Paying for AIDS drugs: A reform model for prescription drugs

Abstract

By all accounts the eleventh International Conference on AIDS held in July 1996 in Vancouver, British Columbia, was far more encouraging than the previous ten. Several clinical studies showed that protease inhibitors, when combined with existing drugs, reduced the prevalence of HIV to such a degree that some now believe that we are on the verge of being able to treat AIDS as a chronic but manageable disease. Scientists, state Medicaid officials and AIDs activists are beginning to focus on the (potential) cost of these treatments. This paper offers and espouses an innovative policy option: one which lowers the price of the treatment to its marginal production cost thereby making it available to thousands more, but which maintains the motivation for research while improving overall economic efficiency. Under this policy proposal the Federal Government would purchase the patent, through eminent domain authority if necessary, and simply give it to any manufacturers wanting it; without any patenting constraints manufacturers would compete for customers on the basis of price alone and the treatment price would be brought down to its marginal production cost while the profit to the innovators would be at current levels, thereby keeping research at current levels.