A tsunami of healthcare costs is crashing into the budgets of U.S. businesses. Each new wave forces employers to devote more resources to healthcare and fewer to employee wages, benefits, and investments for growth. Beyond the workplace, families already struggling with affordability are facing higher costs and difficult choices about the care they can afford.
At the center of the storm are prescription drugs, which now make up more than 25% of total employer healthcare spending. As leaders of The ERISA Industry Committee, which represents employers providing health benefits to tens of millions of workers, and the Pharmaceutical Care Management Association, representing the companies that design and administer their pharmacy benefits, our organizations come at this issue from different perspectives, but we agree that we spend far too much on prescription drugs.
Every part of the drug supply chain must contribute to solving this problem. Earlier this year, Congress passed sweeping regulations of prescription benefit managers that outlawed certain PBM business practices and required full transparency, providing employers with data on every claim, drug, contract, and fee to inform their pharmacy benefits decisions. Now Congress needs to address the prescription drug manufacturers’ role in high drug costs.
Patients deserve access to breakthrough, innovative prescription drugs that hold the power to save lives and bring hope for families struggling with illnesses. This access demands a balance between rewarding investment and patient affordability. The Hatch-Waxman Act of 1984 is a federal law that enshrined a grand bargain in our healthcare system that grants brand-name drugs market exclusivity to help recoup the expenses associated with developing drugs. In exchange, the law provides pathways for generic drug competition after a reasonable period. Unfortunately, more than four decades after enactment, this bargain is broken.
Some manufacturers are gaming the system, exploiting loopholes in the patent system to keep high-priced brand-name drugs as patients’ only option.
Today, generic drugs and biosimilars, clinically equivalent to brand-name drugs but a fraction of the cost, save consumers $467 billion every year. These could power even more savings, because while brand-name drugs are just 10% of all prescriptions filled, they account for 88% of all drug spending. Too often, an expensive brand drug should already face generic drug competition, but legal maneuvering by drugmakers keeps lower-cost options off the market.
Genuine innovation is being smothered by gamesmanship. One way that brand drugmakers do this is by securing piles of secondary patents for minor, nonclinical changes such as modifying the coating on a pill or changing the packaging of a drug. This is not innovation, and it does nothing for patients. But it creates so-called patent thickets, which preserve a brand drug’s exclusivity period and block lower-cost generics and biosimilars from entering the market. Patients and employers keep paying higher prices.
Another example is “product hopping,” in which companies discontinue the original version of a medication and switch patients to a new formulation of the drug with longer monopoly protection. When a lower-cost alternative finally hits the market, pharmacists can no longer automatically substitute it, and the ability of PBMs and employers to promote lower-cost alternatives is undermined. The cost of this gamesmanship is staggering. Product hopping alone costs consumers $5 billion annually. Patent thickets cost $16 billion in a single year on just five drugs. These are just some examples of patent system is abused.
This amounts to billions of dollars taken from employer budgets and the pocketbooks of families. The good news: Relief for American employers and their workers is possible. Lawmakers are getting wise to these schemes. Several bipartisan proposals have been introduced in Congress that close the loopholes and address extended exclusivity periods for biologics.
The Eliminating Thickets to Improve Competition Act would be a great start. It would limit the number of patents a drugmaker can assert in litigation, making it easier for generic drug manufacturers to reach the market without spending millions on litigation.
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The Biosimilar Red Tape Elimination Act would reduce drug prices and improve access for patients. It would eliminate artificial hurdles that keep biosimilars from reaching patients — hurdles that no other country in the world imposes.
The promise of the 1984 Hatch-Waxman Act was simple: reward innovation for a set period, then allow competition to lower prices. Forty years later, Congress has an opportunity to restore that balance and deliver affordability to employers and workers at a time when they need it most.
David Marin is the president and CEO of the Pharmaceutical Care Management Association. James Gelfand is the president and CEO of the ERISA Industry Committee.