The Market Institute President Charles Sauer has a new article in Real Clear Policy looking at the problems with price setting drug prices. There are attempts by the Biden Administration to use “March In” rights to implement price controls – even at the expense of future innovation.
“In the movie Drumline, which came out in 2002 and feels like a Hallmark movie today, dueling marching bands face off – culminating in a high stakes face off of the drumlines. While lacking the cool cinematography or choreography, the government and private industry have this face off almost every day under the Biden Administration. It is a high-stakes head-to-head battle, but the government makes the rules and likes changing them in the middle of the game.
For instance, the pharmaceutical industry is once again facing off against the Department of Health and Human Services against price controls passed as part of the Inflation Reduction Act (IRA). And, while the idea of price controls is bad enough, the proposed implementation guidance is, amazingly, even worse than could be imagined.
One of the problems has to do with a policy called March In. This was a piece of public policy that was included in the Bayh-Dole Act that gave the government the right to reclaim intellectual property that it had licensed to a private company, but which wasn’t being used. And, while the sabers have been rattled over the years – or the cymbals waved – it has never been implemented for pricing concerns. The reason is simple, and the bill’s sponsors have affirmed this idea many times: using March In in this way would work contrary to why the bill was passed and how the policy has been working.
Bayh-Dole was passed to help give life to government research. Previously, if a cure for an ailment was discovered during government research there was almost no way to break it out into the public sector. Because without the intellectual property that goes along with a breakthrough innovation, the financial incentive isn’t there to go through the trials and take on the liability for a drug that might fail to reach market. And without intellectual property protections, if a company paid for those trials and took on the risk, then any other company could produce the drug afterward without paying for it. So, Bayh-Dole created the infrastructure needed to license these innovations.
Fast forward to today, and the implementation guidance from the Biden administration is attempting to claim that drugs created out of this program are subject to price controls.
For people who think that price setting is a clever solution to the high cost of drugs – and who also likely believe that the faceoff in Drumline is played live – this makes sense. The more prices that can be set the better. However, they are not considering the full market implications. If any drug that is licensed from government regulation is subject to price setting, then fewer drugs from government research will be licensed. If fewer drugs are licensed, then fewer drugs will make it to market, and fewer breakthrough drugs will be available. Additionally, government research will carry less value, cost more in total without the license fees, and have fewer benefits to society.”