The proposal to hand out cash in return for the development of drugs that are not commercially viable, does make some sense. But this will not allow people to junk the patent system.

To understand this, you need to look at the reality of the drug development work. The process at pharmaceutical companies usually starts with a "discovery" process that selects interesting chemical substances. Then patents will be filed covering a family of chemicals and their possible application, well before these are useful drugs. At this stage they tend to be "leads", in the sense of "the police are following a promising lead." Pharmaceuticals need patents on leads because they may need to share the information with potential investors, farm out chemistry and evaluation work to service companies, perhaps try to license out the lead to a larger pharmaceutical to fund the development, and publish early results on conferences and in journals. They might even contract out part of the work to subsidiaries of direct competitors -- it may sound absurd, but it does happen, and it can be done because of patent protection.

Turning a lead into a new candidate drug that can go into clinical trials, can keep scores of people pretty busy for several years. And then it gets really expensive, because you have to perform the clinical trials, phase I, II and III --- average duration 8 years.

Now if the government is going to pay over $1.2 billion for a new drug, then it presumably is going to be an approved drug, something that is really useful to patients. But without patents, that presumes that a company is going to invest heavily for 10-12 years without any protection of its work. Secrecy, the traditional alternative to patents, is not really an option in this case, because outsourcing of some work is more efficient and it is certainly desirable that independent studies are done. Secrecy would also be harmful to scientific progress; one advantage of the patent system is that allows companies to evaluate competing drugs and learn from them.

Another alternative is for the government to buy leads and try to develop them themselves into useful drugs --- a scary idea, IMHO. The regulator and the producer then become one and the same.

To me its seems far more sensible that instead of replacing patents by billion-dollar prizes, the government would simply use the cash to buy the patent rights. Forcibly, if really necessary, but at a fair price. If a drug is really so important that the government is willing to pay heavily for it, then why not do it by buying the patent rights? And if the government does not want to buy the drug, no real harm is done; the pharmaceutical can still try to sell it on the market. For third world diseases, government could simply promise to buy the patent rights when a drug is developed.

The problem, of course, is in the government making a single big investment which is hard to recover if the decision turns out to be wrong. Like most things in economics, it's a trade-off. Government can take the gamble of one big downpayment which is cheaper but also riskier over the long run, or its can spread out the risk while accepting higher costs.

If the government fcan orcably buy patents, the incentive will be there to underpay for these patents. (If the government has to use force, then by definition the price will be below the market value) this will reduce the interest to investors to fund expensive research, because if they succeed they run the risk of losing the profits they were hoping for, yet simultaneously they will not gain any cushion should their investment not pan out by producing a valuable drug.

Yes, a forced sale of a patent has the risk of reducing profits for investors. But on the other hand, agreements are already in place now that allow governments to completely ignore patents if there is a health crisis. If offered the choice, the investors may prefer a limited loss over a complete loss.

And the other side of the medal is the substantial risk of corruption and over-pricing, the government of the USA being what it is. The ideal drug might well become one with a factory in every congressional district.