Hospital Impact: Congress must learn from the past and avoid undermining medical research

Joseph Allen

What's the definition of "doing the same thing repeatedly and expecting a different result?" If you said "a good idea," you might want to consider a career in politics.

Many in Congress want to impose price controls on medicines that result from federally funded research. We've tried this before, and it nearly brought medical research and development to a halt. 

Lawmakers aren't wrong to want to lower drug prices, but they should find a strategy that isn't a proven failure. These policies would have terrible ramifications for the future of National Institutes of Health-supported research and development while harming those suffering from the ravages of disease.

Responding to congressional pressure in 1989, NIH officials incorporated a form of price controls known as a "reasonable pricing" clause in its licensing agreements. In short, they didn't want to let private firms build upon publicly funded discoveries to commercialize resulting products unless the government had a say in pricing decisions. 

Their actions were well-intentioned. By placing conditions on medical patent licensing agreements, they hoped to decrease drug costs for consumers.

But the results were disastrous. After adopting "reasonable pricing" clauses, the number of Cooperative Research and Development Agreements (CRADAs) signed between companies and the NIH plummeted by more than 30%. Private companies were disincentivized from collaborating with the NIH on critical research. The reason is easily understood. Who would spend hundreds of millions or billions of dollars and years of painstaking development commercializing a drug if the bureaucracy could take it away if it doesn't like the price?

In 1995, following a severe backlash to the "fair pricing" policy, the NIH removed the provision. As then-NIH Director Harold Varmus, M.D., explained (PDF), "the pricing clause has driven industry away from potentially beneficial scientific collaborations with [NIH] scientists without providing an offsetting benefit to the public." 

The next two years saw the number of CRADAs soar by more than 500%, reaching over 150 agreements in 1997. The NIH has never tried to implement similar policies since. 

But members of Congress have just written to President Donald Trump asking that the Bayh-Dole Act, which spurred the development of inventions made with federal funding, be turned on its head so agencies can take away inventions that are not "reasonably priced." As that term is undefined, the bureaucracy decides what it means.

We've tried Washington micro-management before, and it doesn't work. Prior to Bayh-Dole, not a single drug was developed when the government took inventions away from their creators. Nowadays, partnerships between universities, the NIH and industry make the United States the world leader in drug development. That status should not be lightly jeopardized.

Rather than top-down regulations that discourage research investments, elected officials should consider market-based solutions to lower drug prices. For instance, officials could repeal regulations that prohibit drug companies and insurers from entering into voluntary "value-based" contracts. 

RELATED: White paper sets roadmap for value-based pharma contracts

Imagine a drug company develops a new cholesterol-lowering medication. Insurers might agree to cover the medicine, but demand a rebate if the drug fails to reduce the number of heart attacks and strokes suffered by patients by a certain agreed-upon percentage. The agreements expand access to medicines and split the risk of developing drugs between pharmaceutical companies and insurers.

In many cases, these agreements are illegal. Modernizing regulations to allow for more value-based contracts would help ensure patients maximize benefits from their medicines. And it would also increase the number of drugs available to treat different conditions. That would increase competition and drive down prices.

Officials could also demand strong intellectual property protections in international trade deals to prevent foreign countries from taking advantage of American innovation. Many countries have weak IP laws that impede private firms from selling their medicines in foreign nations at market prices. That increases the burden on U.S. consumers, who wind up footing most of the bill for innovations that benefit the entire world.

Many elected officials apparently haven't learned from the NIH's "reasonable pricing" debacle of the 1990s. The ideas they propose would chase away investors, hamper tech transfer, and kneecap medical research. Would it be so crazy to give the free market a chance?

Joseph Allen, the founder of Allen & Associates, consults on intellectual property and technology transfer policies. For 12 years, he headed the National Technology Transfer Center.