Promoting healthcare innovation on the demand side.

Innovation policy often focuses on fortifying the incentives of firms that develop and sell new products by offering them lucrative rights to exclude competitors from the market. Regulators also rely on these same firms-and on similar incentives-to develop information about the effects of their products in patients, despite their obvious conflict of interest. The result may be a distorted understanding that leads to overuse of expensive new medical technologies. Recent technological advances have put healthcare payers in an excellent position to play a larger role in future innovation to improve healthcare and reduce its costs. Insurance companies and integrated healthcare providers have custody of treasure troves of data about healthcare provision and outcomes that can yield valuable insights about the effects of medical treatment without the need to conduct costly clinical trials. Some integrated healthcare systems have seized upon this advantage to make notable discoveries about the effects of particular products that have changed the standard of care. Moreover, to the extent that healthcare payers can profit from reducing costs, they will seek to avoid inappropriate use of costly technologies. Greater involvement of payers in healthcare innovation thus offers a potential counterweight to the incentives of product sellers to promote excessive use of costly new products. In recent years, the federal government has sought to promote innovation through analysis of healthcare records in a series of initiatives; some picture insurers as passive data repositories, while others provide opportunities for insurers to take a more active role in innovation. In this paper, we examine the role of health insurers in developing new knowledge about the provision and effects of healthcare-what we call 'demand-side innovation'. We address the contours of this underexplored area of innovation and describe the behavior of participating firms. We examine the effects of current legal rules on demand-side innovation, including insurance regulation, intellectual property rules, privacy protections, and FDA regulation of new healthcare technologies. Throughout, we highlight many policy tools that government can use and is using to facilitate payer innovation outside the traditional toolkit of patents and exclusive rights.

Reaching through the genome.

Advances in genomics research have called forth new strategies for patenting DNA sequences. Gene patenting, which began inconspicuously in the early days of the biotechnology industry in the 1970s and 1980s, did not generate significant public controversy until the advent of high-throughput DNA sequencing in the 1990s. By this point, it was such a well-established practice that categorical challenges to the patentability of DNA seemed quaint and out of touch. Yet something was plainly different. In the early days, patenting genes looked like patenting drugs. By the early 1990s, it looked more like patenting scientific information. We have a reasonably clear story about why we should issue patents on drugs; the case for issuing patents on scientific information is less clear. Patents on research discoveries arising far upstream from end-product development threaten the interests of research scientists, who fear impediments to the free use and dissemination of new discoveries, and of downstream product developers, who fear that they will be foreclosed from pursuing certain research and development (R&D) pathways or that their profits will be diluted by the claims of upstream predecessors. At the same time, it is not obvious how upstream patent owners might use patents to capture the value that their discoveries contribute to downstream product development, particularly in the face of concerted resistance to sharing the wealth. This strategic challenge is leading upstream innovators to pursue novel patent claiming and licensing approaches that raise unresolved doctrinal and policy questions.

Public vs. proprietary science: a fruitful tension?

The authors examine the presumption that basic scientific research is most effectively utilized when the findings of that research are openly disseminated without significant restriction, while research with more practical application should be the prerogative of private enterprise. However, many fields, including molecular biology generally and genomics in particular, lie in the intersection between basic research and application. Moreover, institutional boundaries that once reasonably sharply demarcated basic research from technological development have grown porous, with more academic research finding application in industry. The authors consider the Human Genome Project and rival industry sequencing efforts as a case in point of the new political economy of scientific research. Since the inception of the Human Genome Project, there has been general agreement among researchers that the project would be most advantageous to science if the sequence data were made publicly available, quickly and without restriction. Many of these arrangements required federal agencies and some universities to "maneuver around" the Bayh-Dole Act. In several cases, most notably genomic sequences and the SNPs (i.e., single nucleotide polymorphisms) consortium, it was the pharmaceutical industry that initiated or helped enable the project to ensure open and unencumbered access to information, the type of access that has historically been the provenance of academia and the raison d'être of academic research. The authors conclude by reasserting the value of public science as a broadly valuable and enabling social commitment, not limited simply to the products or technologies it spawns.

How can you patent genes?

What accounts for the continued lack of clarity over the legal procedures for the patenting of DNA sequences? The patenting system was built for a "bricks-and-mortar" world rather than an information economy. The fact that genes are both material molecules and informational systems helps explain the difficulty that the patent system is going to continue to have.