Our Patent System Incentivizes Drug Companies To Pay Doctors Kickbacks

from the the-system-is-broken dept

You may have seen the news recently that the US government has kicked off a lawsuit against Novartis, the pharmaceutical giant, for paying kickbacks to doctors to get them to prescribe certain drugs.

Authorities said the Basel-based company for a decade lavished healthy speaking fees and “opulent” meals, including a nearly $10,000 dinner for three at the Japanese restaurant, Nobu, to induce doctors to prescribe its drugs.

They said this led to the Medicare and Medicaid programs paying millions of dollars in reimbursements based on kickback-tainted claims for medication such as hypertension drugs Lotrel and Valturna and the diabetes drug Starlix.

The charges are detailed in a whistleblower lawsuit first filed against Novartis Pharmaceuticals Corp by a former sales representative in January 2011 and which the U.S. government has now joined.

Of course, this is hardly a surprise to anyone who has followed the medical profession at all over the past few decades. The stories of “favors” and benefits for doctors from mis-named pharmaceutical “sales reps” (often very young, just out of school, incredibly attractive, but with little knowledge of the actual field), whose jobs often seemed more akin to cruise director and entertainer rather than knowledgeable, helpful sales person, are everywhere. That it’s finally taken this long for the government to think that maybe, just maybe, this might distort the nature of our healthcare system, and lead to wasteful prescriptions, including prescriptions that cost significant taxpayer money is somewhat incredible.

What’s worse, as economist Dean Baker points out, is that anyone at all is surprised that this happens. After all, when our own government policy is to hand those drugmakers incredibly powerful monopolies on life-saving pharmaceuticals, we’ve actually created the incentives ourselves for such activity to take place:

When the government grants drug companies patent monopolies that allow them to sell drugs at hundreds or even thousands of times the free market price it gives them an enormous incentive to do things like pay off doctors to prescribe drugs. Everyone who has ever taken an intro economics class understands that fact.

Unfortunately our leading economists do not seem aware of how protectionism in the prescription drug industry leads to corruption that can both raise costs and jeopardize the public’s health.

Perhaps that’s why it took the US government so long to even attempt to crack down on such activities. It created the environment in which such activities thrive and are encouraged.

If we want to stop such practices, perhaps, rather than just suing the pharmaceutical companies, we start to look at the ridiculous incentive structure we’ve set up, whereby drug companies take on very little of the actual risk (most drugs today are actually first created by universities using publicly funded money), but are given incredibly powerful monopolies, such that the prices are considered unbelievable.

True competition in the market would — as always — lead to both more actual innovation, lower prices, less corruption and (most importantly) better health and public safety.

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Comments on “Our Patent System Incentivizes Drug Companies To Pay Doctors Kickbacks”

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out_of_the_blue says:

True competition would require breaking doctor's monopoly.

Do you advocate that, Mike? — Rhetorical. Of course you don’t. You’re of the class that benefits from monopolies. You’d scream that without the current monopoly on only highly trained (and orthodox) people practicing medicine we’d be at the mercy of quacks — as if we aren’t now. Because of the monopoly they’re the most expensive quacks that they dare to be, and they’re experts at gouging insurance plans without conscience. As cures don’t gain them much money, they’ll monetize you by keeping you sick and in need of constant care, including needless drugs.

Anonymous Coward says:

(most drugs today are actually first created by universities using publicly funded money),

examples please again Mick the Nick…

show us a list of universities developing large scale manufacturing plants for drugs, Clinical trials or commercial drugs, or FDA approval procedures undertaken by universities ?

Nimas says:

Re: Re: Drugs created in Universities

Argh, most of the comment disappeared (my fault)

Anyway, I was interested in if you have any data pertaining to the creation of new drugs in Universities, through Research and Development by large companies or any other method.

Drugs were the one area that I actually thought patents functioned for their proper purpose (though perhaps the duration is too long/plus evergreening is horrible) but if you have any data that disproves it, could you please share it (or point to a study of it).

If possible, opinions should always be formed on facts and data, and I’m quite interested if there is any data that disproves my gut instinct in this case (as instinct is often wrong).

Mike Masnick (profile) says:

Re: Re: Re: Drugs created in Universities

Anyway, I was interested in if you have any data pertaining to the creation of new drugs in Universities, through Research and Development by large companies or any other method.

There’s a good study in the New England Journal of Medicine here:


Also, the book “The $800 Million Pill” has a lot of data on this front: http://books.google.com/books/about/The_800_Million_Pill.html?id=SKr5BDAmiMoC

Nimas says:

Re: Re: Re:2 Drugs created in Universities

Thanks for that. Haven’t read the book yet, but the article is interesting.

Although from my basic reading, it’s not that most new drugs come from public spent Universities, it’s just that they have a disproportionately large impact compared to company based R&D.

Anyway, thank you for the data, will read up over the weekend.

Akari Mizunashi (profile) says:

Re: Re:

You’re misreading the statement. Most drugs are based on findings by universities, who have the free resources to experiment with interactions.

This information, whether it be by agreement or by sale, is then shared with the larger pharmaceutical companies, who can then package and patent the final product and sell at an extreme markup.

Two of the largest, in the midwest, are Purdue University and Indiana University, the latter having its own school here in central Indiana.

It’s also the home of Eli Lilly, and if you think for one second the government of this state isn’t going to protect their interests by backing any patent reform for them, then please move here and see it for yourself.

Or, you could just look at the historic votes Indiana senators have put in for bills that support big pharma.

This is a crisis, and Americans have been paying for it in more ways than one.

Opoids are now an epidemic. This couldn’t have been possible without the kickback system, now responsible for doctors to prescribe pain killers for a knee scrape.

Anonymous Coward says:

Indeed it is and I know first hand.

I’m a junkie and the price of suboxone was going to cost me $900 a month. I had to pick from a long drive to the methadone clinic “$250 a month” or pay out the ass for suboxone.

I guess it really does not matter now since I only go once a month. Still it was very hard to keep up with 4 hour round trips six days a week for a long ass time..

The only that annoys me is they keep trying to tell me I’m not a junkie anymore since I’m on methadone lol. It’s like switching from Jim Beam to Coors and saying you’re not an alcoholic anymore.

Anonymous Coward says:

The medical system is broken. Hospitals charge $10 per band-aid. Doctors make money by keeping people sick, rather than keeping people healthy. Money is extorted from people too sick to fight back.

I’d love nothing more than to see the medical system set right, but unfortunately, like the previous attempt at net neutrality, any attempts at fixing the current problems would be subverted by the politicians who collect “campaign contributions” from the slimeballs currently enjoying massive profits from said problems.

Anonymous Coward says:

Seriously, Twitter is now a reliable source of impeachable opinions? I agree that sales reps are constantly streaming goodies to doctors in the hope of influencing what will be written on a prescription. To state, however, that patents are in part responsible is, in a word, absurd. Drugs under patent compete with other drugs under patent. The fact they are patented is irrelevant since the goal is to sell your “patented” drug to the exclusion of a competing “patented” drug. The identical practice goes on even when patents are no longer a factor. Generic manufacturers engage in the identical activity, with the only real difference being that their “shredded wheat” is better than a competitor’s identical “shredded wheat”. In all cases it is about marketing to secure a competitive advantage. If anything is to be vilified it should be the marketing departments of all pharmaceutical manufacturers, be they holders of patents or not.

Mike Masnick (profile) says:

Re: Re:

Seriously, Twitter is now a reliable source of impeachable opinions?

You do realize that HUMAN BEINGS write messages, not “Twitter.” I didn’t rely on “Twitter” as the source of opinions, but rather the fact that Dean Baker, one of the most respected economists out there made a statement and pointed to a blog post from the Center for Economic and Policy Research.

I agree that sales reps are constantly streaming goodies to doctors in the hope of influencing what will be written on a prescription. To state, however, that patents are in part responsible is, in a word, absurd.

No, actually, it’s not. If you’ve ever spent any time studying what drives drug marketing, you’d realize that patents are a HUGE part of it. Why do you think pharma companies are going nuts these days with “evergreening” and complaining about how their patents are running out and they’re all going to go out of business?

The identical practice goes on even when patents are no longer a factor.

Ha! No, not identical. Yes, generics market their drugs as well, but it’s not nearly as the same level. You really don’t know what you’re talking about if you think they’re the same.

Anonymous Coward says:

Re: Re: Re:

FYI, my comments are informed by “up close and personal” work with major national and international pharmaceutical companies, those who create products for which they may seek patents and those whose businesses are directed to generics. You appear to assume that my familiarity with the pharmaceutical industry is modest. Most certainly it is not.

Of course, I well realize there is nothing I can say that would give you pause for concerns that perhaps your assumptions many not be accurate. Even so, I stand by what I say above because I know it to reflect the marketing of pharmaceuticals. Look where you want to express indignation, but I personally suggest that you home in on marketing departments.

Anonymous Coward says:

Re: Re: Re: Re:

Since you have such intimate knowledge of both patent and generic companies, please provide the following information.

Profit margin on patented drugs (average)
% of profit margin devoted to marketing

Profit margin on generic drugs (average)
% of profit margin devoted to marketing

Now which of the above can afford to spend $10,000 on dinner for 3 doctors to ‘induce’ them to prescribe their drug?

Now explain again how patents have no impact on marketing activities…

Don Siedenburg says:

Boniva & Aricept!

My 89 year old wife, with Alzheimer’s and confined to a nursing home, was prescribed Boniva and Aricept in the face
of a Living Will that requested no extrodinary treatment other than pain medication. When I questioned these prescriptions,
I was told that if I didn’t agree with their procedures, I had 30 days to remove her from the facility. Since I had no where to take her, I was at their mercy. Since I checked her medication and other charges to Medicare closely, the Physical
Therapy Department by way of her doctor were charging for treatment that were also unnecessary. Do you suppose there could have been pharma kick backs to the doctor?

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