Denying New Patents Could Control Costs

May 5, 2010 -- In previous commentaries I have started by paraphrasing the landmark study by the Kaiser Family Foundation, which claims that the costs of new medical technology and drugs are the primary driver of healthcare inflation.

 

I have argued that the process of patenting these new technologies gives them unfair protection in the marketplace because new drugs and technologies do not compete in a truly free market.

 

I have also asserted that the best way to control these costs is to raise the bar for allowing a patent on healthcare related new products, which are paid for by third party insurance or government programs.

 

Patents are guaranteed under the constitution (article 1, section 8). Yet the granting of patents is subject to laws enacted by Congress. These laws govern the definition of what can be patented, the breadth of coverage and the length of time allowed for the patent.

 

Patents are a rarely allowed monopoly that encourages innovation. Innovation was seen as so important that our founding fathers felt it was necessary to constitutionally protect it from the “free and open market,” but only for a defined period of time.

 

By definition something which is novel and useful can be patented. The length of coverage currently is 17 years after it is granted. Patent pending does not provide protection from infringement.

 

My argument is that most new medical products are not useful enough to deserve a patent in light of the fact that these new innovations do not compete in the free market. The market, in effect, will define an innovation as useful if it can be produced and sold for a profit directly to the consumer. If you do not have to compete against currently available technology, as other new non-medical innovations must, then the bar for patent protection needs to be much higher to prevent abuse of that monopoly.

 

My proposal is for a new and fair definition of a “useful” new medical product is simple and straightforward.

 

First it should do no harm or at least less harm than what is available.

 

Second it should provide measurable improvement in quality of life.

 

Third, it should provide measurable improvement in length of life.

 

Lastly, since these new products do not face market forces whereby the patient pays for them with their own money, we should expect them to lower healthcare costs overall.

 

I will try to illustrate my point clearly by using the example of a new FDA-approved treatment.

 

Provenge is a new cancer immunization for end-stage prostate cancer, which is proven to extend the life of the patient for 4 months. However, it only extends life for 1-2 month longer than currently available treatments.

 

How much does it cost? It is estimated that the course of treatment is approximately $93,000. Dies it deserve a patent that allows the company to charge this much?

 

I would have you apply the proposed criteria and answer that question for yourself. But make no mistake, the price would not be $93,000 without patent protection or if patients were paying out of pocket.

 

This strategy is a reasonable tradeoff for the pharmaceutical and medical technology sectors. They will protest vehemently but please keep in mind that these sectors have had it in their favor both ways for a long, long time.

 

In summary, I would propose that new drugs and medical technologies must face a more stringent definition of “usefulness” before a patent is allowed. Demanding that the public pay out of pocket for expensive treatments is not viable in our culture.

 

The public fear of rationing makes it impossible for third party payers, especially the government, to deny any treatment, no matter how expensive once it is available and FDA approved. Only by reigning in the costs of new drugs and medical technology will healthcare inflation be controlled over time.