William B. Schultz is a partner at the law firm Zuckerman Spaeder, which represents generic drug companies and other clients. He served as a general counsel for the Department of Health and Human Services during the Obama administration and deputy commissioner for policy at the Food and Drug Administration during the Clinton administration.
Most people who work in health-care policy agree that rising prescription drug prices pose a serious threat to efforts to make health care affordable. Prescription drug prices account for 17 percent of the nation’s health-care costs, up from 7 percent in the 1990s.
According to data from the Medicare Payment Advisory Commission, prescription drug spending accounts for nearly 20 percent of total program spending for Medicare, the largest of the governmental health-care programs. With backing from powerful lobbying organizations, the brand-name pharmaceutical companies avoided price controls.
The one bright spot in drug pricing has been generic drugs. A 1984 law, enacted in exchange for patent extensions to the branded drug companies, created the modern generic drug industry. Today, generics account for 89 percent of prescriptions filled in the United States but only 26 percent of the total spending on prescription drugs. Generic drugs lower drug prices through competition. Once the patents on brand-name drugs expire and anticompetitive business tactics by branded companies have been overcome, less expensive generic versions of these products are allowed to enter the market, and drug prices typically drop dramatically. Patients and taxpayers realize the savings from generic drugs every day.
When I first heard about the law the Maryland legislature enacted this year to address “price gouging” and “unconscionable” price increases for prescription drugs, I liked the idea. That was before I read the legislation, which turns out to apply only to generic drugs and exempts any branded drug still under patent — in other words, the bill leaves untouched the segment of the pharmaceutical industry that is responsible for the “unconscionable” increases in drug prices in recent years.
What I call the “Big Pharma carve-out” in the new Maryland law of course was not an oversight; instead, it is a reflection of the political power of the brand-name drug industry and its lobbyists. In allowing the bill to go into effect without his signature, Gov. Larry Hogan (R) raised two concerns about its constitutionality — namely, that the terms “unconscionable” and “excessive” in the bill are too vague, and that the bill regulates commerce outside Maryland.
The bill’s stated purpose is to address recent examples involving sole-source drugs (drugs made by only one company) for which the patents have expired in which drug companies have raised prices to extraordinary levels. The most famous example is Daraprim, a 60-year-old drug used to treat a rare parasitic infection. After Turing Pharmaceuticals purchased the drug in 2015, it raised the price from $13.50 per pill to $750. A few months later, its president, Martin Shkreli, was arrested for securities fraud. Often lost in the coverage of this unconscionable price increase is the fact that Daraprim is not a generic drug; instead, it is a brand-name drug whose patent had expired.
The law is a cumbersome and ineffective answer to a few isolated examples of sole-source drugs whose prices have increased dramatically even though their patents have expired. The best response to this problem is to fix the approval process for generic drugs at the Food and Drug Administration so that once patents have expired, competitors’ applications to market these sole-source drugs are given priority and approved promptly. Competition is the most effective method of bringing down drug prices.
The Maryland law distracts from the more difficult and important challenge of lowering prices of patented brand-name drugs, which often cost $50,000 to $100,000 per year for a single patient, and in rare cases more than $500,000 a year. These are drugs for which there can be no competition and for which government programs increasingly are the purchasers (and are typically prohibited by law from negotiating prices, again due to Big Pharma).
In the past 35 years, the only significant victory in the battle to control drug prices has been the enactment of legislation that established the generic drug program at the FDA. While generic drug competition is not the complete answer, it must be a major part of any effort to address the problem of soaring prescription drug prices. Unfortunately, Maryland could destabilize its generic drug market and divert resources from the real causes behind the high prices of prescription drugs.