Prizing Insurance: Prescription Drug Insurance as Innovation Incentive

Abstract

A problem perennially facing scholars of both intellectual property and health law is the need to incentivize appropriately the development of new pharmaceuticals. Although physicians have an arsenal of drugs to treat conditions like high blood pressure or cholesterol, they lack effective treatments for some of the diseases that are most devastating to our healthcare system. For instance, although many mental health disorders may seem to share little in common with the World Health Organization’s list of Neglected Tropical Diseases, each of these areas is dramatically underserved by present pharmaceutical treatments. These gaps in treatment should not be surprising, given the one-size-fits-all structure of patent law and the various exclusivity provisions implemented by the FDA. These two incentive systems have failed to incentivize the development of drugs for diseases with certain features — most notably, those that primarily affect poor populations. Alternative mechanisms can be more narrowly tailored to achieve these goals. One major potential source of incentives has been almost completely absent from the legal literature: prescription drug insurance. This Article examines the ways in which prescription drug insurance might compensate for the innovation distortions created by patent law and FDA regulation. It first explores insurance’s potential theoretically, considering the ways in which it might provide a targeted incentive for innovation. This Article then considers a specific instance of this general principle: prescription drug insurance through Medicaid in the United States. The way in which Medicaid pays for drugs enables needy patients to access existing treatments, but it perversely decreases incentives for innovation into drugs that would primarily be prescribed for low-income Americans — like those for many mental health disorders or Neglected Tropical Diseases. This Article proposes altering Medicaid’s prescription drug rebate system to reward innovators who develop drugs for diseases primarily affecting low-income populations.