Senator Elizabeth Warren (D-Mass) plans to introduce legislation that she believes will “substantially increase federal funding for the National Institute of Health.” Her proposal would require drug companies who enter into major settlements to pay NIH and FDA one percent of the annual profits for each of the company’s “blockbuster drugs that can be traced to government research support.” The penalties would run for five years—the typical length of a Corporate Integrity Agreement.
The proposal, entitled the Medical Innovation Act, would work like a "swear jar," according to Warren. "Whenever a huge drug company that is generating enormous profits as a result of federal research investments gets caught breaking the law—and wants off the hook—it has to put some money in the jar to help fund the next generation of medical research."
Senator Warren asserts that many drugs stem, at least in part, from NIH research. “Blockbuster drugs that generate billion dollar profits and are used by millions of consumers don’t just appear overnight as if by magic,” states Warren. “Rarely do they appear as the result of a single, giant company’s individual genius. Drug companies make great contributions, but so do taxpayers. In other words, we built those medical innovations together.”
Under the proposal, fines would only be imposed on companies that sell at least one blockbuster drug, defined as a therapy that exceeds $1 billion in annual sales, and the amount of the fine would equal one percent of a company's total profit for each of its blockbuster drugs. Warren claims the measure would have added $6 billion per year over the last 5 years to the NIH budget.
The Medical Innovation Act is certainly a good talking point for Warren's cause--and has already gotten a ton of press--but even she admits that the bill is unlikely to go very far in Congress. However, her speech and forthcoming bill may foreshadow even more scrutiny into the pharmaceutical industry. "Democrats have largely laid off the pharmaceutical industry since the legislative debate over the Affordable Care Act, when drugmakers agreed to support the bill as long as it didn't include certain policies," notes Sam Baker at the National Journal. While Warren praised the innovations of these companies, she speculated that the $13 billion in settlements with the federal government between 2007 and 2012 "doesn't happen without serious wrongdoing."
Her proposal has costly implications. For one, pharmaceutical companies may be more inclined to fight government allegations rather than settle. Many large settlements of the last several years have arguably resulted not from companies breaking the law, but from companies settling to avoid an extremely expensive trial that could nonetheless result in that company's exclusion from Medicare with a loss in litigation. With more penalties on the line, companies would be willing to risk a lot to win these cases--that's more money spent on legal fees than research.
Another aspect about Warren's proposal is that it ignores how much pharmaceutical companies pay in federal income taxes on its profits. Furthermore, these companies employ hundreds of thousands of people across the country. Companies are on the hook for the huge financial risk in trying to get a drug to market. Under Senator Warren's proposal, the government would get a portion of the sales of blockbuster drugs, but that ignores the millions of dollars companies spend on research for unsuccessful drugs.
PhRMA SVP of communications, Robert Zirkelbach, believes Sen. Warren's proposal would be detrimental to innovation and ultimately patients. "[T]he biopharmaceutical pipeline has never been more promising with more than 6,800 medicines in clinical development around the world, including treatments for Ebola, Alzheimer’s, and many rare diseases," said Zirkelbach.
NIH "plays a vital role in basic research and early discovery, and we support sufficient federal funding for their work. But pursuing misguided policies that siphon funding from the groundbreaking medical research happening in the biopharmaceutical industry will have devastating consequences for patients and society." He argues that the "proposed legislation would result in fewer medicines for patients and lost jobs at a time when our economy can least afford it."
Read the full transcript of Warren's remarks at the Families USA Health Action Conference on January 22.