Senator Elizabeth Warren (D-MA) recently introduced a new bill, the Medical Innovation Act, which would require pharmaceutical companies who settle with the government after committing certain illegal activities to reinvest additional money into the NIH. Senator Warren views the bill as a “swear jar” for drug companies, seeking to target those who commit certain types of wrongdoing, including violating the anti-kickback statutes or defrauding Medicare and Medicaid, in order to increase government support for research at a time when the NIH’s budget has been falling. Scholars and researchers who have lamented the shrinking of the NIH’s budget will find much to love in the bill, and they may even wish it had gone farther.
The Medical Innovation Act would be triggered under the following set of circumstances: drug companies (1) who sell at least one drug whose annual net sales exceed $1 billion, (2) where that drug can be traced at least in part to federally funded research (the Act refers to such products as “covered blockbuster drug[s]”), and (3) who enter into a settlement agreement of at least $1 million with the government after committing certain types of wrongdoing, would pay an additional penalty. As a threshold matter, the Act will not affect companies unless they appear to have broken the law. But even where companies have committed various forms of wrongdoing, the Act would not affect smaller drug companies, those who developed their drugs without the aid of the federal government, those who engaged in minor wrongdoing (and therefore only have small settlements), or those who take the government to trial rather than settling.
Affected companies would be required to pay an additional fine on top of the value of their settlement, paying 1% of the company’s profits multiplied by the number of covered blockbuster drugs sold by that company each year for five years. Because the annual profits attributable to these companies are typically very high, even with the Act’s various carve-outs, Senator Warren estimates that if the Act had existed for the past five years, it would’ve provided an additional $6 billion every year to the NIH, a full 20% increase in its budget. Going forward, this number might be smaller, if some companies respond to the Act’s incentives by committing less wrongdoing (a positive development in itself) or taking the government to trial (a relatively unlikely outcome, but possible in some cases), but the total amount is still likely to be substantial.