Are you down with TPP?
Little-known provisions in the Trans-Pacific Partnership could mean more-expensive health care
The Trans-Pacific Partnership (TPP) was dealt a significant setback this week when Senate Democrats defied the president by blocking “fast track” authority for the trade deal’s passage. As negotiations enter their final stage, some interest groups are playing catch-up trying to understand what exactly the TPP will mean for consumers, workers, and firms.
However, organizations with the most to gain and lose from the proposed deal have been immersed in its details for years; It might surprise people that many of the most active groups lobbying for changes to the TPP aren't manufactures, professional service firms, or farmers — but stakeholders from health care.
Case in point, according to a 2014 report by the Sunlight Foundation, lobbying disclosures from pharmaceutical companies mentioned the TPP over twice as often as any other industry. And in 2013, health care interest groups such as AARP, the Center for Medicare Advocacy, and the Medicare Rights Center sent a letter to the Obama Administrating expressing concern that the TPP would drive up the cost of health care.
Doctors Without Borders (of Ebola-fighting fame) is also a longtime opponent of the TPP, arguing that that the agreement would limit public health systems’ ability to negotiate lower drug prices, among other concerns.
One man’s trade agreement…
All of this begs the question, why are health care advocacy groups and pharmaceutical firms so invested in the details of a trade agreement? Traditionally the stuff of cargo pallets and container ships.
To quote a recent report authored by the Roosevelt Institute’s chief economist Joseph Stiglitz, it helps to know that that “trade agreements are less about trade and more about the regulatory environment corporations face investing and doing business overseas.”
Those themes are worth exploring, but first a brief refresher; The TPP is a proposed trade deal between 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. The pact touches on a range of issues, such as intellectual property, monetary policy, and labor rights. Negotiations have been ongoing since 2008.
While the exact text of the TPP remains secret, a series of leaks and partial disclosures have given observers a good sense of what the deal would accomplish. Due to its breadth, the TPP would have a range of effects on health care. However, its intellectual-property provisions are a good place to get your bearings. Consider the treatment of so-called biologic drugs, which are at the cutting-edge of pharmaceutical research and are used to treat cancer, rheumatoid arthritis, and other diseases.
They are also extremely expensive, costing about 22 times more than traditional treatments. Under current U.S. law — even in the absence of a patent — biologic drugs enjoy a defacto-12-year period of exclusivity enforced by the FDA. To bring prices down, the Obama Administration’s 2016 budget includes a proposal to reduce that period of exclusivity to seven years — which would save taxpayers $4.5 billion over a decade through lower prices paid by federal programs like Medicare.
However, leaked drafts of the TPP would make the 12-year-exclusivity period mandatory, prohibiting lawmakers from taking action to make biologics more affordable. (And — curiously — invalidating a key proposal of the administration’s own budget.) The TPP also relaxes criteria for renewing patents on traditional drugs. Currently, a World Trade Organization (WTO) agreement requires member states grant 20-year patents for technology that is “new” and involves “an inventive step.” In the context of intellectual property law, that is a relatively-high bar.
The TPP would weaken the patentability standard by allowing companies to extend their exclusivity as the result of only marginal improvements to existing drugs. In the pharmaceutical industry this is known as “evergreening,” and it delays the availability of less-expensive generic treatments.
If history is a guide, the TPP’s intellectual-property provisions are likely to have the greatest public-health effects overseas. For instance, when India joined the WTO in 2005, some generic-drug manufactures were forced out of the market by intellectual property rules. In India’s case, it was a truly global loss, with an entire stable of cheap, generic AIDS medications no longer available to patients in the developing world.
Wither government payers
Beyond intellectual-property wins, the TPP gives pharmaceutical companies more power to negotiate fair-market prices for their products. It requires governments (or partially-government-owned entities) “pay competitive, market-derived prices” for drugs that “appropriately recognize” their value. If a company feels they are being unlawfully coerced by a government entity during negotiations, the TPP provides a mechanism to either force the acceptance of higher prices or be otherwise compensated. Although, not all challenges would be successful.
(Sen. Elizabeth Warren (D-MA) has been one of the most vocal critics of the TPP’s “Investor-State Dispute Settlement” provision referenced above. For a more extensive discussion of why it may be problematic, see her piece in the Washington Post.)
In poor countries, this provision would weaken the ability of public health systems to secure access to modern drugs at affordable prices. But it also has important implications for several programs in the United Sates. For example, U.S. law allows the Veterans Administration to purchase drugs at a 24% discount as a condition for medicines being covered by other government health programs. Medicaid also purchases drugs at below-market rates as a condition for them being reimbursable. As a result, taxpayers save over $9 billion annually.
These programs — and others like them — are potentially threatened by the passage of the TPP. It is as an open question if private companies would aggressively enforce the business-friendly provisions in the deal. Although, legal actions under other trade frameworks suggest the answer is yes. Ultimately, the deal’s health care-related measures may only have modest effects, but with drug prices already growing at a drastically faster rate than other health care expenses, even a marginal increase in costs could be unsustainable.
Bringing it home
It’s worth noting that these provisions also do some good. Drug companies spend billions developing the latest therapies, and argue that strong patent protections insure they have an incentive to keep innovating. Measures that enforce fair-market pricing for drugs also foster innovation by increasing the number of countries where firms can make a profit. Or so the theory goes.
“The United States pushes strong [intellectual property rights] without balance, which advances the interests of the pharmaceutical, software, and entertainment industries but does not yield the most economic benefits or — the evidence shows — provide meaningful incentives for innovators.” Joseph Stiglitz, Chief Economist, Roosevelt Institute
Yet, there is the clear risk that the TPP’s intellectual-property and fair-market-pricing provisions could go too far — handicapping the ability of governments to leverage their market power for the benefit of patients. In the United States and elsewhere, government payers like Medicare are market movers. CMS sets the standard of care for the industry and creates economies of scale that trickle down to private payers and providers. (Although, current laws make it difficult for CMS to bargain on drug prices — something Obama has pushed to change.) For instance, a 2015 study published by the National Bureau of Economic Research found a $1 decrease in Medicare fees correlated to a $1.16 drop in private prices.
Weakening the bargaining position of public health systems, while also driving up the price of drugs through strengthened intellectual-property protections won’t be a win for governments, patients, providers or payers. There are benefits, but they are not evenly distributed.
So what does this all add up to? At the very least, non-policy-oriented health care leaders should be paying closer attention to the TPP. For those who stand to lose the most — ranging from insurance companies to integrated health systems — there is a shrinking window of time to influence the makeup of a deal. Regardless of its final structure, the agreement is sure to have a multibillion-dollar effect on the industry. And in a sector where success is measured in the decimal places, the long-term implications of the TPP could be significant for both payers and providers — to say nothing of price-sensitive patients.
Opinions published on Medium are my own and not the views of my employer.
