Grace-Marie Turner: Medical innovation should not be stymied by misguided policy

Hospitals are not only centers of care but also marvels of advanced technologies — from computer-guided surgeries and augmented reality diagnoses to nanotechnologies that can fight tumors on a cellular level.

Most of the progress in modern medicine has come from new and more effective devices, drugs, biologics and diagnostics. These innovations have contributed more to improvements in life expectancy and quality of life than any other type of healthcare service.

Innovation and medical progress are essential for the breakthroughs that support longer, healthier lives. Without them, Americans would be sicker, die sooner and have a lower quality of life. Yet the drivers of progress in healthcare have often been in the bull’s-eye for politicians.

The IRA’s impact

A clear example is the Inflation Reduction Act (IRA) signed into law in 2022. A major provision of the IRA was to provide funding and a process for Washington to “negotiate” prescription drug prices on certain medicines covered under Medicare. This provision was billed as a gift to America’s seniors, but many industry observers say it is having precisely the opposite effect.^a

The IRA already is leading to higher costs for seniors. Monthly premiums for Medicare Part D prescription drug plans have risen sharply since the IRA became law. Although the IRA included a premium provision that capped annual growth in the Part D base beneficiary premium at 6%, the law did not apply this cap to individual plan premiums that enrollees pay.

The Kaiser Family Foundation finds average Part D premiums increased 21% in 2024.^b The Council for Affordable Health Coverage estimates that number could skyrocket another 50% or more next year.^c At the same time, the number of Part D plans seniors can choose from has fallen dramatically, largely because of the IRA’s market distortions.^d

The law also imposes penalties that will quell innovation. It targets companies making many of the most-prescribed medicines in Medicare and discourages research into newer and better treatments. Consider just two estimates of the IRA’s impacts:

Economists estimate the IRA will lead to at least 135 fewer medicines, costing more than 332 million life years over the 20-year life cycle of a drug.^e

A 2023 analysis projects the IRA will lead to a loss of between 66,800 and 135,000 direct jobs in the life sciences industry in the United States and as many as 676,000 jobs in related fields.^f

The impact of ‘march-in rights’

In December 2023, the Biden administration released a fact sheet explaining its “proposed framework for agencies on the exercise of march-in rights on taxpayer-funded drugs and other inventions.”

The American Action Forum (AAF) explains, “Under current law, if taxpayer dollars funded an invention, the appropriate federal agency can ‘march-in’ to a private company and relicense that product to another business regardless of the industry.”

In its fact sheet, the Biden administration also stated that, for the first time, “price can be a factor in an agency determining if a product is not accessible to the public.”

An AAF commentary issued Feb. 8 notes that citing the rising cost of pharmaceutical drugs, the Biden administration’s proposed guidance would advise agencies to potentially exercise these rights when ‘the price or other terms at which the product is currently offered to the public are not reasonable [emphasis added].’”^g

Doug Holtz-Eakin, AAF president and former Congressional Budget Office director, explains:

In other words, forget the fact that one company has a patent and developed the product. The government will simply confiscate it and hand it to the next firm in line. …. Given the slightest connection to government funding, the government can preempt market activity on the grounds that the price is ‘too high,’ or the product is ‘too slow’ in coming to market, or the product is ‘too unsafe.’

Comment letter outlines concerns

On Feb. 6, the Galen Institute’s Health Policy Consensus Group submitted a comment letter to Laurie E. Locascio, director of the National Institute of Standards and Technology, raising concerns that the march-in guidance would:^h

• Drastically undermine one of the most successful U.S. laws that has furthered American technological leadership in developing new and better medicines
• Deny patients the benefits of new medicines that will never be brought to market
• Impede innovation by discouraging investment in treatments and cures that can take a decade or more to come to market
• Fail to achieve the more valuable goal of reducing the cost of illnesses (both treated and not-yet treated)

The letter notes that private companies would be deterred from licensing technologies developed through government-funded research at leading universities and federal laboratories. March-in rights would discourage investment in innovation to create new medicines, new medical technologies and new products in virtually any industry, thereby impeding the vibrant competition generated by companies, especially start-ups, that currently license patents developed with some federally funded research.

The Health Policy Consensus Group advised that the guidance/framework should be withdrawn:

In short, the proposal would be an assault on intellectual property rights, a right deemed so vital to economic development that it is enshrined in the U.S. Constitution. Opening the door to violation of these rights would weaken our economy by destabilizing the complex, integrated network of incentives and institutions that foster innovation, discouraging startup businesses, and giving adversarial countries new openings to exploit U.S. technological leadership.

U.S. policy should promote — not threaten — innovation. The IRA and the idea of march-in guidance are examples of Washington policies that threaten the innovation that is vital to continued medical progress. By limiting potential private companies’ returns on their investments, they will necessarily add risk for these companies. Many are concerned that the march-in mechanism could eventually be deployed to other industries, impacting technologies such as semiconductors and AI.

There are and will be court challenges to both the IRA and march-in policies. They are the wrong approaches to lowering prices.

The majority of all new drugs in the world are developed by companies based in the United States.ⁱ Our nation’s competitive market leads the world in supporting timely patient access to breakthrough medicines and a research-and-development ecosystem that also creates valuable jobs in the life sciences and healthcare sectors.

Private investment in research over decades has led to the innovations that are bridging the gap between identifying genetic abnormalities and knowing how to reprogram a patient’s mutated gene to cure abnormalities. But these technologies are expensive to develop.

“To save more lives, our payment innovations must match our medical innovations,” said Rep. Michael Burgess (R-TX), a physician and retiring member of Congress.^j Burgess says the nation needs new payment pathways that address affordability and access for these new therapeutics.

The need for ideas that truly promote innovation

Policymakers need thoughtful and well-framed ideas to understand the harmful implications of short-sighted price controls and voiding of patent rights and to chart a brighter path forward that values innovation. Government and private players could work together, with government issuing appropriate regulations for consumer protection while encouraging private sector energy and creativity. And, yes, we need novel payment policies that match the ingenuity of medical innovations.

We can’t price control our way to better health. But we can create a truly competitive, innovative health sector that fosters scientific progress, lowers costs through competition and leads to a better quality of life through better technologies.

Such policies would support the revolutionary progress that is achievable in the 21st century, which has the potential to be the golden age of biotechnology and medical progress. 

Footnotes

a. Ellis, R., et al., “Coalition letter opposing Inflation Reduction Act prescription drug price controls,” Center for a Free Economy, June 25, 2024.
b. Cubanski, J., and Damico, A., “Medicare Part D in 2024: A first look at prescription drug plan availability, premiums, and cost sharing,” Kaiser Family Foundation, Nov. 8, 2023.
c. White, J., “Inflation Reduction Act’s dirty little secret: Largest premium increase ever for Medicare drug benefit,” Townhall, May 3, 2024.
d. Council for Affordable Health Coverage, “CAHC highlight: Part D plan trends,” February 2024.
e. Philipson, T.J., and Durie, T., Issue brief: The impact of HR 5376 on biopharmaceutical innovation and patient health, The University of Chicago, Nov. 29, 2021.
f. Gassul, D., Bowen, H., and Schulthess, D., “IRA’s impact on the U.S. biopharma ecosystem,” Vital Transformation, June 1, 2023.
g. Westling, J., “Biden administration’s plan to expand march-in rights could harm all sectors of the economy,” AAF, Feb. 8, 2024.
h. Health Policy Consensus Group, “Comments to the National Institute of Standards and Technology Re: RFI Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-in Rights NIST–2023–0008 (Doc #230831-0207,” Letter to Laurie E. Locascio, Feb. 6, 2024.
i. Mulcahy, A., “Comparing new prescription drug availability and launch timing in the United States and other OECD countries,” RAND, Feb. 1, 2024.
j. Burgess, M., “How to pay for 21st century medicine,” The Hill, April 12, 2024.