Guest post: "Growing war on intellectual property, a threat to health for all"


Few topics attract as much attention as drug prices, and patent protection, with data protection thrown in, are often pointed to as a major factor in their cost. Kat friend D. Wayne Taylor, until his retirement, a member of the faculty at the DeGroote School of Business at McMaster University and the founder of The Cameron Institute, takes strong issue with the attack on IP in the name of drug prices.

There is a growing war on the prices of patented medicines. As a result of this myopic focus on drug prices, and the accompanying perception that the pharmaceutical industry is insensitive to affordability and access concerns, there is also a growing trend against intellectual property (IP) and the right of the research-based, bio-pharmaceutical industry to protect their IP in the interest of sustaining an innovative industry.

Intellectual property refers to the creations of the mind, such as medical research. The protection of IP allows the creator to benefit from innovation so that further innovation may be pursued. IP protection, in the case of drugs, consists mainly of patents and data protection, which allow research-based pharmaceutical companies to invest their earnings in the research and development of new entities in an ongoing, patient-needs based, business model. Without IP protection, there would be no profits, no research and development, and thus no new medicines.

Governments and their advisors confuse price with aggregate spending, which is a product of price and quantity used. In developed countries government drug spending is being driven by increased utilization by ageing populations increasingly burdened with chronic illnesses, and the increasingly widespread use of cheaper generics — not the prices of brand name drugs.

Prescription pharmaceuticals are a small piece of the health expenditure pie. Over the past 15 years, according to the OECD, overall government drug spending in Europe has grown at rates less than overall healthcare spending. Within that, innovative pharmaceuticals are growing at rates less than generics due to many of the brand-names going off patent.

In general, most prescriptions are priced at levels that people can afford even without a drug benefit program. However, the use of medication is skewed and a small proportion of the public uses a disproportionate amount of expensive medication. Based upon the facts, innovative pharmaceuticals are the least threat to the sustainability of health spending – a concept never clearly defined. Statements such as “drug prices are increasing” and “drug costs are not sustainable” are never supported by data or analysis.

Yet, governments are deploying short-term mechanisms such as ad hoc price controls and the threat to issue anti-IP, compulsory licenses as means to address this sustainability. These measures fail to take into account the long-term impact on innovation and patient access to innovative medicines. From the patient perspective, a key barrier to access and affordability in developed countries is inadequate health insurance coverage (e.g. high out-of-pocket costs for out-patient medicines), and in less developed countries a lack of safe and dependable healthcare infrastructure, not prices per se.

In a 2017 report, the World Bank and the World Health Organization (WHO) said it was unacceptable that half of the world’s population cannot obtain essential health services, including essential medicines that are off-patent.

In 2018 a key finding of the 7th joint symposium of WHO, the World Trade Organization and the World Intellectual Property Organization was that patents and prices are not directly linked. The report concluded that making innovative medicines accessible to all through a market-based system is a key pillar of universal health coverage. Medical innovation will expedite the realization of the United Nations’ goal of health for all with patients world-wide, enabling the receipt of the care they need without undue financial hardship.

Pharmaceutical prices are derived from a myriad of factors: laboratory, university and hospital research costs, regulatory compliance costs, import taxes, inefficient national procurement and supply chain management systems, and the role of intermediaries. Differential pricing among markets has been used in many research-based industries for many years based upon identifying different categories of buyers for which different prices would be used.

The World Bank and the OECD endorse differential pricing for medicines as a means to increase economies of scale in production through greater sales thus reducing costs, prices and distribution inequities around the world. Briefly put, differential prices allow early access to new medicines in wealthier countries and lower prices than would be predicted in developing countries. Governments and employers, whether through direct expenditure or insurance, are better able to afford medication costs than patients, especially for the new, more expensive, more effective drugs coming to market today. If government believes that prices are too high for it to purchase drugs, how does it expect patients to purchase them?

Misguided efforts to lower drug prices are mainly of benefit to government. Driving prices down decreases the incentive for firms to create and market pharmaceuticals and this leads to decreased supply of both patented medicines and lower priced generic drugs. The distortion of the health care system by a mistaken focus on price and IP will shift pharmaceutical benefits from giving a priority to those with the greatest need and the least wherewithal to those with the least need and at the lowest cost to government.

WHO claims that medicines are the leading intervention in healthcare today and the co-relational proxy for a healthy healthcare system is patient access to needed medicines. Medicines avoid costs elsewhere in the system, reducing the need for surgeries, radiation, palliative and supportive care and all the attendant costs associated with these. As we move forward, the flow of new cancer drugs and new drugs for rare diseases will change dramatically the health system and this will magnify the battle between arbitrary cost-containment and patient access. Universal healthcare is supposed to keep people healthy and reduce financial barriers to accessing needed care.

Countries with price controls and weak IP protection have worse access to medication. A continued war on IP and prices in Europe will not control overall costs and will only shift them to the patient, whether in the form of financial ruin, worsened health, or premature death. Innovation creates high-paying jobs and stimulates economic growth. Innovation in medicine saves lives, but innovation requires investment and pricing flexibility across country markets.

A war on drug prices and IP is completely wrong-headed given the evidence, and contrary to the reality that we all want healthcare for ourselves and our loved ones when we need it. The biggest threat today to the future sustainability of health care is not drug prices and IP but the high cost of political ineptitude.

Photo on left is by Ragesoss and is licensed under the Creative Commons Attribution Share-Alike 3.0 Unported license.

Guest post: "Growing war on intellectual property, a threat to health for all" Guest post: "Growing war on intellectual property, a threat to health for all" Reviewed by Neil Wilkof on Friday, June 28, 2019 Rating: 5

7 comments:

  1. "Countries with price controls and weak IP protection have worse access to medication." Can you provide some examples please. I am intrigued.

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  2. Would it not be far more rational for the world to abolish IP protection on pharmaceuticals and turn to government-funded research with all developed countries contributing their fair share? Pharmaceutical companies would have access to the same knowledge and market authorisations and would compete on manufacturing costs.

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  3. A Kat reader has asked me to publish the following:

    "On the issue of drug prices, it’s been brought to this Kat's attention that the Globe & Mail, a widely-read Canadian national newspaper, recently published an article (see link below) that describes the financial hardships faced by many Americans whose life depends on regular administration of drugs such as insulin. Caravans of Americans routinely travel to Canada to obtain vital drugs at a fraction of the price of the same drugs in the USA."

    https://www.theglobeandmail.com/canada/article-caravan-of-american-parents-patients-seeking-cheaper-insulin-to/

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  4. The price increase of insulin in the USA must have been caused by Obamacare and/or antitrust violations, not by long-expired patents.

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    Replies
    1. There are several reasons for higher prices for insulin. First, list prices are only ever mentioned since no one knows what discounts and rebates exist throughout the supply chain – and they are significant. Utilization and prescribing has shifted from the old human insulin to the newer and faster acting/more consistent human insulin analogues. However in many cases patients prescribed the more expensive analogues do not need them and could do just as well on the old meds. Finally, formulary decisions are seldom patient friendly. The new analogues are more expensive but insurance coverage remains the same so higher co-pays and out-of-pocket payments result for the patient (let alone the dough-nut mentioned above).

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  5. Regarding the statement "Countries with price controls and weak IP protection have worse access to medication", it is worth bearing in mind that "access to medication" does not mean that the average person is able to afford the medication they need. Americans theoretically have access to all the medicines they will ever need but this means nothing if they cant afford them, as borne out by the article in Neil's comment

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    Replies
    1. I agree. See my replies above re lack of insurance coverage (public or private) as well as differential pricing.

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