Democratic bill would set back medical science
Democrats are hoping to include a major overhaul of Medicare prescription drug pricing in their Build Back Better legislation. The proposal would allow the government to decide the price it’ll pay for brand-name medications covered by Medicare.
Officials would base such pricing decisions, in part, on how much federal research funding went into the drug’s development — apparently on the theory that the government is entitled to a lower price as compensation for its support of early-stage, basic scientific research.
This particular line of argument is the result of a serious misunderstanding of what it takes to bring a new medication to patients. Enacting it would undermine the decades-long, symbiotic relationship between government and private labs that has led to the creation of hundreds of life-saving medications.
The federal government does indeed provide funding for basic scientific research and discoveries in government-funded labs — typically at universities or other non-profits — that does provide a basis for new medications.
The problem is designing an incentive structure that balances risks and rewards and keeps the process moving.
We used to lack such a structure — and the proposal Congress is currently considering would seriously undermine one that has succeeded very well since 1980.
The bipartisan Bayh-Dole Act laid the groundwork for a renaissance of the American pharmaceutical industry. Before BayhDole, the U.S. pharmaceutical sector was at best a middling success. In the late 1970s, for instance, researchers in Europe developed more than twice as many new medicines as those in the United States.
Because government retained ownership of the fruit of research it funded, discoveries languished in labs. There was no incentive to undertake the expensive process of developing them into approved treatments. Right now, taking into account projects that don’t come to fruition, it takes an average of $2.6 billion in private sector investments over a decade to develop a new medication. BayhDole removed the old bottleneck by allowing research labs to license their discoveries to private firms.
Under this arrangement, universities receive a royalty for licensing their often nascent ideas. And private companies assume the considerable risk and expense of developing a safe and effective therapeutic agent.
This division of labor has led to an unprecedented wave of medical progress in the United States. Less than 10 percent of new medicines were first introduced in the United States in the 1980s. But by the 2010s, about two in three new medicines were first introduced here.
To ensure that private firms kept their end of the bargain, Bayh-Dole included what became known as its “march-in” provision. This part of the law empowers the government to revoke a company’s patent license under certain limited circumstances, such as refusing to proceed expeditiously with development of a needed medication.
Some have erroneously concluded the “march-in” provision gives the government authority to set prices on drugs that benefit from federal funding at any stage, including basic research. In fact, as recently as this summer, a number of lawmakers — including Sen. Elizabeth Warren (DMass.), Sen. Amy Klobuchar (D-Minn.) — urged Health and Human Services Secretary Xavier Becerra to “march in” and demand lower prices on certain drugs.
Over the past four decades, executive branch officials from both parties have without exception rejected this interpretation of Bayh-Dole — and with good reason. If the government could unilaterally revoke a biotech firm’s ability to get a market price for its product, companies would have no incentive to license federally-funded research in the first place. Why take on such risk if the government can simply confiscate your property rights if you succeed?
Now, however, “march-in” proponents believe they have found a different route to the same destination.
Under the Congressional proposal, Medicare officials would “negotiate” the price of a drug. The pricing decisions would be based, in part, on whether a drug benefited from federal financial support. Companies would have no choice but to take whatever price is offered, no matter how low. Under the terms of the legislation, refusal to comply with the government’s diktat would result in a punitive tax of 95 percent of a drug’s gross sales.
If proponents get their way, the impact on medical science could be disastrous. Private companies would no longer have a financial incentive to invest in federally-funded advances. Investment in new therapies and vaccines will collapse. We would return to the pre-Bayh-Dole era in which potentially life-saving medical science rarely resulted in real-world cures and treatments.
There is no good reason for lawmakers to march in to destroy an incentive structure that has been driving a Golden Age of medical advances. Please stop and consider the unintended consequences before proceeding down this risky path.