When President Joe Biden signed the Inflation Reduction Act, he and others hailed it as a significant achievement. Aside from all the money devoted to climate change initiatives, the provision that stood out the most was the ability of the government to “negotiate” drug prices for Medicare. In reality, there is no negotiation. The government sets the price. The drug company can either accept what the government will pay or pay excise taxes if it doesn’t.
Now, the Biden administration is coming after drug patent licenses, claiming it has the authority under a law passed in 1980, the Bayh-Dole Act, also known as the Patent and Trademark Law Amendments Act. Enacted during a time of stagflation — high interest rates and inflation, sluggish economic growth — the law provided recipients of federal research funding to have the option of retaining patents on the inventions arising out of the research, including drugs and medication.
The law was a smashing success. According to a senior adviser at the Center for Strategic and International Studies, “Between 1997 and 2017, the law sparked over 13,000 startups, supported more than 5.9 million jobs, and added over $1.7 trillion to U.S. gross domestic product from inventions at the nation’s universities.”
The Biden administration wants to upend the law and use it in ways never intended to bring about artificially lower drug prices. The Bayh-Dole Act allows federal agencies to “march in” and grant licenses to third parties if the benefits of the federally funded invention are not commercially available to the public or with a national health emergency. For the first time in its 44-year history, a presidential administration will use price to determine whether a prescription drug is available or “accessible” to the public.
Neera Tanden, the White House domestic policy adviser, told Fortune in a December interview, “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 commonsense assessment to say if you can’t afford it, it’s not accessible.”
The president signaled to the public his approach in a December post on X, claiming such a move is a fight against “Big Pharma.” He said, “Folks, right now, 25 of the largest pharmaceutical companies in America control 70% of the market. This lack of competition drives up prices — making it harder for hardworking American families to access the health care they need.” He also said, “This is an important step toward ending Big Pharma price gouging.”
It’s no surprise the administration chose this route at the end of 2023. Older voters, those 65 and older, made up a larger part of the electorate in 2020 (22%) than they did in 2016 (16%). Since the 2004 election, those voters chose the Republican candidate in presidential elections over the Democrat. Former President Donald Trump won 52% of voters 65 and older in 2016 and the same in 2020.
President Joe Biden likely won’t win that age group, but it’s certainly grown in four years, so it is critical for him to hold on to as many of those voters as possible, especially in swing states such as Pennsylvania and Arizona, both of which are among the top 10 states with populations over the age of 65.
In the past, Democrats could usually attack Republicans over Social Security and Medicare, but Trump made it a point to take this and use it against fellow Republicans in the run-up to the GOP primary, with Gov. Ron DeSantis (R-FL) the one most attacked. Trump has effectively taken it off the table.
Biden has chosen prescription drugs as his way through. The question is whether Republicans are paying attention, as this has so far flown under the radar. Republicans could take the issue head-on, as there are several significant problems with Biden’s approach, and that begins with the Bayh-Dole Act’s purpose.
While the Biden administration is the first to use drug prices as a prerequisite for using march-in rights, others have proposed it in the past. The only problem is, the provision in the law had nothing to do with the government setting prices — according to the two authors of the bill, the late Sens. Birch Bayh, a Democrat, and Bob Dole, a Republican.
In a 2002 Washington Post piece, the pair wrote, “Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.” They continued, “The ability of the government to revoke a license granted under the act is not contingent on the pricing of a resulting product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research.”
Ironically, the National Institutes of Health in early 2023 rejected a petition that called on it to take control of the prostate cancer drug Xtandi because its price was too high. The NIH responded, “NIH’s analysis in response to the petition request have found Xtandi to be widely available to the public on the market. In addition, given the remaining patent life and the lengthy administrative process involved for a march in proceeding, NIH does not believe that use of the march-in authority would be an effective means of lowering the price of the drug.”
Sen. Bob Dole, left, and Sen. Birch Bayh talk together during a hearing in Washington, D.C., on Aug. 21, 1980. (Photo by Arnie Sachs/CNP/Getty Images)
The second problem is that Biden claims this action will take on “Big Pharma” and its supposed “price gouging.” Merck, Pfizer, Eli Lilly, Bristol Myers Squibb, and other large pharmaceutical companies don’t have prescription drugs developed with federal funding. The industry spends billions every year of its money on research and development. Most of the technologies, 70%, get developed under the law by small companies and startups. Also, according to a report from the consulting group Vital Transformation, medicines approved by the FDA between 2011-20 received $43 billion in industry funding, while the federal government kicked in $276 million subject to Bayh-Dole.
Many of the drugs made by large pharmaceutical companies don’t fall under Bayh-Dole, which would leave smaller companies subject to the whims of the federal government. The companies most likely to benefit from such a move are part of “Big Pharma,” which the president blames for the so-called problem. Small companies and startups rely on industry, venture capitalists, and other investors to bring their products to market. Investors would find it difficult to invest in medicinal research if they thought the government would take over a patent license because they determined the price of a drug was high enough that it was no longer “accessible.”
Finally, the Bayh-Dole Act doesn’t pertain only to healthcare-related items and prescription drugs. The law covers all agencies within the U.S. government, which opens the door to any administration taking patent licenses away from one company and giving them to a third party. Any breakthroughs in agriculture, energy, climate change, transportation, or anything working under the Small Business Innovation Research and receiving any federal funding would do so with an administration looking over its shoulder. Anyone could petition the agency providing funding for the research, claiming the price isn’t “accessible” to the public because it’s too high.
At an NIH public meeting in 2004, Bayh warned of the dangers of the government using Bayh-Dole to set prices. In his remarks, he said, “If Congress does decide to amend Bayh-Dole, someone must clearly define what is a ‘reasonable price.’” He warned about the genuine possibility of other companies filing petitions as a means of grabbing hold of the patent licenses. He said, “Copycat companies are always waiting until an entrepreneur has shown the path ahead. They can always make things cheaper since they have no significant development costs to recover.”
The administration will soon decide if it will move forward with its scheme. Public comment closed on Feb. 6. In an election year, Biden will look for any edge. If that means using a popular law in a way that no other administration has in 43 years, he will take that chance, boasting of the action without concern for any results. The press had no issue selling the Inflation Reduction Act price-setting mechanism as “negotiation,” so why not go along saying he’s taking on “Big Pharma”?
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It is a scenario where Republicans may not be capable of making a cohesive case against the plan. Chaos is the order of the day, currently. The House failed with an impeachment vote against Homeland Security Secretary Alejandro Mayorkas and then succeeded with it a week later. Aid to Israel and Ukraine hangs by a thread. The Republican National Committee’s chairwoman, Ronna McDaniel, is offering to step down from her role. Trump may have criminal trials in the middle of a campaign, and fundraising might be a problem.
When Biden is polling under 40% approval and the Democrats have 22 Senate seats to defend, the president trying to turn the law on its head should be an easy thing to exploit. No one may notice.
Jay Caruso is a writer and editor residing in West Virginia.
