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FDA Overreach, Medical Patent Seizures, Medicare Doctor Pay… and a Partridge in a Pear Tree

Paragon Newsletter
President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

As Americans prepare for Christmas and the holiday season, the House of Representatives passed legislation to codify Trump administration price transparency requirements and modestly expand site neutral payments in Medicare. Meanwhile, the Biden administration is proposing two harmful policies—the seizing of pharmaceutical patents and FDA overregulation of laboratory developed tests. In today’s newsletter, I highlight Paragon work from Dr. Joel Zinberg on these issues as well as a piece from Joe Albanese on problems with how Medicare pays doctors and potential reforms.

Marching in the Wrong Direction

On December 7, the White House released a fact sheet with several health policy proposals. In a recent Wall Street Journal op-ed, Joel wrote about one particularly harmful proposal—government seizure of pharmaceutical patents. The proposal would expand so-called “march-in rights” to allow the government to require drug patent holders to license their invention to someone else if the administration thinks the drug’s price is too high.

It’s important to understand some history. Before 1980, “the government owned federally funded inventions and granted only nonexclusive licenses to developers. Few companies were willing to invest the money and time to transform a scientific discovery into a practical product… The federal government owned tens of thousands of patents that sat unlicensed and undeveloped. Publicly funded research wasn’t benefiting the public.”

In 1980, Congress passed the Bayh-Dole Act, “which allowed universities, nonprofits and small businesses to retain ownership of patents for inventions discovered with the aid of federal funding. This ensured those inventions could be developed and made available to the public.”

Bayh-Dole “unlocked the discoveries made with taxpayers’ money, leading to development of the biotechnology sector and enormous numbers of life-saving drugs. The statute included a safeguard if patent holders were unwilling or unable to turn beneficial inventions into products. Government could ‘march in’ to abrogate their intellectual-property rights and grant licenses to other developers.”

Joel’s op-ed details how permitting march-in rights based on prices runs counter to the statute and intent of then-Senators Bayh and Dole who specifically said march-in was only to be used if a patent holder was unwilling or unable to develop an invention and make it available as a drug. They understood considering price for march-in rights would destroy drug innovation.

When the National Institutes for Health tried to insert “reasonable pricing” clauses into its cooperative R&D agreements in 1989, private development of government funded inventions plummeted. In 1995, NIH abandoned the policy because its director Harold Varmus said, “the pricing clause has driven industry away from potentially beneficial scientific collaborations with PHS (public health service) scientists” and is “a restraint on the new product development.”

The Wall Street Journal editorial board has also strongly criticized the Biden proposal, writing that “seizing patents would dampen cooperation between research institutions and industry, harming innovation and patients” and that this “could be [the Biden administration’s] most economically destructive executive act to date.”

Another FDA Power Grab

Last month, Paragon published Joel’s report, Unwise and Unauthorized: FDA Regulation of Laboratory Developed Tests. In a December 12 piece in National Review, Joel summarizes his argument, both legal concerns that the FDA lacks authority for this regulation and policy concerns that such regulation will reduce innovation and harm public health. From the piece:

LDTs are performed billions of times a year … and generate billions of dollars in revenue. Exempting LDTs from FDA oversight gives specialized labs flexibility to rapidly create new tests for rare diseases and emergent situations.

Despite the FDA’s claims to the contrary, there is little evidence that LDTs are less reliable or accurate than FDA-approved tests. And awaiting the FDA’s review and clearance of new tests can delay critical testing with disastrous results. …

The FDA acknowledges that its rule will impose significant compliance costs on laboratories that offer LDTs — $35.5 billion over the multi-year phase-in and additional recurring costs of $4.2 billion — leading some laboratories to exit the market or discontinue certain LDTs they offer. Ninety percent of the laboratories offering LDTs are small businesses. The new rule would impose annualized costs per small laboratory that are 22.9 percent of receipts, which, the FDA admits, will cause many to “exit the market or reduce operations.” If the prospect of a lengthy and costly FDA process discourages labs from creating innovative new tests or tweaking FDA-approved tests to make them better, patients will lose access to valuable tests for unmet clinical needs or where FDA-approved tests are inadequate.

Fixing How Medicare Pays Doctors

Last month, Paragon published a report from Joe Albanese, Escaping from Medicare’s Flawed Physician Payment System. On December 9, the Washington Examiner ran an op-ed by Joe explaining coming Medicare cuts to clinician payments along with potential reforms.

Under the Medicare Access and CHIP Reauthorization Act of 2015, doctors face a 3.4% payment reduction in 2024. Congress may undo these reductions, including by extending expiring bonuses for participating in advanced alternative payment models (APMs). Some fear that cuts could lead doctors to stop accepting Medicare patients, but clinician participation in Medicare has never been higher. Joe argues that permanent reforms should take a balanced approach and control costs:

First, any changes to physician pay should be offset by other Part B savings…

Second, payment incentives for APM participation should not continue, at least not in their current form… they have had a mixed record and do not warrant their continued expense unless they can deliver better results…

Finally, Medicare should change the way it pays for doctors… relying on government agencies to calculate healthcare prices will always reveal flaws that force policymakers back to the drawing board after a few years. A better approach would be to adopt the advantages of market competition by using private pricing data in traditional Medicare…

A happy last night of Hannukah to those who celebrate. In closing, I wish all of you, who have procrastinated shopping for your Christmas presents like I have, the best of luck in finding what your loved ones will value.

All the best,

Brian Blase
Paragon Health Institute

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