When Joe Biden was elected president, Medicare was barred by law from negotiating the prices it paid for the drugs it purchased with taxpayer dollars. For a generation, presidential candidates of both parties had pledged to kill the “noninterference clause” that was the price Big Pharma extracted in 2003 from President George W. Bush to extend Medicare coverage to drugs (“Medicare Part D”). Last year, Biden finally got rid of the noninterference clause as part of the Inflation Reduction Act, and in October, the Health and Human Services Department announced that negotiations had begun on prices for 10 drugs that represent about 20 percent of all drugs covered under Medicare Part D. Changing the law to allow Medicare to negotiate drug prices was, as Biden would say, a Big Fucking Deal. If you’re one of those people who tells pollsters that Biden has done a poor job managing the economy, Medicare price negotiation is one of the better examples that prove you wrong.
Now, Politico’s Adam Cancryn reported Wednesday, the Biden administration is in the early stages of curbing excessive prices for drugs purchased not only by government programs like Medicare, Medicaid, and Obamacare but also in the private market. This time, Biden doesn’t need to pass a law because Congress gave the executive branch that power way back in December 1980, in legislation co-sponsored by Senators Robert Dole, Republican of Kansas, and Birch Bayh, Democrat of Indiana. It was a swan song of sorts for Bayh, whose distinguished 18-year term as a leading light of American liberalism had been cut short one month earlier by the November election, which gave Republicans their first Senate majority since 1955. In one of modern U.S. political history’s unkindest cuts, Bayh lost to Dan Quayle. That election also installed Ronald Reagan in the White House and initiated an era of political reaction from which Biden has been struggling to break free.
The post–New Deal shift toward conservatism, people tend to forget, actually began under President Jimmy Carter, who boosted defense spending, lowered the capital gains tax, and initiated (in collaboration with Ted Kennedy and Ralph Nader) deregulation of the airline and trucking industries. Carter’s course correction became, under Reagan, a violent pendulum swing to the right. The Bayh-Dole Act was one of the Carter era’s more judicious market-friendly policies. Since World War II, the federal government, following recommendations from Vannevar Bush’s July 1945 report Science, the Endless Frontier, had created the National Science Foundation, expanded the National Institutes of Health, and ramped up investment in research and development. But much of this research was bottled up in national laboratories and universities; fewer than 5 percent of the federal government’s 28,000 patents were licensed to private companies. The Bayh-Dole Act addressed this bottleneck by allowing universities, nonprofits, and small businesses to patent federally funded inventions; President Ronald Reagan later extended the same rights, by presidential memorandum, to all federal contractors. The law also allowed federal agencies to grant businesses exclusive licenses to technology developed by the government. The result was an explosion in innovation that, by one estimate, helped increase the gross domestic product over the past generation by $333 billion to $1 trillion.
Bayh-Dole was never intended, though, to write industry a blank check. The government retained “march-in” rights to seize back a license or patent if warranted by circumstances that included health and safety but were otherwise defined only vaguely in the legislation. This being the dawn of the Reagan era, however, those march-in rights were never exercised. For the first 17 years after enactment nobody bothered to file a petition to march in; the first, in 1997, was filed by Bayh himself (on behalf of a lobby client). It alleged that “unreasonably high royalties” were being charged by the patent holder of a medical device used to assist in bone marrow transplants. Since then, about a dozen petitions have been filed, nearly all concerning drugs. The petitions typically complain that a patent holder is either not manufacturing a sufficient quantity of a drug or charging an excessive price. None of these petitions has ever been granted. As recently as March, NIH rejected a march-in petition to seize the patent for Xtandi, a Pfizer drug for the treatment of prostate cancer. The petition alleged that the drug, which retails for $150,000 per year, was priced too high.
Drug prices, you may have noticed, are going through the roof. Even as the consumer price index, or CPI, settles down to a congenial 3.2 percent, prescription drug prices rocket upward. According to a November analysis by the Center for American Progress, those drugs whose prices are rising are doing so at a rate that exceeds the CPI, on average, by 30 percent. For some drugs, price increases exceeded the CPI by a factor of five. How many of these drugs were developed using federal dollars? Very likely all of them. The Food and Drug Administration approved 210 new drugs between 2010 and 2016; NIH funding contributed to research underlying every last one of them.
Why didn’t the government use Bayh-Dole to rein in drug prices before? A major obstacle was uncertainty about whether price gouging was ever intended to be one of the conditions permitting the government to snatch back a patent. In 2002, Peter Arno, professor of epidemiology and social medicine at the Albert Einstein College of Medicine, and Michael Davis, professor of law at Cleveland State University in Ohio, argued in a Washington Post op-ed that of course Congress intended pricing to be taken into account. Dole and Bayh then replied, in a Washington Post op-ed of their own, that
Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional.
Big Pharma cites this as a conversation-ender, sort of like Woody Allen’s Marshall McLuhan triumph in Annie Hall (“You know nothing of my work”). But Bayh and Dole’s op-ed had already been contradicted by Bayh himself filing a march-in petition five years earlier based, as noted above, on pricing (“unreasonably high royalties”). If Bayh really believed, along with Dole, that pricing was irrelevant to Bayh-Dole, he had a funny way of showing it.
On Thursday, the Biden administration announced that a review initiated last March by the Departments of Health and Human Services and Commerce concluded that, contrary to a rule proposed by the Trump administration but never finalized by the Biden administration, “price can be a factor in determining that a drug or other taxpayer-funded invention is not accessible to the public.” (Italics mine.) According to Politico, the Biden administration isn’t targeting any particular drug, and it isn’t expected to; so far, the policy seems intended mainly to put drug companies on notice that if they price drugs derived from federal research too prohibitively, they’ll risk the feds finally imposing the punishment Bayh and Dole authorized 43 years ago.
An August poll by the Kaiser Family Foundation found that three in 10 adults said they took less medicine than prescribed in order to save on costs. Twenty-one percent said they didn’t fill the prescription at all, and 12 percent said they cut the pills in half. More affluent adults reported doing this less, but even in households earning $90,000 or more, about one-quarter said they cut corners one way or another to save money. Taxpayers have spent literally hundreds of billions to develop these drugs, and they didn’t do it to make drug companies rich. They did it to help sick people get the medications they need to get well, and sometimes just to stay alive. With his more aggressive new policy, Biden is reminding Big Pharma of this fact, and warning that if it pushes its luck he will lower the boom. It’s a shame neither Bayh nor Dole lived to see this proud moment.