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Why doesn’t the federal government ensure reasonable prices for drugs developed with public funds?

Written by Diane Archer

The U.S. invests more than $32 billion each year in drug and biomedical research. This major public investment in drug research empowers the government to make drugs affordable under the Bayh-Dole Act of 1980. But, even when drug companies price critical drugs at staggeringly high prices, the government has never used this authority. Why doesn’t the federal government ensure reasonable prices for drugs developed with public fundsan appropriate return on the public’s investment?

According to Peter Arno and Michael H Davis, Bayh-Dole revises the U.S. patent law so that the federal government can ensure new drugs developed in part or whole with federal dollars are priced reasonably. Put differently, when federal dollars support research on a new drug, the drug manufacturer is supposed to price the drug reasonably. If the manufacturer does not, the federal government has the right to authorize another manufacturer to license the drug and sell it at a reasonable price.

So, even when there’s a patent on a drug developed with federal money, the U.S. has the right to a royalty-free license. As Alfred Engelberg and Aaron Kesselheim write in Nature Medicine, June 2016,  Senator Bayh explained that the goal was for the U.S. to “use for itself and the public good inventions arising out of research that the Federal Government helps to support.” But, the government’s authority under the law can be interpreted broadly or narrowly.

To date, the government has interpreted the Bayh-Dole law narrowly. According to Peter Arno, “the federal government essentially has argued time and again that if a drug company sells the new drug in the U.S., it has met the criteria for Bayh-Dole; it completely misconstrues the part of Bayh-Dole that calls for making the drug available to the public on “reasonable terms.” Based on a review of Congressional testimony before passage of the Bayh-Dole Act, “reasonable terms” means reasonable prices.”

Arno further explains that “both Democratic and Republican administrations have, for more than 30 years, refused to enforce this provision of Bayh-Dole. At the same time, counting on the lack of government interest in enforcement, the drug companies have been cavalier in even recording the Bayh-Dole legend in their patent applications (a requirement)–often leaving them out altogether, making it harder to track Bayh-Dole inventions.”

Earlier this year, 50 members of Congress formally requested that the Department of Health and Human Services (DHHS) and the National Institutes of Health use their authority to enforce Bayh-Dole’s reasonable pricing provisions to help bring down the price of drugs. In a related response, to the high-priced drug (Xtandi) the DHHS argued that the need was not there since there was an adequate supply of the drug. (See documents appended below.)

Why should the drug industry be the exclusive financial beneficiary of research that the public helps fund? The public should benefit as well. Instead, as we explained in a previous post, federal policy is driving up drug prices. If you think it’s time the federal government took action to bring down the price of drugs, sign this letter from Social Security Works to the next president of the United States requesting the President take executive action to rein in drug prices.

Here’s more from Just Care:

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  • I thought that when legislation was passed to establish Medicare that it included a provision that prohibited the government from negotiating for lower prices. I assumed this was the result of generous donations from drug industry to re-election campaigns.

  • It would be interesting to know how many members of congress were physicians before they went into politics. Also, I think that pharmaceutical contributions to members of congress should be made public, preferably during the next campaign cycle.

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