Intellectual Property

The Government Already Has The Tools It Needs To Make Pharmaceutical Drugs Affordable -- If It Really Wanted To

The government has never exercised its rights under the Bayh-Dole Act to do so.

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It’s no secret that pharmaceutical drugs can be incredibly expensive. The United States spends more than $370 billion dollars each year on prescription drugs, more than any other high-income country, clearly contributing to the high costs of health care. Pharmaceutical companies that hold the monopoly rights to patented drugs can charge whatever price they want, or at least whatever the market will bear. Sometimes, this monopoly power means a company will arbitrarily raise the price five-fold overnight simply because it can, with no link to actual costs of production or other rationale.

Last week, on November 29, Trump’s new nominee for Secretary for the Department of Health and Human Services (HHS), Alex Azar, testified before the Senate Health, Education, Labor and Pensions Committee that prescription drug prices are too high. Azar’s nomination has been scrutinized because under his tenure as president of pharmaceutical giant Eli Lilly, costs of drugs steeply increased, including tripling of the price of insulin. During the hearing, Azar promised to address high drug prices as one of his priorities.

As different strategies to address the drug-pricing crisis are discussed and considered, it is worth remembering that HHS already has the power necessary to reduce the costs for many patented, life-saving medicines through a provision of the Bayh-Dole Act of 1980. And yet, HHS has never exercised these rights, known as “march-in rights,” in the 37 years of the existence of the Bayh-Dole Act.[1]

These march-in rights were intended to act as safeguards — to ensure that federally funded inventions were being used for the benefit of the public, including being made “available to the public on reasonable terms” or where public health or safety needs are not being satisfied — when the Bayh-Dole Act made it easier for recipients of federal funding to seek patent ownership of federally funded research. The federal government spends billions of dollars each year on research; up to half of all new medicines in the United States are invented at universities through taxpayer funding and it therefore seems reasonable that the public should reap the benefits of publicly funded inventions.

Since the Bayh-Dole clarified the path to patent ownership, however, universities routinely patent taxpayer funded inventions, then exclusively license them to private companies who, in turn, hold monopoly power to price these drugs at whatever they want. While the Bayh-Dole Act was intended to include protections to curb abuses of taxpayer-funded research, in practice these safeguards have not been utilized. As a result, taxpayers are essentially forced to pay for federally funded pharmaceutical inventions twice: once for the underlying research that federal government grants pay for, and again as patients for the costs of the monopoly-priced medicines.

The fact that the NIH/HHS has never exercised their march-in rights in the 37 year history of the Bayh-Dole Act means one of two things: either there have never been any abuses of NIH/HHS-funded patent rights during this time period or that the government doesn’t care enough to actually step in and curb these abuses. The NIH has repeatedly denied requests for the exercise of march-in rights because, despite the fact that the Bayh-Dole Act notes that practical application of an invention means that the invention is being made available “on reasonable terms” the NIH has interpreted this phrase as not including price considerations. In essence, what the NIH has concluded is that as long as an invention is on the market, it is being made available on reasonable terms. A drug company could charge a million dollars for a single pill, but under the NIH’s reasoning, march-in rights would not be warranted.

While Azar testified that lowering drug prices is a priority, Azar’s background as the president of a company that tripled the price of insulin on a whim, the fact that he served as HHS’ general counsel from 2001 to 2005 during which time the NIH (a division of HHS) twice refused to exercise march-in rights on life-saving medicines, and the lack of any exercise of march-in rights by the agency don’t warrant much optimism. Although it would be easy and entirely possible under current law for the government, including HHS, to make many pharmaceutical drugs more affordable, history has shown little appetite for actually using the safeguards that exist under the Bayh-Dole Act.

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[1] Full disclosure: I submitted one march-in petition — a second petition on ritonavir in a second petition for ritonavir filed in 2012 on behalf of four NGOs, the American Medical Students Association (AMSA), Knowledge Ecology International (KEI), U.S. Public Interest Research Group (U.S. PIRG), and the Universities Allied for Essential Medicines (UAEM) — which was ultimately rejected. That petition noted that the prices that Abbott was charging for ritonavir in the United States were 4-10 times higher than when compared to other high-income countries, highlighting the absurdity of the system. Not only do taxpayers pay for the underlying research and then again for the product at monopoly prices, but we do so at a much higher cost than our European counterparts.

Krista L. Cox is a policy attorney who has spent her career working for non-profit organizations and associations. She has expertise in copyright, patent, and intellectual property enforcement law, as well as international trade. She currently works for a non-profit member association advocating for balanced copyright. You can reach her at kristay@gmail.com.

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