The Information Revolution Reaches Pharmaceuticals: Balancing Innovation Incentives, Cost, and Access in the Post-Genomics Era

Abstract:     
In the context of prescription drugs, the inevitable tension between stimulating innovation and preserving access creates serious equity concerns that are simply not present in other contexts. This paper identifies some promising mechanisms for relieving this tension. One such mechanism, often ignored by intellectual property scholars, is the simple, and emphatically low-technology, remedy of insurance. Because of the manner in which the health care industry is structured, providing access to insurance is a low-cost mechanism for reducing deadweight loss. At the other end of technology spectrum, there is the growing science of genomics. Although genomics should increase the importance of prescription drugs in health care, and thus might threaten to exacerbate equity concerns, it may also provide ways to produce these drugs more efficiently than before. To the extent that the biotechnology and pharmaceutical industries can internalize fully the efficiency benefits of digital technology, reforms that align the structure of intellectual property protection for pharmaceuticals more closely with that of other innovation might be considered. Equally important will be regulation that imposes cost-effectiveness requirements on pharmaceutical innovation. If innovations in genomics can be channeled in a cost-effective direction, we may yet see a time where Moore's law provides not simply faster and cheaper computers but also a more equitable health care system.

Keywords: cost-effectiveness, genomics, patents, pharmaceuticals

JEL Classifications: D4, I1, K3

Accepted Paper Series