Obama SignatureThis week the United States Supreme Court heard arguments over the constitutionality of the Patient Protection and Affordable Care Act (PPACA).  The ten titles of PPACA, along with amendments to the “Health Care and Education Reconciliation Act of 2010” regulate multiple industries making up approximately one-sixth of the national economy, all of which affect science, technology, and innovation.  In 2010, David Applegate and Arthur Gollwitzer III published a short synopsis of how the PPACA affects the intellectual law community.  While it is probably not the last word on the subject, in view of the historic Supreme Court arguments of this week, its worth a quick review.

Several parts of the PPACA affect intellectual property issues, either directly or indirectly:  Titles II,III, VI, VII, and X.  The part of the Act, which directly affects intellectual property rights is Title VII, known as the “Biologics Price Competition and Innovation Act of 2009,” which provides an abbreviated approval process for biologic drugs.  Although according to Applegate and Gollwitzer, the new law provides an accelerated application process, the authors not that there are those critics that argue that it  creates “a regulatory scheme with artificial dates, undefined terms, and paperwork hurdles that will cause inefficiency and litigation, thus imposing additional costs upon, and therefore reducing the productive output of, the companies being regulated.”  Of course, if this is correct, the law will affect the rate of innovation in this area.

Title VII also expands the number of entities that may purchase drugs at a discount from a federal list (known as the “340B Program”), which will either expand the number of drugs available at discount or decrease the discount price for available drugs, thereby reducing payments to pharmaceutical companies.  Those who favor the bill cite to the economic benefits of expanded drug discounts as well as the support of the pharmaceutical industry; distractors argues that that the reduction of revenues will reduce research and development.  Yet, according to Applegate and Gollwitzer, “some analysts see the reform bill as a boon for the pharmaceutical industry, asserting that although costs per unit can be expected to go down, overall sales will rise considerably as government-funded programs that underwrite prescription drugs expand. Under this scenario, drug companies would be expected to have more funds available for research and development.”

In a similar vein, Title II of the PPACA expands Medicaid rebates for prescription drugs.  The arguments are similar, increased discounts mean decreased revenue, which means less research and innovation.  Others argue that the pharmaceutical industry has everything to gain from increased sales stimulated by the new law.

Title IX imposes taxes on certain pharmaceutical and medical device manufacturers and importers.  Critics contend that the Act will affect the overall profitability and incentives by diverting otherwise productive resources to the “tax avoidance industry”.

Title II of the Act establishes a national strategy to “improve the delivery of heath care services patient health care outcomes, and population health.”  To the extent that the government will become the single largest consumer of health care services, it will have a huge influence over the available supply of treatments and innovations, a power that the critics are suspicious of.  According to Applegate and Gollwitzer, “supporters, however, contend that the government-as-consumer scenario will permit economies of scale previously unknown in the industry” thereby driving research and innovation.

One thing is clear that given the clamor on both sides of the aisle on these and other issues, no one has a clear picture of what the affect of the PPACA will have either upon innovation and research or upon the larger economy.  The future of the law hangs in the balance and will be dependent upon the the decision of the Supreme Court.

— Adam G. Garson, Esq.