As President Biden works to shore up support before the election and after a difficult first debate his administration is hastening to finalize a major proposal designed to address high drug prices.
Unfortunately, the administration's proposal will do little to lower drug costs -- while doing grave long-term damage to American patients.
At the center of Biden's proposal is the Bayh-Dole Act, a landmark 1980 law that allowed federally funded professors and universities to patent their research discoveries and license the patents to private-sector firms for further development. It incentivized and thereby greatly increased the amount of innovations coming out of universities.
For years, activists have petitioned the government to invoke the law's "march-in" provision to revoke private firms' patent licenses on certain expensive medicines. Washington could then relicense those patents to companies that would create cheaper generic versions.
But Bayh-Dole's bipartisan authors were clear: The law was never meant to let the government functionally dictate prices. The goal was to promote private investment into innovation, not impose price controls that would destroy it. For decades, both Republican and Democratic administrations agreed that the "march-in" provision can't be used as a backdoor price control.
That changed in December 2023, when the administration unveiled guidance saying agencies may indeed invoke the march-in provision on a patent if officials deem the resulting product is unreasonably priced. "Guidance" documents don't have the force of law or even formal government rule-making. In other words, the administration is skirting the official regulatory process to impose policy that pleases a favored constituency before the election.
This rushed and irregular policymaking creates enormous uncertainty for businesses. Government administrative procedures are supposed to involve careful cost-benefit analysis, public input, and efforts to balance conflicting interests. That's not what Americans are getting with this guidance.
Contrary to the administration's claims, the new guidance won't have much of an impact on drug costs. A 2023 study from Vital Transformation found that 99% of 361 sampled pharmaceutical products could not be marched in upon -- because the overwhelming majority relied on at least some patents that were never funded by the government. That means generic companies, even if the government relicensed some of the patents to them, wouldn't be able to legally replicate the drugs in their entirety.
While the price impact of the guidance will be minimal, we will see incalculable damage to innovation across all industries that rely on federally funded research coming out of universities and other labs. The new guidance explicitly states that it is technology-agnostic -- meaning that the government could march in and seize the patents underlying any product officials think is overpriced, in fields from AI to aeronautics.
This move, or uncertainty about whether it will be executed, would quickly drive investors and entrepreneurs away from partnering with universities to bring breakthroughs to market. Nearly three-quarters of university patent licenses go to small companies and start-ups. The loss of venture funding would be devastating.
The Bayh-Dole Act has given rise to everything from touchscreen technology to advanced ultrasound imaging and Google's algorithms. Before Bayh-Dole, the federal government sat on tens of thousands of patents. Only 5% were licensed for development into new or innovative products.
The Biden guidance on march-in would take us back to that era of little economic and technological progress stemming from university research. It's bad policy. And in the long run, it's also bad politics -- because harming America's research universities in producing new innovations is hardly a recipe for electoral success.
Philipson is an economist at the University of Chicago who served on the White House Council of Economic Advisers as a member and acting chairman, 2017-20.
