Another advantage of legal medical marijuana

Another post at the ProMarket blog highlights the cost advantages of medical marijuana, at least in the institutional framework for healthcare currently in use in the US.

A new working paper by University of Georgia researchers shows that medical marijuana leads to sharp drops in the number of prescriptions for branded drugs.The paper estimates savings of up to $1.5 billion per year in Medicaid spending if medical marijuana was legalized in all 50 states.

The blog post goes on to argue that the ideas of George Stigler might offer a potential explanation as to why the countrywide legalisation of medical marijuana has not happened yet.

One possible reason:

Some, including journalist Lee Fang and the Washington Post’s Christopher Ingraham, have suggested that this might have something to do with resistance from pharmaceutical companies, longtime rivals of marijuana reforms. Pharmaceutical companies have lobbied against marijuana legalization on both the state and federal level, and spent millions on anti-legalization campaigns and funding for academic research that presented marijuana as dangerous.

What the research discussed in the blog post shows is that in states that instituted medical marijuana programs, legalisation was followed by a sharp drop in the number of prescriptions for branded drugs for which marijuana could be used as an alternative. Pharmaceutical companies would not be too happy about this.

In July, the Bradfords [authors of the research] published a first-of-its-kind paper that examined the effects of legalized medical marijuana on doctors’ prescribing patterns by examining data from the Medicare Part D database between 2010 and 2013.1) Their paper focused on nine categories of drugs: pain (sales-wise, the most lucrative category for pharmaceutical firms), anxiety, depression, glaucoma, nausea, psychosis, seizures, sleep disorders, and spasticity. They found that the 17 states that had medical marijuana programs in 2013 have seen a sharp drop in the number of prescriptions, particularly for painkillers. In states where medical marijuana was legal, doctors prescribed 1,826 fewer daily doses of painkillers per year, 562 fewer daily doses of anti-anxiety drugs, and 265 fewer daily doses of antidepressants.

The Bradfords have since utilized the same methodology and applied it to Medicaid, where the population is younger and therefore more prone to use medical marijuana.2) In a new working paper, they find that the trends they observed in their previous paper were much more pronounced, and that medical marijuana was followed by a drop of 3-5 percent in the number of prescription in seven of the nine categories they examined.3)

The Bradfords’ research also indicates that legalizing medical marijuana could benefit taxpayers, in the form of reduced spending on health care. States that legalized medical marijuana by 2013 saved $165.2 million per year on Medicare spending alone, according to their research. If all states had implemented medical marijuana laws in 2013, they estimated, overall savings to Medicare would have been $468 million—just under 0.5 percent of all Medicare Part D spending in 2013. When it comes to Medicaid, the savings are much larger, and could be as high as $686 million.4) If all 50 states had legalized medical marijuana by 2014, according to their estimates, that could translate to savings of $1.5 billion per year in Medicaid spending.

What part does George Stigler's idea of regulatory capture play in the pharmaceutical companies opposition?

In a recent conversation with ProMarket, W. David Bradford said that while he and his daughter didn’t write their initial paper with regulatory capture in mind, they have “come around” to the view that pharmaceutical companies are opposed to reforming marijuana laws.

“The biggest reaction we’ve gotten to this paper, that I hadn’t anticipated, was that people interpreted our results as if we were providing evidence for why pharmaceutical companies would oppose the legalization of marijuana. Having now looked at the issue more since our paper came out, I do think we are seeing activities on the part of the pharmaceutical industry to protect their interest in mostly-branded drugs that treat these conditions,” he said.

The Bradfords’ two papers show that people use marijuana as medicine, and not just recreationally. They also seemingly show that pharmaceutical firms have a reason to worry about further liberalization of marijuana laws. Yet initially, Bradford said, he was “really skeptical” of the notion that the pharmaceutical industry would oppose legalization.

“I thought ‘why would pharmaceutical companies oppose this? If they could get a new drug approved based on whole-plant marijuana, and it was a blockbuster, they could get at least five years of exclusivity out of it, and lots of patent protection if it was a patentable product.’ But after thinking about it more, and being made aware of the amount of money that pharmaceutical companies are spending to lobby against marijuana legalization, I’ve come around to the view that it’s not likely that whole-plant could be patentable, or gain any kind of market exclusivity from the FDA. Even if you could somehow short-circuit some of the trials, it’s still going to cost hundreds of millions of dollars to get a drug through the FDA approval process. And if it’s a whole-plant product, and it is proven to work, and it gets approved and is rescheduled somehow, and then people could just grow it in their backyards, what’s their incentive?” said Bradford.

If you have regulators, you will have regulatory capture and current market players will use their influence to keep competitors out.

The interesting question is given New Zealand's health care framework, what are the cost advantages of legalised medical marijuana? If the results outlined above carryover to the New Zealand case then the cost savings could be large and thus well worth looking into.