Price Controls and Compulsory Licensing Reduce Patient’s Healthcare Options

By Hans Sauer
November 6, 2018

“Once we go down a path of government price controls and compulsory licensing we will have foregone opportunities for other, more rational policy choices and will soon find ourselves in a race to the bottom.”

Contrary to repeated promises to end ‘foreign free-loading’ on U.S. investments in healthcare innovation, President Trump proposed last week that the United States adopt price controls for medicines that will effectively be dictated by foreign countries that care more about socialized healthcare than about the next generation of cures for unmet medical needs. This advance notice of proposed rulemaking, put forth by the Department of Health and Human Services, would apply to medicines covered under Medicare Part B which include some of the most advanced biotechnology breakthroughs. Under the proposal, the U.S. Medicare Part B prices of such medicines would be tied to the government-set procurement prices paid by foreign health care systems, such as those of Greece and Slovakia.

The Wall Street Journal Editorial Board succinctly expressed its opposition: “Mr. Trump is right that Europe, Australia and many others are freeloaders on U.S. innovation, and better intellectual property protections in trade deals might help. But that is no reason to repeat their price-control mistake and undermine the reasons the United States is the last, best hope for medical progress.”

To be fair, there is world-class biomedical research going on also in these other countries – but by a wide margin no nation invests as heavily in healthcare innovation as the United States. This explains why more new drugs originate in the U.S. than in the rest of the world combined, and why Americans have earlier access to more new breakthrough treatments than the citizens of other countries.

The concept of government price controls has existed on the fringe of the healthcare pricing debate for years. But the Congressional Budget Office repeatedly has said it won’t lower prices beyond what the competitive marketplace currently provides, unless the federal government also has leverage to simply not cover treatments when it deems their medical benefit not worth the expense. This would ultimately mean that bureaucrats and accountants, not doctors, would decide which patients receive which drugs, and which patients don’t. The administration’s latest proposal is an unsuccessful effort to end run around these flaws. Like similar preceding efforts, importing foreign “reference prices” will mean that we must also accept the limitations on access to treatment, and the lower, slower levels of medical innovation that are characteristic of these reference countries.

As BIO’s President and CEO, Jim Greenwood, separately opined in The Wall Street Journal this week: “Entrenched interests within the health-care system play politics when they conflate out-of-pocket costs for patients with drug costs paid by public and private payers. The cumulative effect of recent drug pricing announcements is that payers and other middlemen win. Patients who are hurting don’t get significant relief, while the investors and innovators who make the medicines get a gut punch.”

If that weren’t bad enough, Rep. Lloyd Doggett (D-TX) is pushing a legislative proposal that would require the government to compulsory license patents and expropriate trade secrets if a company won’t sell a drug to Medicare for the price the feds wants to pay. Where the Administration’s price restriction regime at least pretends to look for comparison only to modern OECD countries, Doggett’s Medicare Negotiation and Competitive Licensing Act of 2018 draws its inspiration directly from the practices of healthcare powerhouses like India, Malaysia and Thailand.

Once we go down a path of government price controls and compulsory licensing we will have foregone opportunities for other, more rational policy choices and will soon find ourselves in a race to the bottom. Of course, making prescription drugs more affordable must be an important, shared goal. But the solutions we pursue cannot risk choking off America’s innovative ecosystem that leads the world in discovering new cures and treatments. As Nobel laureate and NIH Director Harold Varmus said in 1995, one must first have a new drug to price before one can worry about how to price it.  Letting our federal government import foreign price controls and expropriate patents is not the way to go about it.

The Author

Hans Sauer

Hans Sauer is Deputy General Counsel and Vice President for Intellectual Property for the Biotechnology Innovation Organization (BIO), a major trade association representing more than 1,000 biotechnology companies from the medical, agricultural, environmental, and industrial sectors. At BIO, he advises the organization’s board of directors, amicus committee, and various staff committees on patent and other intellectual-property-related matters. Before taking his current position at BIO in 2006, he was chief patent counsel for MGI Pharma Inc. in Bloomington, MN, and senior patent counsel for Guilford Pharmaceuticals Inc. in Baltimore, MD. Mr. Sauer holds a M.S. degree in biology from the University of Ulm in his native Germany, a Ph.D. in neuroscience from the University of Lund, Sweden, and a J.D. degree from Georgetown University Law Center, where he serves as adjunct professor.

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Discuss this

There are currently 6 Comments comments. Join the discussion.

  1. Ternary November 6, 2018 10:25 am

    “and will soon find ourselves in a race to the bottom.” Ha, ha. The pharmaceutical industry in a race to the bottom? What a fantasy and fear mongering in a market where companies continue to annually raise their prices to increase profits (and not to cover costs)! The EpiPen still stands out as an example what unbelievable profits are possible in this industry.

    It seems to me that other countries rationally use their buying power to negotiate reasonable pricing for drugs. Drugs are still not “cheap” in those countries. (Well, perhaps they are, compared to the idiotic pricing in our country). No drug company loses money on selling their products overseas. It is, after all, a free and competitive international marketplace. Something that used to be desirable.

    Medicare, with its enormous buying power, is legally handicapped to act as an equal party in drug price negotiations. Now that is a distortion of a free and competitive marketplace.

  2. Non Sequitur II November 6, 2018 1:47 pm

    “[I]t won’t lower prices beyond what the competitive marketplace currently provides, unless the federal government also has leverage to simply not cover treatments when it deems their medical benefit not worth the expense. This would ultimately mean that bureaucrats and accountants, not doctors, would decide which patients receive which drugs, and which patients don’t.”

    Doctors are a gatekeeper to receiving a drug, but the deciding factor is and would still be the ability to pay. Whether it is the government or private insurance that doesn’t cover a drug or procedure, the Doctor’s prescribed treatments would be constrained by the coverage formula (decided by bureaucrats or accounts).

    “Of course, making prescription drugs more affordable must be an important, shared goal. But the solutions we pursue cannot risk choking off America’s innovative ecosystem that leads the world in discovering new cures and treatments.”

    In the absence of a better solution, the choice is between doing nothing and doing something. The theoretical loss of a drug that doesn’t yet exist is unlikely to convince anyone to do nothing. Moreover, incentive to invent is not a toggle between Yes and No. As long as the incentives are positive, invention will still occur albeit at a slower rate as incentives decrease.

  3. xtian November 8, 2018 12:55 pm

    No drug company loses money on selling their products overseas.~Ternary

    Absolutely correct statement. Pharma just doesn’t seek approval in those countries. That’s why some drugs are not available in EU vs US. How is this better for the sick in the EU?

  4. Ternary November 8, 2018 5:40 pm

    xtian. In most of those EU cases, as I understand it, it is clear that Insurers are not willing to refund to patients the extreme cost of those drugs. The local market for those drugs then become unattractive (too small) for the pharma company and they will not enter it. For some drugs a centralized EU approval is required if they want to enter the EU.

    For many EU patients non-availability of drugs and non-affordability of drugs have an identical result. (as in the USA). If you are sick, it does not make much of a difference why you cannot buy a drug.

    The issue under discussion though, is that drug prices overseas are allegedly “too low.” We both agree that pharma is not losing money on overseas marketed drugs. So, to me it seems to be a matter of clever negotiations with drug companies, and not a malicious scheme to deny pharma a profit. Perhaps we should try that approach here for a while.

    I am not in favor of compulsory patent licensing. Not in pharma, and also not in other industries such as electronics, and not overseas but in the US, adding to an erosion of our patent system.

  5. xtian November 9, 2018 3:45 pm

    The only reason there is not price parity between EU and the US is that approval in the EU has the additional cost benefit analysis because gov’t pays the bill. This not might be a bad idea (price parity) for Medicaid Part B or D drugs, but not for non-Medicare/aide situations.

    An interesting example where USFDA approved but NICE did not because the drug wan’t cost effective was AMPYRA and its follow-on FAMPYRA.

    Then lets take Canada. If there is a patent covering your molecule, you are subject to the pricing review board. If you have no patents in CA, you can sell your drug at whatever price the market is willing to pay. Ironically, most of the time you can sell your drug at a higher price when you are not subject to the pricing review board. And lets remember, pharma doesn’t manufacture in each country, particularly not in CA. So when I hear we would import our drug from Canada I really get a good laugh!! What people really mean is they want the same price of the drug as Canadians get!

    I agree something needs to be done. Straight pricing parity without other considerations isn’t it.

  6. LazyCubicleMonkey November 10, 2018 4:50 pm

    When you say more drugs originate here in the US than anywhere else, is this just an absolute number, or per capita?

    And places with without capitalist systems can indeed produce medicine too – the Soviet Union went in a very different direction at some point and did far more research into bacteriophages than Western countries – since those tend to require more personalization, the incentives would be unlikely to produce them here, regardless of price controls or lack there of.

    While research does indeed cost money, there have been studies showing that the majority of creates/scientists/etc pursue their research/creation goals as an end unto itself. Adding additional money isn’t a direct line to achieve goals. In fact, adding too much money as incentive can even counteract those goals. Why is it countries like Cuba came out with that lung cancer vaccine? I’m sure the monetary incentives there would be ones that would be a no-started here.

    Having said that, I think there’s a very simple price control method that insurers could use. And I’m not sure why they’re not doing it already: if a round-trip & stay & cost of the drug in a different country is still less than the cost of the drug here, insurers would be better served to send their patients that route. As an example, I recall where a course of some drug is $80K in the US but as low as $500 in India. A round-trip cost & stay in India would be far lower than $80k – a natural price control that would reign in some of the most outrageous prices without any of the supposedly damaging policies some people are against.

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