Government Policy to Counter Antibiotic-Resistant Bacteria: Should Incentives to Develop New Antibiotics Be in the Mix?

Abstract

In recent years there has been growing concern in the medical community about bacteria becoming increasingly resistant to existing ABs. Numerous recent reports authored by government agencies, international government organizations, and private advocacy groups have called for governments to do more to address the problem. Policies are being advocated to slow the growth of resistance by better controlling the spread of infection and using existing ABs more judiciously, and also to promote the development of more ABs. There is unquestionably a need for government actions to slow the growth of resistance, but beyond subsidizing basic research the case for government policies to promote the development of new antibiotics (ABs) is not straightforward. An AB developer can be expected to pursue all AB leads for which the expected discounted value of the AB’s sales exceeds the expected discounted value of development and manufacturing costs. As there are generally no notable external costs associated with AB development, an AB developer will make socially optimal AB development decisions provided the price that can be charged for a prospective AB is commensurate with AB’s social value. Hence any argument for government subsidies of AB development must identify reasons for why AB developers cannot charge prices that are commensurate with social value. The paper analyses AB price determination and the possibility that the unfettered private market will not pursue AB development projects with expected positive net social benefits. It is concluded that modest changes in U.S. government policy might be advisable. In particular, there may be some justification for extending the period of patent protection for ABs, and for reforming how Medicare reimburses hospitals for AB use. And if compelling evidence can be marshalled showing that AB use significantly reduces contagion, government-funded top-ups of AB prices might also be justified. The paper rejects the common policy prescription that AB developer profits somehow be wholly or partially “de-linked” from the number of treatments.