already) offers the patent holder a big chunk of cash for the drug patent, and then immediately places it in the public domain. Here are the advantages:
  1. The drug company is happy, because they get to take their profit for the drug right away.
  2. Americans with Hepatitis are happy, because they no longer have Hepatitis.
  3. Overall cost of healthcare in the country goes down, because fewer people have liver cancer and cirrhosis.   
This is literally Econ 101,  use of a two-part tariff to eliminate deadweight loss from a monopoly. 

notes on the actual costs associated:

Total value of Gilead (owner of Sofosbuvir patents) ~150 Billion, as of this writing
They have a pretty big portfolio of drugs, so lets guess that the value of the sofosbuvir patents is about half their value as a company, or about 75 Billion. 

Number of people with Hep C in the USA is roughly 2.7 Million 

If the government paid 75 Billion to buy the patent and make it public domain, the cost works out to about $28,000 per cure. 

Seriously, this is a no-brainer.  We can more or less cure Hep C in America for $28,000 per cure, which doesn't even count the benefit of basically eliminating future infections.  The only catch is that it requires big government intervention.


  1. YES. everything about this post.

  2. Like ur analysis but it is not going to happen unfortunately. This drug may be available lot cheaper in Canada or Mexico or in Europe. Need to check this out.