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Jail Time for Martin Shkreli Won't Fix Drug Prices. Globalization Will

March 15, 2018 in Economics

By David A. Hyman, Charles Silver

David A. Hyman and Charles Silver

Before sentencing notorious pharmaceutical executive Martin
Shkreli to seven years in prison, the federal judge presiding over
his criminal trial ordered him to turn over “Once Upon a Time in
Shaolin,” the Wu-Tang Clan album of which only a single copy
exists. Shkreli paid $2 million for the album, an extravagance he
could afford after making a fortune by jacking up the prices of
prescription medications.

Seizing the album and other assets worth a total of $7.4 million
may seem like karma, but it will do nothing to tame drug costs.
Indeed, it is entirely legal to raise generic drug prices (which
explains why Shkreli was convicted of securities fraud, not
healthcare fraud). The problem is that government has made it far
too easy for pharma companies to gain a national monopoly on the
supply of drugs that no longer are patent-protected. Rather than
make an example of Shkreli, the solution to outrageous drug prices
is to embrace globalization.

Competition doesn’t
always bring drug prices down as much as one might hope, but it is
still the best remedy for price gouging.

Shkreli first used this supply-control tactic at a company
called Retrophin,where he raised the price of Thiola,
a drug used to treat kidney stones, from $1.50 per pill to $30. He
did it again at Turing Pharmaceuticals, where he increased the
price of Daraprim, a 62-year-old treatment for a parasitic
infection, from $13.50 a pill to $750.

Economic theory says that such behavior should attract
competitors to the market, which would keep prices in check. But in
practice, that’s not what’s going on. According to a 2016
report by the Government Accountability Office that studied 1,441
established generic drugs during 2010-15,
315 saw price hikes
of 100% or more, and some had price hikes of 500% or more.

Collusion between drug companies explains some of these price
increases. In these cases, it’s up to the U.S. antitrust
authorities to protect consumers. But leaving collusion aside,
Shkreli and his “pharma bro” ilk avoid competitors in part because
of the costly and time-consuming process of obtaining approval from
the FDA to manufacture and distribute generic drugs. If the market
is small enough, potential competitors may not think it worth the
effort.

To fix this problem, Congress should allow companies that have
been approved to sell drugs or medical devices in other developed
countries to export those same drugs to the U.S. Many first-world
countries have strong regulatory structures and are devoted to
protecting their citizens from harmful products; the FDA should
grant automatic approvals to companies that satisfy the …read more

Source: OP-EDS

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