New treatment for drug prices risks side effects

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In a public effort to bring down prescription drug prices, the Biden administration plans to use the government's "march-in" authority to sever some pharmaceutical drug patent protections.

By setting aside patents on discoveries that relied on some amount of government funding, we would presumably see more generic, lower-cost versions of popular prescription medicines.

This election-season policymaking may deliver lower prices to some people, but the resulting market chaos could be harmful to our health.

Drug price increases covered by Medicare have exceeded inflation's pace since 2019. Biden, reacting strongly and perhaps anxious about his re-election prospects, has outlined a proposal to be applied ex post facto — after the fact — to patents and licensing arrangements built on investment-backed expectations. A less disruptive policy change would be applied to future patent property rights, allowing investors to make decisions with their eyes wide open.

But the average voter cares little about corporate concerns, as the president's team knows. What should matter to everyone is the effect on future drug development and other inventions.

The accompanying White House policy statement reveals the president's uneven political hand by referring to drug company price-setting as "corporate greed." It may be argued that folks who want cheaper drugs (however justifiably) and politicians who want votes are greedy, too. If greed is wanting more for less, it's a human trait. Referring to corporations, which are, after all, legal documents in file cabinets, as greedy is a clear case of misplaced concreteness.

The whole matter is relatively new. Patent protection for drugs discovered and produced partly with federal funding was codified in the 1980 Bayh-Dole Act. Prior to that, the government retained the rights. No patents were granted to universities or other research organizations which, with government funding, discovered a basis for new drug products. Without much incentive, research and commercialization activity after basic discoveries were made in university labs languished.

The Bayh-Dole legislation reinvigorated and encouraged discovery, and there has since been a large increase in the commercialization of new drugs. As Sens. Birch Bayh and Bob Dole explained in a 2002 letter to the Washington Post, "the purpose of our act was to spur the interaction between public and private research so that patients would receive the benefits of innovative science sooner — Bayh-Dole did not intend that government set prices on resulting products."

Today, Biden administration economic adviser Lael Brainard indicates that the president thinks otherwise: "We'll make it clear that when drug companies won't sell taxpayer-funded drugs at reasonable prices, we will be prepared to allow other companies to provide those drugs for less."

It seems that the affected drug producers are on their way to becoming regulated public utilities. The Department of Commerce is instructed to develop procedures to determine when existing patent protection may be removed. Its mandate covers all patented inventions that result with the assistance of federal funds — not just pharmaceutical products.

The question of what, if anything, is due to American taxpayers who partly fund the development of medical advances — those which they later buy and benefit from as consumers — is important and meaningful. A 2020 research paper on the matter published by the National Institutes of Health argues that we're already getting a good return, rather than being charged twice:

"In the debate over prescription drug pricing, some pharmaceutical industry critics claim that U.S. taxpayers pay twice for costly therapies — In fact, the empirical evidence supporting these claims is weak, and the pay twice argument distracts from important efforts to ensure that impactful new drugs continue to be developed and made widely available to patients who need them."

The president's flawed argument — one which would abandon a proven approach and subject legitimate patents to the whim of executive branch agencies and politicians — is a path to fewer future remedies for human suffering.

Granted, the pricing of products that spring from taxpayer supported research should be open to evenhanded debate and review. "Evenhanded" does not describe powerful politicians making blanket assertions that those who produce and market patented lifesaving medicines are greedy.

Major policy changes should be debated on a forward-looking basis, not ex post facto. Otherwise, drug producers will find themselves operating in a sea of uncertainty, and someday, some new drug that we could use won't be there.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and a former executive director of the Federal Trade Commission. He wrote this for Tribune News Service.