- The Washington Times - Wednesday, September 28, 2005

In the name of responding to bioterrorism, some pharmaceutical companies are pursuing patent enlargement — both extensions and expansions — that threaten a competitive drug market. The near-term effect of monopoly-expanding provisions is very clear: higher drug costs. Less clear but perhaps even more serious, are the long-term implications of higher drug costs on adopting health information technology.

Health information technology depends on its ability to provide early cost savings through access to lower-cost generic drugs. Without generic drugs’ cost savings, health IT’s adoption will slow and its vast potential for hundreds of billion of dollars in systemic health care savings will be retarded.

Last year’s BioShield legislation has promoted drug availability to counter biological, chemical and nuclear terror threats. It did so by authorizing government support and conduct of research and development, best-practice procurement and contracting models, temporarily introduction of unapproved drugs in an emergency and coordination of stockpiling. Without question, more should be done, and can be done by adding conventional private-sector incentives to match the government research, acquisition, dissemination and coordination. These conventional incentives could be quite substantial — product liability protection, tax incentives, faster drug approval, and government purchase. What’s more, none of these incentives would adversely affect the private drug market.

Not so the patent enlargements some pharmaceutical companies seek. Such enlargement could include extensions of current and future patents and expansion of patent protection for drugs only slightly different from ones currently protected — or even ones with only an ancillary connection to bioterrorism defense. Regardless of its particular form, all amount to excessive monopoly expansions, which will translate into excessive and unnecessary cost increases.

As unattractive as immediate cost increases are in a sector where costs are exploding, their effect on adoption of health information technology — for which the lower drug prices of generics are a significant early incentive — could be worse yet.

An early reachable rung on the cost-saving ladder for IT is increased prescribing of generic drugs. These offer an immediate savings in one of health care’s fastest spending growth areas. Since 1998, prescription drug spending has grown at twice the rate of overall health-care — with an average annual growth of 15 percent versus 71/2percent.

It is estimated that for each 1 percent increase in generic use, overall drug spending declines 1 percent. Health IT can realize these generic drug savings by facilitating their initial prescription — allowing a physician to check immediately for availability, a patient’s eligibility, and formulary compliance.

There is good reason experts are excited about IT’s potential for the U.S. health-care system. Health care is the largest sector of the American economy in which IT has made the fewest inroads. Health care represents 15 percent of America’s annual economy, but its average annual IT investment is less than half that of the rest of private industry’s.

IT has dramatically changed the overall economy. It could so as well in health care: producing better outcomes in less time, fewer errors, and other unforeseen improvements … and lower costs. The Rand Corp. last week released studies estimating widespread adoption of health IT could yield up to $162 billion in annual savings in our health-care system.

New technology always grasps first at the most accessible rungs on the cost-savings ladder and one of the accessible savings IT can reach is generic drugs. However, excessive patent extensions and enlargements for prescription drugs will pull many cost savings out of reach.

The first rule of medical practice is do no harm. The patent enlargement sought by some pharmaceutical firms violates this rule. First, it will immediately distort and raise medicine prices where patents are extended and expanded. Second, diminished generic savings will retard health IT’s adoption and thus forestall savings from greater IT penetration.

Current health-care spending and the greater demands coming soon with the Baby Boomers’ retirement represent America’s greatest competitive challenge. In facing it, America has a tool of immense potential in which we are globally dominant: IT.

We cannot soon enough apply our greatest asset to our greatest challenge. And we cannot afford to unnecessarily delay its adoption by removing the best incentives for doing so.

J.T. Young served in the Treasury Department and the Office for Management and Budget from 2001 through 2004.


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