Throughout this week, the Washington Examiner’s Restoring America project will feature its latest series titled “Reforming the Deep State: Reining in the Federal Bureaucracy.” We invited some of the best policy minds in the conservative movement to speak to the issues of what waste, fraud, abuse, and unaccountability exist throughout the federal government and what still needs to be done. To read more from this series, click here.
Why do Americans pay so much at the pharmacy counter?
One often overlooked factor is that established pharmaceutical companies have been working with big government to short-circuit the free market and make it impossible for generic medicines to compete. It’s time for President Donald Trump and Congress to take on this unholy alliance and bring down healthcare costs for all Americans.
The problem begins, as it so often does, with the federal bureaucracy.
Only 10% of pharmaceuticals make it through the Food and Drug Administration’s gauntlet of red tape. This biases the system towards established drug companies. By roadblocking new competition, the FDA helps them maintain monopolies and drives up prices.
Another piece of the puzzle is how federal law enables drug companies to manipulate patents — which are time-limited, government-granted monopolies — for their own crony interests.
The Drug Price Competition and Patent Term Restoration Act, known colloquially as the Hatch-Waxman Act, was designed to speed the arrival of lower-cost generics by forcing all patent disputes into a single lawsuit resolved within 30 months. For decades, this commonsense framework worked. Patent disputes got resolved, patients got timely access to affordable alternatives, and name-brand drug companies were still handsomely rewarded for genuine and often life-saving innovations. But recently, drugmakers have discovered patent system loopholes that allow them to slow down generic drugs’ market entry, costing Americans billions of dollars annually.
One favorite tactic is “product hopping” — making a superficial change to a drug and claiming a brand-new patent. The new patent re-starts the multi-year monopoly clock all over again, and the established pharmaceutical companies’ cash register rings and rings.
RICHARD NIXON ENABLED THE ADMINISTRATIVE STATE
Take Namenda, an Alzheimer’s treatment. When the original twice-a-day version was about to go off-patent in 2015, generic versions were expected to enter the market and drop the price by 80 to 90 percent. Instead, however, the established brand company rolled out a once-a-day “XR” version with a fresh patent and took the twice-daily product off the market.
Because generics are only allowed to compete against an existing brand drug, this maneuver blocked generic approvals. This kind of product-hopping was never what Hatch-Waxman was meant to permit.
Other drug companies have taken it even further, intentionally withholding some of their patent “disputes” until after filing the first Hatch-Waxman suit so they can continue filing new infringement suits. Often, they do this even after losing their initial case. The goal isn’t to win the lawsuits; it’s to delay affordable competition that will save everyone billions of dollars.
For example, Pacira, the maker of the anesthetic Exparel, piled on six lawsuits against a competitor to delay its entry until 2030. Genentech used 20 different patents to fend off 28 would-be competitors to its lung-disease drug Esbriet — even filing new patents after litigation had already begun. This shell game is abusing the patent system, and the courts are unwitting co-conspirators.
Taxpayers get hit coming and going — once through higher Medicare and Medicaid spending, and again when government health programs have to ration coverage. The winners, meanwhile, are a handful of powerful pharmaceutical giants. The FDA’s endless delays give them breathing room, and Hatch-Waxman loopholes give them a legal bludgeon to swing at competitors.
The good news is that both Congress and the executive branch can act.
Congress should amend Hatch-Waxman so brand companies can’t sit on patents only to spring them later in new lawsuits. Lawmakers should also prohibit companies from suing for massive damages after losing an initial case.
The Trump administration doesn’t need to sit on the sidelines waiting for legislation.
Health and Human Services Secretary Robert F. Kennedy Jr., who is already working on ensuring compliance with Trump’s healthcare reform executive order by next month, can endorse reform legislation from Congress in his upcoming report.
He can also issue new guidance narrowing what qualifies as a legitimate patent listing in the “Orange Book” (the Approved Drug Products With Therapeutic Equivalence Evaluations list) so brand companies can’t sneak in weak or duplicative patents that have no business delaying competition.
And the Department of Justice and Federal Trade Commission, working hand-in-glove with HHS, can aggressively pursue sham litigation and pay-for-delay settlements as antitrust violations.
CLICK HERE TO READ MORE FROM THE ‘REFORMING THE DEEP STATE’ SERIES
Trump has made lowering drug costs a top priority. He is right to do so. Tackling the drug companies’ anti-free market games, cutting Washington’s red tape, and using every tool at HHS’s disposal will not only make prescriptions more affordable, but it will also restore faith that the healthcare system works for patients, not just for well-connected corporations.
Americans deserve a drug market where competition works, innovation thrives, and life-saving medicines are affordable. But that won’t happen until the axis of pharma deck-rigging and big government is broken once and for all. It can’t come soon enough.
Thomas Stratmann is a senior research fellow at the Mercatus Center and a professor of law and economics at George Mason University
