The Biden Administration recently announced it would use existing laws to ensure that government-funded drugs will remain affordable to most Americans. That may include cancelling a pharmaceutical company’s patent and allowing rival companies manufacture the drug. But can this approach work?
Under the 1980 Bayh Dole Act, the U.S. government retains “residual rights” for inventions—including drugs—that were developed using federal dollars. This includes the right to grant licenses to third parties, if the benefits of the invention, in this case accessibility of certain drugs, are not available to the public on reasonable terms. It’s known as “march-in rights,” and new proposed guidance from the Federal Trade Commission and National Institute of Standards and Technology will now permit price to be among the considerations when agencies assess whether a drug is considered accessible.
“We as the government have never asked before what accessibility really means. In the past, it’s always meant, is it legal to purchase,” said White House domestic policy advisor Neera Tanden. Agencies like the Department of Health and Human Services can now consider whether a drug is priced so high that it’s basically out of reach to millions of Americans.
“It is a really big change. And we're the first administration to do this,” she said in a phone interview with Fortune.com.
Many important and life-saving drugs have been developed and manufactured over the years with funding from agencies like the National Institutes of Health, from COVID vaccines to cancer treatments. Usually, the manufacturer keeps ownership and can file for patents. But because the new guidelines allow the government to consider price as a factor, it can step in if regulators think a drug is unaffordable for most patients.
“We see this as a highly impactful tool to drive down prescription drug costs,” Tanden said. “When Americans and the federal government invest in a drug, that brand has to be accessible to the public. And I think it's a very common-sense assessment to say if you can't afford it, it's not accessible.”
Many Americans think the government should be doing more to bring down the cost of prescription drugs, according to a KFF tracking poll. More than one in four (28%) said they had trouble affording their medications, and 31% reported skipping medications due to cost. The Inflation Reduction Act already authorizes HHS to negotiate with pharmaceutical companies to bring down the highest cost drugs for Medicare beneficiaries and to cap the cost of insulin at $35, Tanden pointed out. That law also establishes an out of pocket cap under Medicare’s Part D drug plan in 2025.
“We want to lower drug prices for all Americans. We started with seniors and the Inflation Reduction Act, but our goal is to drive prices down across the board,” Tanden said.
More transparency on the horizon
The Administration is also stepping up efforts to increase transparency of ownership of hospitals, nursing homes, assisted living, and other health care facilities. The Federal Trade Commission, Department of Justice and Department of Health and Human Services are teaming up to share as much data as possible so the public has a better sense of who actually owns these facilities, what the performance standards are, what kind of services they’re actually delivering and at what price. Information and data on ownership gives people and communities tools to understand whether consolidation is really about better service or just improving profitability at consumers’ expense, according to Tanden.
This has been a particular problem in many rural areas of the U.S., where some 600 rural hospitals were at imminent risk of closure in 2023, and hundreds more facilities, including clinics and nursing homes, shut or consolidated in the past few years. “The fact that people have to drive hours and hours to get to a hospital because of the rate of closure is deeply problematic,” said Tanden.
Emergency Rural Health Care Grants from the USDA will help expand critical services and improve health care facilities in rural areas throughout the country. “There's a fine line between consolidation and efficiency,” Tanden said. “It's really important that people understand how companies are operating so that they are not using their amassed power to drive up prices .”
Pushback on Biden’s announcements was sharp and swift. The U.S. Chamber of Commerce called the action on march-in rights “government confiscation,” and threatened legal action to stop it. Senator Bill Cassidy (R-Louisiana), ranking member on the Senate’s Health, Education, Labor and Pension (HELP) committee, issued a statement which said in part, ““This kind of short-sighted decision would kill American health care innovation and deny millions of Americans future lifesaving cures and treatments.” And the industry trade group PhRMA noted, “Such use of march-in rights would chill innovation and undermine collaboration between the public and private sectors returning us to the pre-Bayh-Dole era where promising new technologies sat on the shelf benefitting no one.”
However, Tanden said she’s not too concerned about the critics. “It can mean the difference between life or death for somebody, so charge a price people can afford. The government is investing in this in these drugs in order for the public to benefit, and if the public isn't benefiting, then that's the real problem.”
