[Ip-health] Stiglitiz et al piece on Obama pressuring India

Dean Baker Dean.Baker1 at verizon.net
Wed Feb 11 05:46:32 PST 2015


  Obama Versus Obamacare







NEW YORK – The US Patient Protection and Affordable Care Act 
President Barack Obama’s signature 2010 health-care reform, has 
succeeded in extending insurance coverage to millions of Americans who 
would not otherwise have it. And, contrary to critics’ warnings, it has 
not pushed up health-care costs; in fact, there is some hope that the 
cost curve may finally be bending downward.

But whether “Obamacare” succeeds in curbing excessively high health-care 
costs is not assured. That will depend on the Obama administration’s 
other policies, particularly in an area that might seem unrelated: the 
United States’ ongoing discussions with India over intellectual 
property. And here, Obama appears determined to undermine his own 
signature reform, owing to pressure from the powerful US pharmaceutical 

Pharmaceutical costs account for an increasingly large component of US 
health-care spending. Indeed, outlays for prescription drugs, as a share 
of GDP, have nearly tripled in just 20 years. Lowering health-care costs 
thus requires greater competition in the pharmaceutical industry – and 
that means allowing the manufacture and distribution of generic drugs. 
Instead, the Obama administration is seeking a trade deal with India 
that would weaken competition from generics, thereby making lifesaving 
drugs unaffordable for billions of people – in India and elsewhere. This 
is not an unintended consequence of an otherwise well-intentioned 
policy; it is the explicit goal of US trade policy.

Major multinational pharmaceutical companies have long been working to 
block competition from generics. But the multilateral approach, using 
the World Trade Organization, has proved less effective than they hoped, 
so now they are attempting to achieve this goal through bilateral and 
regional agreements. The latest negotiations with India – the leading 
source of generic drugs for developing countries – are a key part of 
this strategy.

In the 1970s, India abolished pharmaceutical patents, creating an 
advanced and efficient generics industry capable of providing affordable 
medicines to people throughout the developing world. That changed in 
2005, when the WTO’s Agreement on Trade-Related Aspects of Intellectual 
Property Rights 
<http://www.wto.org/english/docs_e/legal_e/27-trips_01_e.htm> (TRIPS) 
forced India to allow drug patents.

But, in the view of America’s pharmaceutical industry, TRIPS did not go 
far enough. The Indian government’s desire to enhance its trade 
relations with the US thus provides the industry an ideal opportunity to 
pick up where TRIPS left off, by compelling India to make patents easier 
to obtain and to reduce the availability of low-cost generics.

So far, the plan seems to be working. Last fall, during his visit to the 
US, Indian Prime Minister Narendra Modi agreed to establish a working 
group to reevaluate the country’s patent policy. The US participants in 
the group will be led by the Office of the US Trade Representative, 
which serves the pharmaceutical companies’ interests, rather than, say, 
the National Academy of Sciences, the National Science Foundation, or 
the National Institutes of Health.

How might India tighten its patent system? For starters, it could lower 
its standards for what is considered a “novel” product, and thus one 
that merits intellectual-property protection. As it stands, India sets 
the bar quite high, resulting in its refusal to grant patents for new 
combinations of existing drugs. India could also stop issuing compulsory 
licenses to allow other companies to produce a patent holder’s drug, in 
exchange for a fee – an arrangement permitted under TRIPS, but anathema 
to the drug industry.

India’s current policies allow drugs to be sold at a small fraction of 
the monopoly prices commanded by patent holders. For example, the 
Hepatitis-C drug Sovaldi is sold for $84,000 per treatment in the US; 
Indian manufacturers are able to sell the generic version /profitably/ 
for less than $1,000 per treatment. The generic price is still a huge 
expense for people living on a few dollars a day; but, unlike the US 
price, it is manageable for many governments and aid organizations.

This is hardly an isolated example. Low-cost generics have made it 
possible to treat tens of millions of HIV/AIDS patients in the 
developing world.

In fact, the threat of competition from Indian generics is partly 
responsible for major pharmaceutical companies’ decision to make some of 
their drugs available to the world’s poor at low prices. If the US 
compels India to tighten its patent rules substantially, so that they 
resemble US rules more closely, this outcome could be jeopardized.

Of course, if America’s strong patent regime were, as its proponents 
claim, the best way to foster innovation in the pharmaceutical industry, 
the Obama administration’s policy toward India could perhaps be 
justified. But that is not the case.

Because patents are essentially government-granted monopolies, they lead 
to the same inefficiencies and rent-seeking behavior as any other such 
market distortion. A patent that raises the price of a drug a 
hundred-fold has the same effect on the market as a 10,000% tariff. In 
such cases, drug companies gain a powerful incentive to mislead doctors 
and the public about their products’ safety and effectiveness, and even 
to promote their drugs for inappropriate uses, often using innovative 
to persuade doctors to prescribe them.

Furthermore, patent-supported research encourages secrecy, as companies 
disclose only the information needed to acquire patents. Yet openness is 
crucial for efficient scientific progress. Many economists, including 
the authors 
have suggested 
a variety of alternatives <http://www.ncbi.nlm.nih.gov/pubmed/19088104> 
to patent-supported R&D and testing that avoid these problems.

If the Obama administration succeeds in forcing India to strengthen its 
patent laws, the change would harm not only India and other developing 
countries; it would also enshrine a grossly corrupt and inefficient 
patent system in the US, in which companies increase their profits by 
driving out the competition – both at home and abroad. After all, 
generic drugs from India often provide the lowest-cost option in the US 
market once patent terms have expired.

Obama was right to push for a health-care reform that would increase the 
sector’s efficiency and accessibility. In its dealings with India, the 
Obama administration is pursuing a policy that flouts these goals, with 
consequences not just for India and the US, but for the entire world.

Dean Baker (baker at cepr.net)
Center for Economic and Policy Research 1611 Connecticut Ave., NW
Washington, DC 20009
202-293-5380 (ext 114)
202-332-5218 (H)

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