Harmful medicine monopolies

In all industries, monopolies and oligopolies limit choice and extract economic rent. In medicine, they do so when consumers are most vulnerable: often frightened, unable to forego the product altogether, and dependent on experts in making decisions.

In August, the drug maker Hikma increased the US price of one drug — a liquid form of a diarrhoea treatment — by 430%. The drug is decades old and has no patent protection, yet barriers to competition remain. A new manufacturer would need to win regulatory approval and secure production facilities, and receive only a fraction of the monopoly price.

In recent years, several companies with effective monopolies on nonpatented products have jacked up prices. Turing raised the price of a drug for cancer patients 55-fold. Mylan pumped up the price of EpiPen, for bee-sting allergies, by 500% over six years. Valeant made price gouging a core strategy.

In general, competition in nonpatented drugs works very well. It is in products with high entry costs and relatively small target markets that gouging flourishes. Regulations make the problem worse: if distributors could import drugs when domestic prices spike, the monopolies could be broken. But they cannot.

The drug industry argues that if action were taken to lower US drug prices the incentive to innovate would be diluted. However, outright price controls — or making the government the sole drug buyer — would hurt innovation. Much could be done to stiffen competition while maintaining rich rewards for real innovation.

Regulations that stifle competition are not only the result of regulatory capture. Americans demand paid access to whatever treatment they or their doctor prefer. Competition can only thrive when those who ultimately pay can decide which products are interchangeable and negotiate with manufacturers on that basis. The law should allow that to happen. London, August 24.