Prescription drug prices remain stubbornly high in the U.S. even though making drugs more affordable is a priority for both Democrats and Republicans. There are many reasons for the lack of progress. Some are deliberate, others are accidental.
A dizzying and byzantine pharmaceutical system with minimal transparency is one part of the problem. Companies’ ability to stymie reform, like not allowing Medicare to negotiate drug prices, is another. So is anti-competitive behavior from drug manufacturers, which games the system at the expense of patient affordability and access to medications.
As one of many common and lucrative anti-competitive strategies referred to as evergreening or life-cycle management, brand-name drug manufacturers often delay reformulating drugs until generic competition begins to loom. This timing allows manufacturers to extend monopoly protections and hold on to profitable drug markets by procuring additional patents when the ones on their original drugs are expiring.
As a result, needed therapies are less affordable and ultimately we all pay more.
While the modifications vary in importance, they are usually minor: a switch from a tablet to a pill, an extended-release tablet that can be taken once a day instead of twice a day, a pill that combines two medicines, and the like.
Newer formulations are expensive, particularly relative to generic versions of the original drug. One study showed that Medicare Part D, which offers prescription drug coverage, and Medicaid — both publicly-funded programs — could have saved up to $2.6 billion by switching patients from extended-release formulations to generic versions of original drugs.
Drug manufacturers insist that reformulating drugs is valuable for patients. To be sure, paying more for new formulations would be worth it if this were true. Some tweaks can reduce pill burden, and may be more tolerable. However, research is mixed on whether such changes can improve patients’ ability to consistently take a medication and whether this improves their health.
To the extent that modified drugs do offer clinically meaningful value, the high cost can blunt their benefit for patients, who may not be able to keep taking expensive new formulations. And when more expensive, branded drugs are used in place of generics, everyone’s insurance premiums are affected and go up.
In most cases, reformulating drugs only helps companies’ bottom lines. With several colleagues, we recently published a study in JAMA Health Forum in which we found that manufacturers are several times more likely to secure Food and Drug Administration approval for a new formulation for existing drugs that have reached blockbuster status. Blockbuster drugs are the most profitable drugs with more than $1 billion in annual sales, but are not necessarily the most innovative or clinically meaningful drugs. Manufacturers also dramatically reduced pursuing approval for new formulations once their drugs began to face generic competition.
In contrast, companies did not develop new formulations for drugs that were considered the most therapeutically valuable, innovative, or clinically useful. Thus, while the modified formulations may not be innovative or clinically meaningful themselves, drug manufacturers frequently do not alter drugs that are particularly valuable and innovative to begin with. Our study shows that drugs’ revenue, as opposed to patient benefit, is the clear driver for reformulating drugs: manufacturers stop pursuing development of new formulations that may be beneficial for patients after they begin to face generic competition, suggesting that they lose interest in that market.
That companies try to avoid generic competition, particularly for the most profitable drugs, isn’t surprising. Drug manufacturers employ a number of additional anti-competitive tactics, including creating so-called patent thickets to make it difficult for competitors to enter a market, paying generic competitors to delay introducing their version onto a market, and launching their own generic versions, as in the case of the EpiPen.
This wasn’t supposed to happen. The landmark Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as Hatch Waxman, established a system to facilitate market entry of generic competitors after a set time of monopoly protection that allowed brand-name manufacturers to recoup their considerable cost of drug development. The legislation was wildly successful, leading to widespread availability of cheap and effective generic drugs. But as is often the case, regulation and policies can have unintended consequences, with actors craftily responding to thoughtfully designed incentives.
The existing system for rewarding innovation needs reform, in large part to respond to these strategies. Encouraging pharmaceutical innovation while maintaining patient affordability and access is a delicate but easily disrupted balance. One common refrain is that more regulation would hurt innovation. But the devil, as always, is in the details, and in asking the right questions, one of which is “Are we incentivizing the right types of innovation to begin with?”
One study found that between 2005 and 2018, 78% of drugs associated with new patents were existing drugs, not new ones. A recent House Oversight Committee report affirms the notion that market power, as opposed to clinically meaningful innovation, is the driving force for drug development.
Reining in anti-competitive strategies would enable greater patient access to affordable medications. It would also simultaneously shift drug manufacturers’ focus to developing innovative and clinically transformative medicines that treat diseases of the 21st century, such as Alzheimer’s, various cancers, and antibiotic-resistant infections — as opposed to slightly reformulating drugs that aren’t particularly valuable to begin with.
Given the connection between patent monopolies and drug prices, reforming the United States Patent and Trademark Office is an important first step, including fortifying the agency with resources and personnel to thoroughly evaluate patent applications and facilitate challenges to dubious pharmaceutical patents. Certain approaches, such as making it difficult to extend patents or aligning duration of patent protections with their value to patients and to the public’s health, would help address the current gaming of the system.
Tackling the use of new formulations to thwart competition also requires a combination of legislative and regulatory changes, as emphasized in a recent Department of Health and Human Services report. Proposed bipartisan legislation, such as the Affordable Prescriptions for Patients Act of 2021, would specifically deal with so-called product hopping tactics that companies rely on to extend their monopoly protection after securing FDA approval for new formulations of existing drugs by codifying definitions of this tactic within the Federal Trade Commission Act.
But these efforts are only part of confronting the array of drug manufacturers’ misbehaviors, promoting healthy competition, and ensuring affordable drug prices for patients. During a recent Senate hearing, Sen. Elizabeth Warren (D-Mass.) raised a number of these issues, calling for an end to the “corporate profiteering” that leads to high prices for prescription drugs.
Enabling access to prescription drugs and encouraging clinically meaningful pharmaceutical innovation should go hand in hand, and not be in such direct tension. Prioritizing patient health should be the essential guiding principle underlying all discussions about innovation and access or affordability.
Ravi Gupta is an internal medicine physician, a fellow in the National Clinician Scholars Program, and an associate fellow at the Leonard Davis Institute of Health Economics at the University of Pennsylvania. Joseph S. Ross is a general internal medicine physician and professor of medicine and public health at Yale School of Medicine.