Cap and trade for antibiotics

The following guest post is by Kevin Outterson, Associate Professor, Boston University School of Law and co-author of “Fighting Antibiotic Resistance: Marrying New Financial Incentives To Meeting Public Health Goals” (Health Affairs, 2010).

Andrew Pollack had a good article in today’s NYT on antibiotic resistance.  Tyler Cowan has already linked to it with the provocative question of “cap and trade for antibiotics?”  The legal and economic literature has been discussing Pigovian taxes, tradable permits and economic incentives for antibiotics over the past few years (see, e.g., Extending the Cure, the London School of Economics, and the Center for Global Development).

Cap and trade is impractical because we simply won’t allow antibiotics to be rationed according to willingness-to-pay.  Argue with me if you want.

Everyone cites the usual scary stats on increasing resistance and declining new antibiotics coming to the market, but fail to note that most of the antibiotics approved in the “glory years” of the 1980s and 1990s were withdrawn from the market or discontinued.  We can’t rely on just quantity instead of quality.  We need better antibiotics, not just new molecules.

The best part of Pollack’s article focuses on the need for conservation.  If antibiotics are potentially exhaustible resources, then we need to manage them for long-term social goals:

Ramanan Laxminarayan, who directs the Extending the Cure project on antibiotic resistance at Resources for the Future, a policy organization, said the government should focus on conserving the effectiveness of existing antibiotics. That could be done by preventing unnecessary use in people and farm animals and requiring better infection control measures in hospitals.

“There’s not a recognition yet that we should think about antibiotics as a natural resource and we should conserve them like we do fish,” Mr. Laxminarayan, an economist, said. Kevin Outterson, an associate professor of law at Boston University, said one way to encourage both new development and conservation would be to pay drug companies to develop new antibiotics but not to aggressively market them. Incentives, he said, “must be conditioned on the companies’ changing their behavior.”

Simply giving the companies longer patents won’t do it, unless we change the incentives that promote over-marketing.  Aaron Kesselheim and I explored the conservations incentives question in Health Affairs (Sept 2010).  From the abstract:

…We review a number of proposals intended to bolster drug development, including such financial incentives for pharmaceutical manufacturers as extending the effective patent life for new antibiotics. However, such strategies directly conflict with the clear need to reduce unnecessary antibiotic prescriptions and could actually increase prescription use. As an alternative, we recommend a two-prong,

“integrated” strategy. This would increase reimbursement for the appropriate, evidence-based use of antibiotics that also met specific public health goals—such as reducing illness levels while limiting antibiotic resistance.

What incentives would you suggest for antibiotics?

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