The Indian Supreme Court has rejected Swiss pharmaceutical company Novartis’ appeal for patent protection for its blood-cancer treatment drug Glivec. In a judgment delivered Monday, the Court held that Glivec was an example of “incremental innovation” under Section 3(d) of the Indian Patents Act and, as such, not liable for protection. This controversial section deals with “over-greening,” a term used to describe creating a new version of a drug with only incremental modification and no innovation in order to extend the life of a patent.

What constitutes an “incremental” change is, of course, a matter of judgment and the ruling brings back into the spotlight the patent wars that have been fought in India over the past few years. By and large, multinationals have been losing out — for example, Hyderabad-based firm Natco Pharma was granted a compulsory license for Bayer’s liver and kidney anti-cancer drug Nexavar. (The Natco version was 97% cheaper than the German brand.) Several other multinational-made products have been replaced by cheaper generics.

On one side of the debate is affordability. Treatment using Glivec costs Rs. 120,000 (around $2,000) a month compared with just $140 for the generic equivalent. “The Novartis patent ruling [is] a victory in battle for affordable medicines,” the Guardian newspaper in the United Kingdom reported.

Opponents, however, argue that the ruling is a blow to intellectual property rights. According to a statement from Novartis, “The primary concern of this case was with India’s growing non-recognition of intellectual property rights that sustain research and development for innovative medicines.” And Ranjit Shahani, vice-chairman and managing director of Novartis India, told Indian newspaper The Hindu that “No global player has invested in R&D here, and it is unlikely to happen given the atmosphere. India is a developing country and needs to encourage innovation. The verdict is not very encouraging and shows that the ecosystem to encourage innovation does not exist here.” But Anand Grover, lawyer for the Cancer Patients Aid Association, which opposed Novartis in the patent case, says the court decision will “go a long way in providing affordable medicine for the poor.”

The battle over Glivec has been going on since 2006, when the patent controller’s office in Chennai declined to give Novartis a patent for the drug. The company went to court. In 2007, the Madras High Court rejected the Novartis plea, and the Intellectual Property Appellate Board decided against the firm in a 2009 appeal. The company went to the Supreme Court in 2009 and the result was Monday’s judgment. Novartis has said, however, that it is going through the fine print of the decision and is likely to once again appeal.

The Novartis case is one of many that are reaching judgment in Indian courts. The cases are likely to set the course for big pharma investment in the country. But observers suggest that the overall impact could be limited. The Indian pharma market is estimated to be worth around $30 billion a year at present, including exports. Patented products make up barely 1% of that. According to a McKinsey report, the market could grow to $70 billion by 2020. This is where the future demand will be, and MNCs and Indian companies alike want a piece of the action.

“I don’t expect the Novartis judgment to have an adverse impact on MNC investments in the country,” says Sarabjit Kour Nangra, vice president for research at Angel Broking. “The case has clearly been fought on the grounds that process patents should not be allowed. In that sense, it truly respects the patent position of the product and I think the MNCs will understand this…. The growth potential in the India market is too big for MNCs to ignore.”

In an earlier story published on India Knowledge@Wharton, Wharton health care management professor Patricia Danzon pointed out that patent protection enables companies that invest significantly in R&D to recoup those costs. Forcing a private sector company to sell at a lower price or to take away their intellectual property in an attempt to make medical care affordable, “is not a viable precedent in a market economy,” she noted.

But for the cheering masses outside the Delhi courtroom on Monday, it was a different story.

Small businesses and individuals without employer-provided health insurance will be the most hurt as some insurers move to sharply increase health care premiums in reaction to the implementation of the Affordable Care Act. But the hikes may not have as broad an impact on those groups as they seem to on paper, Wharton experts say.

Insurers such as Aetna and Anthem Blue Cross have sought increases of between 20% and 26% in California, Florida and Ohio, and have secured approval for some of those, The New York Times reported last week.

The 2010 Affordable Care Act (ACA), which survived a legal challenge last summer when the U.S. Supreme Court upheld most of its provisions, requires health plans to cover more services. “But it does very little to control costs and adds taxes in some sectors that will likely be passed through as higher prices and premiums for health care services,” says Wharton health care management professor Patricia Danzon. “Higher health care premiums cannot simply be passed through as higher prices for goods and services that are sold in global markets. So, these costs will likely be borne by employees [through] lower cash wages, cuts in other benefits, fewer jobs or longer work hours per employee.”

For small firms, the above-average premium increases will be harder to pass on to workers if and when the labor market recovers, notes Wharton health care management professor Mark V. Pauly. “If this minority of small employers has been singled out for large increases, it will increase their labor costs relative to those for other employers.”

But Pauly notes that the examples of double-digit premium increases are anecdotal and not based on aggregate data. Even if such increases are truly representative of how the ACA will impact a certain segment of small businesses, they wouldn’t impact overall health care spending growth, he adds, because they apply only to individual and small group insurance, a minority of the private insurance market.

But the increases could mean that small employers and people buying insurance as individuals will not find many bargains on the ACA-mandated health insurance exchanges, says Pauly. The exchanges must begin enrolling people next October for coverage to begin on January 1, 2014. “My guess is that insurers are starting to increase premiums for these markets in expectation that they will be selling to higher-risk [customers] after the reforms kick in, and are trying to get ahead of the pricing curve,” he adds.

In any event, the increases will likely be offset by “huge subsidies” that most people in the small group market are expected to receive, Pauly says. Overall, health care spending trends are still moderate for Medicare, Medicaid and large group private insurance, he notes.

And federal officials say that overall health care spending remains steady, at least according to the most recent figures. “A number of provisions in the health care law that will help control costs and spending are still being implemented, but the statistics show how the Affordable Care Act is already making a difference,” U.S. Secretary of Health and Human Services Kathleen Sebelius said Monday in a blog post on her agency’s website. She pointed to the latest government data released that day, which showed that in 2011, overall health care spending as a percentage of GDP was 17.9%, the same as the past two years. In all three years, Sebelius added, spending grew more slowly than in any other year in the report’s 51-year history.

A day after the Supreme Court’s ruling that the majority of the Affordable Care Act (ACA) is constitutional and should be allowed to move forward, politicians, practitioners and other observers continue to debate what the decision means for the nation’s beleaguered health care industry.

Wharton health care management professor Patricia Danzon offered her thoughts on the outcome of the Supreme Court case and the challenges that lie ahead. For more impressions and analysis from Wharton and Penn experts, read Knowledge@Wharton’s additional coverage of the ruling.

What do you think of the Supreme Court’s decision to uphold the majority of the health care law? Is the law justified in mandating that most people buy health insurance, or face a penalty?

Danzon: I think the Supreme Court reached the right decision. If people choose to remain uninsured, there is a risk that they will impose costs on others when they get sick and use care that they are unable to pay for. Requiring people to get health insurance or pay a penalty if they don’t reduces this incentive to free ride. The mandate also will reduce adverse selection in insurance markets and enable these markets to work more efficiently, which benefits everyone.

How will the ruling impact states’ finances, especially in terms of the proposed expansion of Medicaid?

Danzon: Under the ACA, the federal government will pay for a very significant fraction of the cost of Medicaid expansion. Under the ruling, states may choose to forego these federal funds to expand Medicaid. But it remains to be seen how many will actually decline these federal funds, given that the Medicaid expansion could benefit their citizens, both those who would be enrolled and the providers who would serve them.

It is also unclear whether states could decline to participate in the Medicaid expansion, but then get their potential enrollees covered through the exchanges [which are to be set up by the states so the uninsured can buy health coverage.] So the net effects of making it easier for states to opt out of the Medicaid expansion on the number of people covered and state finances are hard to predict at this point.

Will the ruling hurt investor sentiment in the health care sector or strengthen it?

Danzon: I think that the ruling is positive for most health care providers and firms, most fundamentally because expanding the number of people with health insurance will increase demand for their products. For the biopharmaceutical industry, the ACA also includes the important provisions for a biosimilar pathway — that is, the conditions under which follow-on biologics [non-identical generic versions of advanced prescription drugs] may be approved by the FDA without full-blown new clinical trials.

The particular provisions in the ACA are particularly favorable to the biopharmaceutical industry, compared to the provisions that were discussed in standalone legislation. If the ACA had been struck down in full, including the biosimilar pathway, it is quite likely that a less favorable biosimilar pathway would ultimately have been passed, with provisions less favorable to the innovator firms and more favorable to the generic industry.

Does the ACA combat most of the major ills of the U.S. health care system? What remains to be fixed in health care?

Danzon: The ACA in no way fixes all the major ills of the U.S. health care system. It does address the gaps in insurance coverage, laying out the financing and institutional arrangements to make coverage affordable for everyone and make it possible to get close to universal coverage.

But it does relatively little to control costs. It establishes a number of pilot programs that are intended to encourage more rational reimbursement and reduce wasteful use of resources, but these are mostly voluntary, small-scale trials that are unlikely to have major impact in the short to medium term. Rational cost control will eventually be the next item on the health care agenda, but that will be an even bigger challenge politically.