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Priceless Goods: How Should Life-Saving Drugs be Priced?

Published online by Cambridge University Press:  23 January 2015

Ian Maitland
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Abstract:

This article examines the ethical issues raised by the pricing of priceless goods. Priceless goods are defined as ones that are widely held to have some special non-market value that makes them unsuited for buying and selling. One subset of priceless goods is prescription drugs—particularly life-saving and life-enhancing ones. Drug makers are under pressure to price their medicines responsibly, which means to restrain their prices (and profits). However, this article argues that it is precisely because life-saving and life-enhancing medicines are priceless that it is especially urgent to leave companies free to charge market prices for them.

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Articles
Information
Business Ethics Quarterly , Volume 12 , Issue 4 , October 2002 , pp. 451 - 480
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Copyright © Society for Business Ethics 2002

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References

Notes

1 For an exhaustive catalogue of such “blocked exchanges” see Judith Andre, “Blocked Exchanges: A Taxonomy,” Ethics (1992), 103(1): 29–47. An anonymous referee brought this article to my attention. I am grateful to that person and to three other referees for the care they took in reviewing this article. I am entirely responsible for any errors that remain.

2 In Jonathan Cohn, “Cosmetic Surgery,” The New Republic, August 17/24 (1998): 25.

3 A group of Massachusetts physicians published a “Call to Action” in the Journal of the American Medical Association, July 1, 1997.

4 Richard Titmuss, The Gift Relationship: From Human Blood to Social Policy (London: George Allen & Unwin, 1970).

5 Steven Kelman, “Cost-Benefit Analysis: An Ethical Critique,” Regulation, January-February, 1981. Some environmentalists oppose pollution taxes because clean air and water are inalienable rights, not to be bought and sold in the marketplace. “[A]ir is not a commodity … to be entrusted to the mercies of the free market …” (Susan J. Tolchin and Martin Tolchin, Dismantling America: The Rush to Deregulate [New York: Oxford University Press, 1985], 261). Robert E. Goodin claims that “material incentives destroy rather than supplement moral incentives,” Political Theory and Public Policy (Chicago: University of Chicago Press, 1982), 113.

6 Michael Walzer, Spheres of Justice: A Defense of Pluralism and Equality (New York: Basic Books, 1983).

7 “Drug makers” refers to both pharmaceutical and biotechnology companies.

8 Dr. Bernard Pécoul of Médecins sans Frontières, quoted by Ken Silverstein, “Research Money Goes to Profitable Lifestyle Drugs,” The Nation, July 19, 1999.

9 U.S. Rep. Henry Waxman (D., Calif.), quoted in Philip J. Hilts, “U.S. Study of Drug Makers Criticizes ‘Excess Profits,’” The New York Times, February 26, 1993, p. D1.

10 Neil A. Lewis with Robert Pear, “U.S. Drug Industry Fights Reputation for Price Gouging,” The New York Times, March 7, 1994, p. A1.

11 Dr. Paul Meier of Columbia University. Quoted in Elisabeth Rosenthal, “Exploring the Murky World of Drug Prices,” The New York Times, March 28, 1993, section 4, p. 3.

12 Sen. Paul Wellstone (D., Minn.), quoted in Steven Thomma, “Wellstone Launches Attack on Major Drug Makers,” St. Paul Pioneer Press, December 12, 1990.

13 Congressman Henry Waxman (D., Calif.), in Michael Waldholz and Sonja Steptoe, “Congressional Hearings Slated to Examine Big Increases in Prices of Consumer Drugs,” The Wall Street Journal, April 21, 1987, p. 1.

14 Waxman, in Irvin Molotsky, “Panel Democrats Assail Prescription Drug Prices,” The New York Times, April 22, 1987, p. D26.

15 Waxman in a speech on June 25, 1987, in “Notable and Quotable,” Wall Street Journal, July 20, 1987, section 1, p. 18.

16 Robert Pear, “Drug Industry Under Pressure from President,” The New York Times, December, 25, 1999, p. A1.

17 Over 85 percent of the biotechnology blockbusters currently in the marketplace are of U.S. origin. Meanwhile European biotechnology has had limited success, “as demonstrated by the relatively poor results of public and private basic and applied research.” Julian Le Grand et al., “European Pharmaceutical Research, Development and Innovation: Assessment of the Socio-Economic Impact of New Drugs,” March 1997. Report available at http://www.jrc.es/pages/ourrole/policy/pharma/Pharma_i.html. By 2002, no fewer than 20 of the world’s top 25 selling drugs will be marketed by U.S. companies, according to EvaluatePharma, “The World’s Top 50 Best Selling Drugs—Executive Summary,” at http://www.evaluatepharma.com/top50.htm.

18 “The Cost of Drugs: Hard to Swallow,” Economist, April 18, 1992, p. 76. (“[T]he irony is that pharmaceutical companies would be facing fewer attacks if they had been less successful at developing new drugs.”) Robert J. Barro, “Attention Consumers: Creativity Never Comes Cheap,” Business Week, October 2, 2000, p. 36. David Noonan, “The Real Drug War,” Newsweek, May 8, 2000.

19 Robert Pear, “Rise in Health Care Costs Rests Largely on Drug Prices,” The New York Times, November 14, 2000, p. A18. Between 1995 and 1999, drug expenditures in the U.S. more than doubled, from $65 billion to $125 billion. One study predicts prescription drug spending will reach $243 billion by 2008. David Noonan, “Why Drugs Cost so Much,” Newsweek, September 25, 2000.

20 David Noonan, “The Real Drug War,” Newsweek, May 8, 2000, p. 28. These estimates may be inflated. A Clinton Administration survey released in April 2000 pegged the average difference at 15 percent. Juliet Eilperin, “Medicare Patients Pay 15% More for Drugs: HHS Study Finds Growing Gap in Prescription Costs for the Insured and Others,” The Washington Post, April 10, 2000, p. A5.

21 This appears to hold true for the major drug companies but not, at last reckoning, for the biotechnology industry. “[An Office of Technology Assessment] study says that the rates of return on investments in the drug industry have been two to three percentage points higher than other industries, after adjusting for differences in risk among them.” Alex Barnum, “New Study on Drug Prices: U.S. Says Health Insurance—Not R&D—Behind High Costs,” The San Francisco Chronicle, February 25, 1993, p. D1. However, authorities are divided on the issue of the industry’s profitability. Edward Lotterman, formerly an economist at the Minneapolis Federal Reserve has written that “over the long term, most studies show that these firms’ returns on equity, assets or sales are not markedly different from those in other industries,” St. Paul Pioneer Press, September 3, 2000. As for the biotechnology industry, it has been losing money. “The biotech industry lost $5 billion [in 1999], and company executives complain that because of the uncertainties of the patent process, attracting investors is difficult,” Marilyn Werber Serafini, “The Price of Miracles,” The National Journal, March 25, 2000, p. 348.

22 Gina Kolata, “Why Drugs Cost More in U.S.: Other Governments Negotiate Prices,” The New York Times, May 24, 1991, p. D1.

23 Chris Adams, “Prescription-Drug Seizures from Abroad Surge,” The Wall Street Journal, January 11, 2000, p. B4. Adam Nagourney, “Mrs. Clinton Favors Access to Canada’s Cheaper Drugs,” The New York Times, February 9, 2000, p. B5.

24 “Drug makers have generally refused to explain how they price individual drugs, but cite high research and development costs as well as the savings new drugs offer in explaining their charges,” Elisabeth Rosenthal, “Exploring the Murky World of Drug Prices,” New York Times, March 28, 1993, section 4, p. 3.

25 Robert Pear, “First Lady Sets Aggressive Tone for Debate on Health Care Plan,” The New York Times, May 27, 1993, p. A1.

26 Sen. David Pryor in Kathleen Day, “Study: Drug Makers Broke Promise; Senate Committee Told Price Increases Outstripped Inflation Rate,” The Washington Post, February 4, 1993, p. D11.

27 Marlene Cimons, “Hurting over High Drug Costs,” The New York Times, April 11, 1991, p. A1.

28 Arthur Caplan, “Depo-Provera Price-Gouging Illustrates Industry Habit,” Saint Paul Pioneer Press, January 18, 1993.

29 Id.

30 Craig Torres and Michael Waldholz, “Battered Drug Stocks Dive: Bargain Hunters Are Leery,” The Wall Street Journal, February 17, 1993, p. C1.

31 Robert Pear, “Drug Price Issue Catching Fire in Senate,” The New York Times, April 6, 2000, p. A20. Gorton’s switch did not save his Senate seat.

32 See infra at footnote 119 for sources. The Appendix to this article gives a fuller account of the genesis of AZT.

33 Editorial, “AIDS, Drugs, Need and Greed,” The New York Times, September 29, 1989, p. A34.

34 Philip J. Hilts, “Wave of Protest Developing on Profits from AIDS Drug,” The New York Times, September 16, 1989.

35 Marilyn Chase, “Burroughs Wellcome Reaps Profits, Outrage from Its AIDS Drug,” The Wall Street Journal, September 15, 1989.

36 Economist, “The AIDS Industry: The High Cost of Living,” October 12, 1996, p. 70.

37 Marilyn Chase, “AIDS Drug Comes to a Worried Market,” The Wall Street Journal, March 23, 1987, p. 6.

38 See the Appendix to this article.

39 According to Arthur Caplan, “AIDS has revealed many messy truths about our society. Bias and bigotry against gays is alive and well in too many quarters.” “Drug Firms Want a High Ransom,” St. Paul Pioneer Press Dispatch, October 2, 1989.

40 Larry Kramer, “A Good News/Bad News AIDS Joke,” The New York Times Magazine, July 14, 1996, p. 26.

41 Caplan, “Drug Firms Want a High Ransom,” St. Paul Pioneer Press Dispatch, October 2, 1989.

42 Dr. Harry Quigley of the Wilmer Eye Institute at Johns Hopkins University, in Jeff Gerth and Sheryl Gay Stolberg, “Medicine Merchants, Cultivating Alliances: With Quiet, Unseen Ties, Drug Makers Sway Debate,” The New York Times, October 5, 2000, p. A1.

43 Nor is it clear that the lessons drawn here apply to the pricing of anti-AIDS drugs in developing countries. For the argument that drastic price discounts in African countries may be a “win-win” solution see John Carey, “What’s a Fair Price for Drugs?” Business Week, April 30, 2001, p. 105. On the other hand, bargain-basement drug prices overseas may create a backlash in developed countries. According to an analyst at Lehman Brothers, Inc., “The humanitarian effort could come back and hit [drug companies] in the eye,’ id. See also Gardiner Harris and Michael Waldholz, “AIDS Drug Plan Spurs Call to Cut Drug Prices Elsewhere,” The Wall Street Journal, May 12, 2000, p. B1, and Donald G. McNeil, Jr., “Drug Companies and Third World: A Case Study in Neglect,” The New York Times, May 21, 2000, p. A1. Drug makers are also concerned that the drugs they make available at cost in the developing world will be smuggled back into the United States where they will undercut the companies’ pricing structure.

44 See, for example, Mary T. Griffin, “AIDS Drugs and the Pharmaceutical Industry: A Need for Reform,” American Journal of Law & Medicine, 17 (1991): 369. Griffin’s article advocates price controls on anti-AIDS drugs.

45 David Noonan, “Why Drugs Cost so Much,” Newsweek, September 25, 2000, p. 22.

46 Marilyn Werber Serafini, “The Price of Miracles,” The National Journal, March 25, 2000, p. 348.

47 Serafini, “The Price of Miracles.” Since Serafini’s article appeared, of course, Celera, Inc. and NIH have published a virtually complete sequencing of the human genome.

48 Ian M. Cockburn and Rebecca M. Henderson, “Publicly Funded Science and the Productivity of the Pharmaceutical Industry,” an article prepared for the NBER Conference on Science and Public Policy, Washington, D.C., April 2000, p. 1.

49 Frank R. Lichtenberg, “Pharmaceutical Innovation, Mortality Reduction, and Economic Growth,” NBER Working Article 6569 (http://www.nber.org/articles/w6569), © 1998 by Frank R. Lichtenberg. Lichtenberg’s article is a National Bureau of Economic Research working article. I am not aware if it has been subsequently published in a refereed journal. Suggestive evidence concerning the contributions of drug innovation to medical progress is available from clinical trials and from anecdotal evidence about particular drug therapies. There is also econometric evidence that suggests that medical expenditure in general does not translate into extended survival. Jonathan Skinner and John E. Wennberg, “How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months,” in David M. Cutler (ed.), The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions (Chicago: University of Chicago Press, 2000). But I am not aware of a comparable econometric study that evaluates the average or aggregate contribution of pharmaceutical innovation to mortality reduction and economic growth.

50 Lichtenberg, “Pharmaceutical Innovation.”

51 David Noonan, “The Real Drug War,” Newsweek, May 8, 2000, p. 28.

52 Frank R. Lichtenberg, “The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality,” NBER Working Article 5418 (January 1996), © 1996 by Frank R. Lichtenberg. Lichtenberg’s research was supported by Pfizer, Inc.

53 Eugene Mick Kolassa at the University of Mississippi, quoted in John Carey, “What’s a Fair Price for Drugs?” Business Week, April 30, 2001, p. 105.

54 Cockburn and Henderson, “Publicly Funded Science and the Productivity of the Pharmaceutical Industry,” NBER Conference on Science and Public Policy, Washington, D.C., April 2000, p. 11.

55 I grant that I am lumping together very different outcomes (i.e., saving lives, relieving suffering, and improving the quality of life). A more complete analysis than I can provide here would need a calculus for assigning weights to the different outcomes as well as accounting for possible trade-offs between them and with other non-health-related values. For present purposes my criterion is limited to medications that save lives, relieve great suffering, and/or ameliorate substantial degradations in quality of life.

56 I say “probably” because strict utilitarians might disapprove of substantial investments in developing medicines to treat rare diseases.

57 “The proper ground of distribution of medical care is ill-health: this is a necessary truth.” Bernard Williams, “The Idea of Equality,” in P. Laslett and W. G. Runciman, Philosophy, Politics and Society, 2d series (Oxford: Blackwell, 1962), 121.

58 The reality is messier. Because of the time consumed by the regulatory approval process, drugs typically have a much shorter effective patent life (11.2 years by one estimate). On the other hand, some companies have devised strategies for prolonging their monopolies after the patents have expired. More on this point later.

59 Dr. David Barry, in Marilyn Chase, “Burroughs Wellcome Reaps Profits, Outrage from Its AIDS Drug,” The Wall Street Journal, September 15, 1989.

60 Alan Blinder has written that “rent control ranks second only to bombing as a way to destroy a city.” Alan S. Blinder, Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society (Reading, Mass.: Addison Wesley, 1987), 14. Blinder was head of the Council of Economic Advisors under President Clinton.

61 My caution here is due to the fact that locating the right balance presupposes some theory of intergenerational justice, which I don’t have. See, for example, Brian Barry, “Circumstances of Justice and Future Generations,” in R. I. Sikora and Brian Barry, Obligations to Future Generations (Philadelphia: Temple University Press, 1978).

62 Andrew Pollack, “High Cost of High-Tech Drugs Is Protested,” The New York Times, February 9, 1988, p. A1. Note, however, that even if people with life-threatening conditions are forced into these tragic exchanges, they are better off with this choice than they would be without it.

63 The Supreme Court has said that the purpose of the takings clause of the Constitution is “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” Armstrong v. U.S. 364 US 40 (1960).

64 See Mary Ann Glendon, Rights Talk (Free Press: New York, 1991), 78–89, “The (missing) duty to rescue.”

65 For example, that you are aware of the child’s plight, that you can swim, or that the water is not to deep for you wade to the child, etc.

66 Jeffrey Sachs, “Helping the World’s Poorest,” Economist, August 14, 1999, pp. 17–20 at 19.

67 On the industry’s profitability, see citations at note 21 above.

68 Elisabeth Rosenthal, “Exploring the Murky World of Drug Prices,” New York Times, March 28, 1993, section 4, p. 3.

69 John Carey, “How Many Times Must a Patient Pay?” Business Week, February 1, 1993, p. 30.

70 Sam Peltzman, in Elisabeth Rosenthal, “Exploring the Murky World of Drug Prices,” New York Times, March 28, 1993, section 4, p. 3.

71 Craig Torres and Michael Waldholz, “Battered Drug Stocks Dive: Bargain Hunters Are Leery,” The Wall Street Journal, February 17, 1993, p. C1.

72 Sam Peltzman, in Elisabeth Rosenthal, “Drug Makers’ Profits Finance More Promotion than Research,” New York Times, February 21, 1993, section 1, p. 1. However, as Peltzman notes, if prices are restrained it is the projects that show the least promise that will be abandoned first.

73 Elisabeth Rosenthal, “Drug Makers’ Profits Finance More Promotion than Research,” New York Times, February 21, 1993, section 1, p. 1.

74 Steven R. Salbu, “AIDS and Drug Pricing: In Search of a Policy,” Washington University Law Quarterly 71: 707–8.

75 Gina Kolata, “U.S. Is Asked to Control Prices of Drugs It Develops,” The New York Times, April 25, 1993, section 1, p. 36.

76 Salbu, 708.

77 Milt Freudenheim, “One Hope for AIDS Patients Is Hostage to the Market,” The New York Times, September 3, 1989, section 4, p. 5.

78 Harvey F. Wachsman, “Regulate the Drug Monopolies,” Letter, The New York Times, January 16, 1993, section 1, p. 21.

79 This is the position taken by our patent jurisprudence: “As a matter of contract theory, patent grants constitute an agreement between the government and the inventor, wherein the inventor agrees to reveal the discovery and the means to use it in return for the government’s promise of a seventeen-year monopoly on the production of the idea. Under this view, compulsory licensing may be interpreted as a failure of consideration on the part of the government, or even a breach of contract should a compulsory license be granted retroactively. If contract principles are highly valued, then this theory emerges as a strong theoretical basis for opposing compulsory licenses. If a patent is considered the property of its owner, the patentee becomes free to use or not use, or license or assign, at will. Under this theory, compulsory licenses may constitute a taking” (footnotes omitted). Cole M. Fauver, “Compulsory Patent Licensing in the United States: An Idea Whose Time Has Come,” Journal of International Law & Business, 8 (1988): 680–1.

An anonymous referee has pointed out to me that patents may carry the implicit qualification that they may be overridden in certain cases. I think it is foreseeable that in the event of a national emergency (like war or a highly contagious epidemic) the government would seize private property essential to protecting the public welfare. But Congress has declined to give itself the power to override patents, say by means of compulsory licensing, except in very limited circumstances. “Compulsory Licensing Is a Rarity in Our Patent System,” Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176 (1980). Emergency powers run the risk that, since every life-threatening condition is an emergency to persons who have it, the exceptions will eventually swallow the rule.

80 Robert Nozick, Anarchy, State, & Utopia (New York: Basic Books, 1974), 182. This article does not take sides in the debate over how long drug patents should last.

81 Nozick, 180. Cf. also Henry Sidgwick on how it is unfair to take advantage of a “transient monopoly produced by emergency.” Cited by Alan Wertheimer, Exploitation (Princeton, N.J.: Princeton University Press, 1996), 235.

82 Nozick, 180, footnote.

83 Nozick, 182. Cf. also Alan Wertheimer: “Because it is important to encourage people to invest in the acquisition of information … [commonsense morality] dictates that we let them reap the rewards of such investments.” Also see Andrew Pollack, “High Cost of High-Tech Drugs Is Protested,” The New York Times, February 9, 1988, p. A1: “Human growth hormone … was once extracted from cadavers and was in such short supply that thousands of children were unable to obtain it. Now because of genetic engineering, it is abundant—and the product is safer…. However ‘the product wound up being much more expensive than any of us expected’ said Carl Coussan, executive director of the Parent Council for Growth Normality…. Still, Mr. Coussan said parents were grateful that the drug was available.”

84 Patents run for 20 years from the date when the patent application is filed. But after a patent is secured there, the FDA must approve drugs for safety and effectiveness. All the while, the patent clock is ticking toward the 20-year mark, and the longer the FDA takes, the shorter the patent becomes. The average drug patent is 11.2 years, compared with an average of 18 years for products of other industries. Breakthrough products such as Enbrel and other biologics often get even less than the 11.2-year industry average. Marilyn Werber Serafini, “The Price of Miracles,” The National Journal, March 25, 2000, p. 348.

85 Sheryl Gay Stolberg and Jeff Gerth, “In a Drug’s Journey to Market, Discovery Is Just the First of Many Steps,” The New York Times, July 23, 2000, p. 15A.

86 Stolberg and Gerth, “In a Drug’s Journey to Market.”

87 Jolie Solomon, “Drugs: Is the Price Right?” Newsweek, March 8, 1993, p. 38.

88 Arthur Caplan, “Depo-Provera Price-Gouging Illustrates Industry Habit,” Saint Paul Pioneer Press, January 18, 1993.

89 Britain controls drug company profits. Sheryl Gay Stolberg and Jeff Gerth, “In a Drug’s Journey to Market, Discovery Is Just the First of Many Steps,” The New York Times, July 23, 2000, p. 15A.

90 Laurie McGinley and Rachel Zimmerman, “High U.S. Drug Prices May Give Pharmaceutical Makers a Migraine,” The Wall Street Journal, July 21, 2000, B1. Price curbs are enforced in France through mandatory, secret contracts with drug makers following marathon negotiations. Stephen D. Moore, “Hopes Dwindle that EU Will Dismantle Draconian Price Controls on Medicines,” The Wall Street Journal, December 7, 1998, p. A26.

91 Gina Kolata, “Why Drugs Cost More in U.S.,” The New York Times, May 24, 1991, D1.

92 Sheryl Gay Stolberg and Jeff Gerth, “In a Drug’s Journey to Market, Discovery Is Just the First of Many Steps,” The New York Times, July 23, 2000, p. 15A.

93 Gina Kolata, “Why Drugs Cost More in U.S.”

94 Quoted in Sheryl Gay Stolberg, “A Drug Plan Sounds Great, but Who Gets to Set Prices?” The New York Times, July 4, 2000, section 1, p. 1.

95 David Pilling, “Patchwork Markets Erode Prices: Europe,” Financial Times, April 6, 2000, p. 3.

96 Sarah Lyall, “In Britain’s Health Service, Sick Itself, Cancer Care Is Dismal,” The New York Times, February 10, 2000, p. A1.

97 Stephen D. Moore, “In Drug-Cost Debate, Europe Offers U.S. a Telling Side Effect,” The Wall Street Journal, July 21, 2000, p. A1.

98 Elisabeth Rosenthal, “Drug Makers’ Profits Finance More Promotion than Research,” The New York Times, February 21, 1993, section 1, p. 1.

99 Waxman in Irvin Molotsky, “Panel Democrats Assail Prescription Drug Prices,” The New York Times, April 22, 1987. “The audience laughed when Mr. Waxman said that he knew this to be so because he had been on such trips himself.” Waxman says that industry spending on marketing shows that “[r]ecent price increases are not producing new drugs, they are filling corporate coffers,” quoted in “Notable and Quotable,” Wall Street Journal, July 20, 1987, section 1, p. 18.

100 Dr. Barry Bleidt, a professor of pharmacy administration at Xavier University of Louisiana, quoted in Elisabeth Rosenthal, “Drug Makers’ Profits Finance More Promotion than Research,” The New York Times, February 21, 1993, section 1, p. 1.

101 There is no a priori reason why advertising should increase prices. On the contrary, the evidence suggests that it should do the opposite. In a classic study, in 1963, Lee Benham found that people paid more for eyeglasses in states that restricted advertising for eyeglasses than in those that permitted it. Douglass C. North and Roger LeRoy Miller, The Economics of Public Issues (New York: Harper & Row, 1983), 71–7.

102 FDA officials say that of the 90 new drugs approved in 1992, only about 40 percent were significant advances over medicines already available. “[M]uch of the research by drug makers is aimed not at innovation but at developing medicines that have the same function as similar drugs made by rivals …,” Elisabeth Rosenthal, “Drug Makers’ Profits Finance More Promotion than Research,” The New York Times, February 21, 1993, section 1, p. 1.

103 Mary T. Griffin, “AIDS Drugs and the Pharmaceutical Industry: A Need for Reform,” American Journal of Law & Medicine, 17 (1991): 369. “[P]hysicians typically do not consider price differentials when prescribing.” “In these circumstances, much promotion and advertising, and its use of drug company representatives or ‘detail men,’ have been directed at encouraging brand name practices by physicians. This is reinforced by the costly and time-consuming nature of the information gathering process. Free samples create brand loyalty,” id.

104 Alex Barnum, “New Study on Drug Prices: U.S. Says Health Insurance—not R&D—Behind High Costs,” The San Francisco Chronicle, February 23, 1993, p. D1.

105 Alex Barnum, “New Study on Drug Prices.”

106 Gina Kolata, “Why Drugs Cost More in U.S.: Other Governments Negotiate Prices,” The New York Times, May 24, 1991, p. D1. Regina E. Herzlinger of Harvard Business School describes what happened when she called a hospital to correct a mistake on her bill. The response was: “Why are you bothering to do this? You’re not paying for it.” “The Quiet Revolution,” The Public Interest, spring, 1994.

107 Newhouse, Joseph P. and the Insurance Experiment Group, Free for All? Lessons from the RAND Health Insurance Experiment (Cambridge, Mass.: Harvard University Press, 1993), 165.

108 Gina Kolata, “U.S. Is Asked to Control Prices of Drugs It Develops,” The New York Times, April 25, 1993, section 1, p. 36. See also Chris Adams and Gardner Harris, “When NIH Helps Discover Drugs, Should Taxpayers Share Wealth?” The Wall Street Journal, June 5, 2000, p. B1; Jeff Gerth and Sheryl Gay Stolberg, “Drug Firms Reap Profits on Tax-Backed Research,” The New York Times, April 23, 2000, p. A1.

109 David Noonan, “The Real Drug War,” Newsweek, May 8, 2000.

110 Salbu, 724–5.

111 Salbu, id. Drug and biotechnology companies already pay fees and royalties to the government for license options on federal research. Marlene Cimons, “Health Agency Drops Reasonable-Price Rule on Shared-Research Drugs,” Los Angeles Times, April 12, 1995, part D, p. 1.

112 Burroughs Wellcome Co. v. Barr Laboratories, 828 F. Supp. 1208, 1213. See infra at footnote 128.

113 See, e.g., Cockburn and Henderson, “Publicly Funded Science and the Productivity of the Pharmaceutical Industry,” NBER Conference on Science and Public Policy, Washington, D.C., April 2000.

114 The case is reported in Jeff Gerth and Sheryl Gay Stolberg, “Medicine Merchants, Cultivating Alliances: With Quiet, Unseen Ties, Drug Makers Sway Debate,” The New York Times, October 5, 2000, p. A1.

115 John Carey, “How Many Times Must a Patient Pay?” Business Week, February 1, 1993, p. 30.

116 David S. Hilzenrath, “NIH Drops Its Policy on Drug Prices: Agency Had Required ‘Reasonable’ Charge,” Washington Post, April 12, 1995, p. F1. The Bayh-Dole Act of 1980 allows recipients of government grants to retain title to their inventions. According to Dr. Wendy Baldwin, deputy director at NIH, “The current policies [under Bayh-Dole] are actually bringing drugs to market. It’s a huge advance, a wonderful accomplishment.” Jeff Gerth and Sheryl Gay Stolberg, “Medicine Merchants, Cultivating Alliances: With Quiet, Unseen Ties, Drug Makers Sway Debate,” The New York Times, October 5, 2000, p. A1.

117 John Locke, An Essay concerning Human Understanding, 2 vols. (New York: Dover, 1959), vol. II, 352.

118 Quoted in Alexander Bickel, The Morality of Consent (New Haven: Yale University Press, 1975), 21.

119 This account is based on Philip J. Hilts, “Wave of Protest Developing on Profits from AIDS Drug,” The New York Times, September 16, 1989; Marilyn Chase, “Burroughs Wellcome Reaps Profits, Outrage from Its AIDS Drug,” The Wall Street Journal, September 15, 1989, p. 1; Bruce Nussbaum, Good Intentions: How Big Business and the Medical Establishment Are Corrupting the Fight against AIDS (New York: Atlantic Monthly Press, 1990); and Harvard Business School Case 792–004, “Burroughs-Wellcome and AZT” (revised 1993).

120 Harvard, “Burroughs-Wellcome and AZT,” 472–3.

121 The reluctance seems to have been due to two factors. First, the potential market for anti-AIDS drugs appeared to be small (Nussbaum, Good Intentions, 26). Second, there was widespread skepticism that viruses could be treated.

122 Harvard, “Burroughs-Wellcome and AZT,” 472; Nussbaum, Good Intentions, 38. In the early 1980s, the company had brought out Zovirax, a drug that stops herpes infections. Zovirax had been the first antiviral drug to make a large profit.

123 Nussbaum, Good Intentions, 39.

124 Id., 40–1.

125 Harvard, “Burroughs-Wellcome and AZT,” 473.

126 The Orphan Drug Act provides tax subsidies for companies that do research on drugs that treat rare diseases (i.e., up to 200,000 people). The Orphan Drug Act of 1983 provided additional incentive in the United States for the development of new drugs for rare diseases by awarding tax incentives grants, and guaranteed seven-year marketing exclusivity to firms for products applicable to patient groups numbering up to 200,000. Harvard Business School, “Burroughs-Wellcome and AZT,” 471.

127 Nussbaum, Good Intentions, 5. “There was a vaguely criminal innuendo in that,” says Nussbaum, id. See Editorial, “AIDS, Drugs, Need and Greed,” The New York Times, September 29, 1989, p. A34; and Editorial, “AZT’s Inhuman Cost,” The New York Times, August 28, 1989, p. A16.

128 Burroughs Wellcome Co. v. Barr Laboratories, 828 F. Supp. 1208, 1213. As noted, there were two points at which there was critical public involvement with AZT. (1) Dr. Jerome Horwitz first synthesized the compound; and (2) the NCI did some clinical testing of the drug that confirmed its effectiveness against AIDS. But neither of these can be called the decisive contribution. That came when Burroughs Wellcome identified AZT as a potential anti-AIDS drug. (To put the issue of priority in synthesizing a compound in perspective, it should be noted that Burroughs Wellcome synthesizes [or did at the time of these events] some 15,000 compounds annually. [Nussbaum, Good Intentions, 39]).