Biden Administration Moves Ahead with Its Unconstitutional Drug Pricing Regime That is Doomed to Fail

Last week, the White House announced that the manufacturers of all ten of the drugs singled out by the Centers for Medicare and Medicaid Services (CMS) and its drug price negotiation program (DPNP) have “agreed” to participate therein.

The announcement concerns the manufacturers reluctantly agreeing to subject themselves to the sweeping drug price “negotiation” provisions of the Inflation Reduction Act (IRA), which was passed last year. Those provisions empower CMS to essentially dictate whatever price it pleases for a set of prescription drugs, the first ten of which were announced at the end of August.

The Biden administration described the “negotiations” as providing a “critical tool” to ensure that seniors get prescription drugs at lower prices. Unfortunately, the DPNP is not only an affront to the rule of law and the sanctity of our Constitution, but it will never achieve its stated objectives; at least not in the long term. Any price reductions will be temporary and come with unimaginable collateral damage, including a major drop-off in new drug development and the loss of America’s status as the world leader in biopharmaceutical innovation. Nevertheless, the price-control proponents have forged ahead with their unconstitutional crusade to force down the price of prescription drugs, despite  early evidence of the collateral damage and barrage of pending lawsuits.

These so-called negotiations represent not only a conflict of interest but also an obscene usurpation of the manufacturers’ constitutional rights. In other words, CMS, as the largest purchaser of innovative medicines, will now determine the price it pays for same. Moreover, the unprecedented authority bestowed onto the federal government by the IRA represent powers the Framers never intended it to have. The Commerce Clause was intended to promote commerce not to provide the newly created federal government a vehicle to control major sectors of the American economy.

Specifically, the IRA’s DPNP establishes a “maximum fair price” but does not establish a price floor. In addition, it does not maintain a fair and equitable process, provide for administrative hearings and judicial review, allow a manufacturer to refuse negotiations, take public comments into account, or enact protections to ensure negotiated prices are not confiscatory when deciding how to price a prescription drug. Therefore, the price control program strips firms of their property rights without due process of the law, in violation of their Fifth Amendment Due Process guarantees.

The DPNP also demands companies to surrender their property to the government without just compensation. It’s arguably legalized theft. There is no provision of the U.S. Constitution that authorizes the federal government to take the property of one American and give it to another. I’ve checked. It’s not there. In fact, it is another clear violation of the Fifth Amendment, which expressly prohibits the government from taking private property for public use without just compensation

Furthermore, CMS will coerce drug companies to publicly agree to the so-called price “negotiations” under threat of a constitutionally excessive tax and nonparticipation in Medicare and Medicaid. As a result, the notion that the process is voluntary is unequivocally flawed. The true “negotiation” will amount to a shakedown that companies are forced to endorse, in an act of compelled speech in violation of their First Amendment rights and the Excessive Fines Clause of the Eighth Amendment.

As referenced above, promising drug development programs are already being cancelled as a result of the IRA. Those pushing the IRA are either too blind to see it or too committed to their ideology to reverse course. Either way, the mirage of their utopian vision for America prevents them from seeing the reality and, more importantly, explaining it to the American people.

It’s the Patent System!

If Congress is really interested in lowering drug prices, it would, first and foremost, fix the U.S. patent system. It would immediately enact subject matter eligibility and Patent Trial and Appeal Board (PTAB) reform. There are two bills already introduced in Congress – the Patent Eligibility Restoration Act (PERA) and Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act (PREVAIL), which, with a bit of compromise within the pro-strong patents right community, could easily be passed. If Congress were to also enact legislation to restore the ability of victorious patent owners to readily obtain a permanent injunction (as victorious trademark owners currently enjoy), that would constitute a patent-system-strengthening trifecta.

Patents – strong patents – are the answer and the only real way to start the process of lowering drug prices. Strong patents will bring more products to market sooner. Not the identical product in the form of a generic, but robust competition in the form of contemporaneous, substitute products, wether in the form of an alternative drug with the same mechanism of action (MOA) or drugs that treat the same disease via a different MOA. More advanced, next-generation products immediately begin to lower the price of the previous generation product.

Think about the evolution of how we consume video content. In the 1980s, we had VCR’s. In the 1990s, we had DVD players. The 2000s brought us streaming. One more VCR or DVD player, even a no-name brand, that might have come about by eliminating the patents covering those products, would certainly have helped to keep prices from rising but, what drove prices of VCRs and DVD players to zero was the emergence of a set of disruptive new technologies—an innovation, if you will—that brought us a brand-new, never-before-thought-of way to consume video. As streaming started to take hold, despite the increased access to content and convenience of streaming, VCRs and DVD players remained perfectly viable technologies for many years and allowed millions of Americans to consume all manner of video content. But eventually, streaming became so affordable that consumers gravitated to it. Today, streaming is ubiquitous (lack of bandwidth notwithstanding). The scenario plays out time and time again with all next-generation technologies. The once state-of-the art and perfectly acceptable prior generation product remains widely available as the next generation product gradually takes hold. And with the free market doing what it does, the prices of both products come down gradually over time. It is the innovation process in a nutshell.

The emergence of those next-generation technologies was made possible by the strong U.S. patent rights that existed at the time. Disruption lowers prices. Disruption requires strong patent rights. Without strong patent rights, the entrepreneurship and the capital investment necessary to invent the disruption and bring it to the marketplace sits on the sidelines.

Why Wait?

Frankly, generic competition is all well and good. But who wants to wait around for generic competition? Americans have never been passive and have never been ones to sit around and wait for things to come to them. Americans are proactive problem-solvers that love a challenge. Their ingenuity and willingness to improvise is how we won WWII. It’s what made the 20^th century the American Century. As General George S. Patton is purported to have once said, “I don’t want to get any messages saying that we are holding our position, we’re not holding anything…, we are advancing constantly….” Here, Americans should never be forced to wait for a generic medication. We should be constantly advancing new treatment options onto the battlefield. That is the way to not only defeat disease, but to do so at the lowest possible cost and at the earliest possible time point. Because, just like in video technology, there is no need to wait. Each breakthrough, each disruption, enabled by strong patent rights, can come immediately. The breakthroughs do not infringe existing patents and, immediately and over time, drive down the price of the previous generation and still highly effective product.

Clearly, fixing the U.S. patent system will not in and of itself get drug prices to where we’d like them to be, but it is an essential first step and it will make an impact. It will go a long way to solving this problem and many others as we confront a rising China. The IRA’s DPNP is unconstitutional and doomed to failure. It’s time to end it, stop all efforts to expand it, and focus our attention where it needs to be—the broken U.S. patent system.

Image Source: Deposit Photos
Author: iqoncept
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