‘Government Patent Use’: A Legal Approach To Reducing Drug Spending

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.

Lowering the High Cost of Hepatitis C Drugs

“…An initial pilot project within the Medicare drug market would allow for analysis of implementation across the broader Medicaid and commercial markets. While anticipating the usual rallying cry of pharmaceutical companies that doing so would discourage the investments that result in new drugs, we theorize that utilizing a companies would likely complain that the use of section 1498 interferes with their incentives to invest in innovation, but they point out that these incentives would remain robust if the government paid fair royalties sufficient to compensate the companies for research and development costs, adjusted for risk of failure and margin of error in calculations made by a court or agency [37]. There have also been calls for the Department of Veterans Affairs to invoke this law to address the funding shortfall that has resulted from the high demand for high cost hepatitis C antiviral drugs [37].…”

“…section 1498, accords the government the right to use patented inventions without permission with the requirement that the government pay the patent holder a "reasonable and entire compensation." Under the law patent holders can demand royalties but they cannot prevent the government from producing the medicine or allowing others, most likely generic drug manufacturers, from doing so [37]. While the government's authority to invoke the 'Government Patent Use' law is limited to federal use, it would cover Medicare, Medicaid, the Veterans Affairs health system, and the Department of Defense [37].…”

“…Under the law patent holders can demand royalties but they cannot prevent the government from producing the medicine or allowing others, most likely generic drug manufacturers, from doing so [37]. While the government's authority to invoke the 'Government Patent Use' law is limited to federal use, it would cover Medicare, Medicaid, the Veterans Affairs health system, and the Department of Defense [37]. Government patent use has been compared with the power of eminent domain which enables the government to take private property for public uses while reimbursing the owner at fair market rates.…”

“…Government patent use has been compared with the power of eminent domain which enables the government to take private property for public uses while reimbursing the owner at fair market rates. The courts typically set compensation at 10 percent of sales or less [37]. The Department of Defense and the Department of the Treasury have used this law.…”

“…In response, the Health and Human Services Secretary raised the possibility of importing generic versions under section 1498. Bayer then agreed to provide an adequate supply of Cipro at a 50 percent discount [37]. Amy Kapczynski and Aaron Kesselheim propose using the Government Patent Use law to lower the cost of hepatitis C drugs for federal medical programs.…”