Rachel Kemel
Associate Editor
Loyola University Chicago School of Law, JD 2020

Drug companies need to fund the research and development necessary to create better products. This means that pharmaceutical companies have fought for years to maintain control over the prices of said drugs. But this standard is being challenged with a new bill that was introduced to the House of Representatives on June 25, 2018.

The United States and Affordable Care

The United States is not known for affordable health care. The U.S. spends around $8,500 per person on health care, more than any other country in the world. The United States has higher drug prices than any other country. For instance, in the US, a particular drug costs $215, while that same drug costs only $23 in the Netherlands.

What causes such large disparities in prices? The main reason seems to stem from the unparalleled power drug companies receive through their patent rights. These rights provide them with the ability to charge whatever price they desire, and they have no competition to balance them out.

Healthcare regulation has always been a hot topic on both sides of the aisle, and the passage of the Affordable Care Act (ACA) in 2010 only intensified that debate. Lobbying efforts have prevented elected officials from advocating for regulated drug prices, or allowing Medicare—which pays for around 30% of all prescription drugs and covers 16% of the U.S. population—to negotiate with drug companies.

The Bill Itself

Lloyd Doggett, a Democratic senator from Texas, has brought HR 6505 to the table, and could very well irrevocably change the way healthcare is handled in the US. This bill would allow Medicare to negotiate reasonable prices with pharmaceutical companies. Under the bill, if the company refuses to negotiate, the federal government is allowed to “suspend exclusivity for drug patents and authorize other companies to offer generic competition.” Essentially, the bill allows Medicare to create compulsory licenses if the pharmaceutical company refuses to comply. The bill would force drug companies to enter the competitive market sooner than they had originally been promised with patent rights.

What’s the Big Deal?

Pharmaceutical companies have argued for decades that they need control of their products. Companies argue they need to control their drug prices to ensure they have the ability to further develop new and better drugs for the public consumption.

Rep. Doggett has noted that even though profits for pharmaceutical companies are at a record high, R&D budgets do not appear to be rising in conjunction.

HR 6505 essentially creates a compulsory license, which allows the government to choose product pricing. Pharmaceutical companies are angered by these types of licenses because their key right to set product prices is taken away. Compulsory licenses are legal in the US and are allowed under the TRIPS agreement. The licenses are utilized in different countries around the world to improve access to drugs.

TRIPS is an international agreement that requires its member countries to comply with agreed upon minimum standards regarding patent regulation. Countries can create domestic laws that allow them to issue compulsory licenses under TRIPS, but they are not required. TRIPS requires that “adequate remuneration” be paid to the patent owner, which considers the “economic value of the authorization”. TRIPS does not go into detail as to how a country would determine the amount of compensation a drug company should receive for their compliance with the compulsory license.

Elizabeth Wright states that this bill “steal[s] the company’s patent through compulsory licensing and allow another manufacturer to make a generic.” She goes on to say that it is “…nothing more than government-sanctioned theft.”

Will this Bill Actually Be Beneficial?

James Love, director of Knowledge Ecology International (KEI), states that this bill would be a huge step forward in “protecting patient interests”. However, he cautioned his readers that 84% of the US population does not qualify for Medicare. This bill, according to Love, should not be the endgame for Democrats, but instead the foundation to continue their work with compulsory licenses and encourage the separation between R&D incentives and drug pricing.

What Will Big Pharma Have to Do?

If this bill is passed, pharmaceutical companies will have to two main options. They can either set prices and hope that Medicare will find them agreeable (and if Medicare does not, then drug companies will have to go through the arduous negotiations process), or they will have to from the start set their drug prices lower than they normally would prefer.

The way drug companies approach their R&D programs could change. Critics of HR 6505 argue that drug companies will have less money will be funneled into the company’s R&D since the company is not making as much profit with its on-the-market products. Thus, the company will not be able to engage in anti-competitive behavior to the extent that they have grown accustomed to under current patent laws if they wish to continue to work with Medicare.

In addition, HR 6505 could cause drug companies and Medicare to have a different type of conversation. It could also cause drug companies to have greater transparency regarding how they determine the costs of their products. Another key issue that has been debated in American healthcare is how much transparency drug companies should provide in where their money goes. If HR 6505 goes forward, it is entirely possible that Medicare will pressure drug companies into revealing where their money goes to justify their proposed drug prices.

Does the Bill Stand a Chance?

Although it is still too early to tell, HR 6505 appears to be gaining traction. As of August 1, 2018, there were 82 cosigners. However, they are all currently Democrats. For the bill to continue, Democrats will have to understand the influence drug companies have over the political sphere. In addition, they must realize that many senators will attempt to fight this bill in the name of the free market.

Pharmaceutical companies have advocated against regulated drug prices due to the belief that it will stifle innovation and prevent better drugs from getting to market. It is unlikely that drug companies will allow this bill to go forward without a fight. If the Democrats want any chance in the bill passing, they will have to take on Big Pharma.