'Government Patent Use': A Legal Approach To Reducing Drug Spending

Headnote

ABSTRACT The high cost of patent-protected brand-name drugs can strain budgets and curb the widespread use of new medicines. An example is the case of direct-acting antiviral drugs for the treatment of hepatitis C. While prices for these drugs have come down in recent months, they still create barriers to treatment. Additionally, prescribing restrictions imposed by insurers put patients at increased risk of medical complications and contribute to transmission of the hepatitis C virus. We propose that the federal government invoke its power under an existing "government patent use" law to reduce excessive prices for important patent-protected medicines. Using this law would permit the government to procure generic versions of patented drugs and in exchange pay the patent-holding companies reasonable royalties to compensate them for research and development. This would allow patients in federal programs, and perhaps beyond, to be treated with inexpensive generic medicines according to clinical need-meaning that many more patients could be reached for no more, and perhaps far less, money than is currently spent. Another benefit would be a reduction in the opportunity for companies to extract monopoly profits that far exceed their risk-adjusted costs of research and development.

In the past decade, Medicare Part D and the Affordable Care Act (ACA) have radically increased the number of patients who have insurance to help pay for their prescription drugs.1,2 Spending on prescription drugs by government payers continues to rise largely because of the use of costly brandname drugs.3 In response to high drug prices, Part D plans and state Medicaid programs use various mechanisms to restrict prescribing.4 These programs have generated controversy in the recent context of direct-acting antiviral agents to treat hepatitis C, which appear to be superior to other treatment options but which are also much more expensive-with launch prices reaching $1,000 per pill5 or more.6

A recent survey of forty-two states ' Medicaid programs found that almost all of them imposed sobriety requirements, and three-quarters required advanced liver fibrosis, before patients could receive a direct-acting antiviral.7 As one extreme example, Illinois's Medicaid program has twenty-five criteria that patients must meet, including some with no clear evidentiary basis.8

Rationing is a predictable response to high drug prices. Notably, though, new medicines such as Sovaldi are expensive not because...