By Lisa Seachrist

Washington Editor

WASHINGTON - Three key issues to the biotechnology industry are included as riders to the 2000 budget legislation passed by Congress and awaiting President Clinton's signature.

When the president returns from his trip to Europe, he is expected to sign the omnibus spending bill into law and in doing so enact patent reform, a five-year extension of the R&D tax credit, and a fix to the way Medicare pays for outpatient services.

"This is an unbelievable day for biotech," said Chuck Ludlam, vice president of government relations for the Biotechnology Industry Organization. "It took a lot of work to get these passed, and it's a huge victory for biotechnology."

By getting patent reform included on the omnibus spending bill, BIO and other key supporters of the legislation did an end run around a couple of Senate critics. Ever since the enactment of the General Agreements on Tariffs and Trade (GATT) in 1994, industries such as biotech that rely on intellectual property for capital formation have been working to restore patent term lost due to delays at the patent office.

GATT eliminated the old patent system that granted patents for 17 years. Instead, GATT implemented a 20-year patent term that begins at the filing date. The move prevented submarine patents, and actually extended the patent term for some. However, delays at the patent office and the filing of interferences by competitors could eat away patent life. Biotechnology patents, as it turns out, are among the most complicated and most contested the U.S. Patent and Trademark Office handles.

"No one was in more jeopardy from the GATT changes than the biotechnology industry," Ludlam noted. "And, the most likely patents to suffer from delays were the breakthrough technologies or the most valuable technologies."

BIO sought day-for-day returns of patent term for delays not caused by the patent applicant. The House overwhelmingly voted to pass the measure in August and the Senate Judiciary Committee offered a unanimous endorsement of the legislation late in the session. The bill never made it to the Senate floor as Sen. Richard Shelby (R-Ala.) and Sen. Kit Bond (R-Mo.) opposed the bill and threatened filibuster.

As a result, supporters of patent reform moved to attach the legislation to the satellite telecommunications bill and then sought to attach that bill to the spending bill, adding day-for-day terms for patent delays.

"Faced with filibuster [supporters of the legislation] got creative," Ludlam said. "Every single step of the way was very difficult."

Ludlam noted Sen. Bill Frist (R-Tenn.) and Sen. Bob Bennett (R-Utah) were staunch supporters of patent reform. With the patent reform issue solved, Ludlam said the next step was to work to get day-for-day restoration of patent term for delays at the Food and Drug Administration.

While early in the session lawmakers were batting around the possibility of making the R&D tax credit a permanent feature of the tax law, in the end industry received the longest extension of the credit since it was established in 1981. Attached to the spending bill was a five-year extension of the tax credit that grants a significant tax break to companies incurring expenses as a result of conducting innovative research.

The R&D tax credit has lapsed on several occasions even though it had been renewed nine times prior to this most recent extension. The credit's checkered history made it difficult for companies to plan their development expenses. Biotechnology and pharmaceutical companies, especially, rely on this tax credit to plan the timing of expensive clinical trials.

"This is the longest extension it's ever had," Ludlam said. "Now is the time to charge forward to make it permanent."

When the Balanced Budget Amendment (BBA) was enacted in 1997, an unintended consequence of that measure was to put a squeeze on hospitals providing outpatient services to Medicare patients. The BBA changes, in fact, created some disincentives for treating patients with new therapies.

BIO was particularly concerned that Medicare's administrator, the Health Care Financing Administration (HCFA), had used poor data in determining how much to pay for new, innovative and oftentimes expensive biotechnology therapies. As a result, HCFA's Ambulatory Payment Classification (APC) system would have seriously underpaid for biotechnology-based therapeutics. At the eleventh hour, legislators attached a measure to correct the fallout of the BBA.

"This legislation takes care of the issues for the biotechnology industry," said Nancy Myers, BIO's director of federal government relations and health care policy counsel. "Our biggest concern was that the APCs created a disincentive for using biotech products."

The legislation calls for annual updates of the APC system to ensure products have the appropriate level of reimbursement to the hospital. In addition, the law calls for certain new products to be eligible for an add-on payment for two to three years so HCFA can generate the appropriate data on how the product is used in order to determine the appropriate APC. Finally, the legislation has an outlier provision to ensure that when a patient costs the hospital substantially more than the average reimbursement level, the hospital can recoup some of those costs.

"Between the outlier provision and the add-on payment, hospitals could see reimbursement increase by $850 million," Myers said.