Generic entry in a rough economy - proposed legislation may ease health care costs.

AuthorGrebe, Laura J.
PositionCOMMENTS
  1. Introduction A. Generics in the Current Economic Situation II. Where Are the Generics? A. The Hatch-Waxman Act and Paragraph IV Challenges B. Reverse Payments--The Pharmaceutical Companies' Response to Paragraph IV Challenges 1. Reverse Payments and Their Justifications 2. Early Success in Challenging Reverse Payment Settlements-Per Se Illegality a. In re Cardizem CD (6th Circuit) b. In re Terazosin Hydrochloride Antitrust Litigation III. Change in analysis--Recent Cases affirming Reverse payment agreements A. Schering-Plough v. FTC (11th Circuit) B. In re Tamoxifen Citrate Antitrust Litigation IV. A Potential Legislative Solution A. The Preserve Access to Affordable Generics Act B. The Pros and Cons V. Conclusion and Potential Success of the Preserve Access to Affordable Generics Act I. Introduction

    With the nation in a large economic recession, everyone is looking for ways to cut back and save. (1) Health care costs, specifically, have been increasing at an alarming rate, leaving many people, old and young alike, wondering how they will pay for the next doctor's visit, prescription or any emergency that may arise. (2) To ease these health care costs, more people are turning to generic medicines in place of the large brand name drugs. Unfortunately, generic entry into the market is a somewhat lengthy process. During the Food and Drug Administration (FDA) approval process, new generic drugs, in some circumstances, must challenge the existing patent for the brand name drug. In response to the challenge, large pharmaceutical companies have been paying the generic would-be-competitor to delay market entry. For consumers, this means fewer generics entering the market and continuing high prices for brand name prescription drugs.

    These "reverse payment" agreements have been challenged on antitrust grounds in various jurisdictions, resulting in split authority. Recently, however, the trend has been toward allowing these agreements. With no Supreme Court guidance, the spotlight is on Congress to come up with a legislative solution. On February 3, 2009, Senator Herb Kohl of Wisconsin introduced Senate Bill 369, entitled Preserve Access to Affordable Generics Act, which would, if passed, amend the Clayton Act and make "reverse payment" agreements illegal. This Comment, after considering the pros and cons of the Preserve Access to Affordable Generics Act, will show that, given the current economic situation, it is extremely important to strike a balance between consumer interest and the monopoly 'reverse payment' agreements create. Senator Kohl's proposed bill does just that.

    1. Generics in the Current Economic Situation

    It is well settled that the United States is currently experiencing one of the worst economic recessions since the Great Depression. (3) Stocks are falling, (4) the unemployment rate is steadily rising, (5) and sales are at a standstill. On February 12, 2009, the Dow Jones closed with a fall of more than 200 points, and it is trading at its lowest levels since November 2008, (6) and as of January 2009, the unemployment rate reached 7.6%. (7) Joshua Shapiro, the chief U.S. economist with MFR, Inc., an economy forecasting firm, commented that the current situation, however, is just the tip of the iceberg. "We've only just started," he stated in an interview for the Los Angeles Times. (8) "I can't see bottoming out until sometime in 2010." (9)

    The current economic problems are affecting everyone, especially when it comes to healthcare costs and prescription medicines. People usually think of older adults and seniors when it comes to the hardships of health care costs, but a recent survey by Medco Health Solutions, Inc. shows young adults are feeling the pressure just as much. (10) Part of this stems from the fact that prescription drug usage has increased dramatically. In 2001, Americans filled about 3.1 billion prescriptions---breaking down to ten prescriptions for every person (man, woman, and child) in the United States. (11)

    Even federal programs like Medicare are raising premiums to accommodate the higher costs of prescription medications. (12) Medicare revealed its Part D stand-alone drug plan for Minnesota, to begin in 2009, and the average monthly premium increased by $7. In 2006, Part D's first run in Minnesota, the basic plan average monthly premium was a mere $1.87. In three short years, that plan jumped to an average of $41 a month, with the proposed $7 increase to $48 starting in 2009. (13)

    But these increases are small compared to those of private insurance companies. The average monthly cost for Blue Cross and Blue Shield's drug plan, for example, is expected to be $93.50 in 2009. (14) Employers, then, who use these plans, have little choice but to pass the cost onto their employees. In 1999, employers covered right around 90% of the health insurance costs for employees. (15) In 2009, that percentage has decreased to about 73%, with only further declines expected. (16) What does that mean for the employees? According to the National Coalition on Health Care (NCHC), employer health insurance premiums increased twice the rate of inflation during 2008. (17) The NCHC estimates that the annual premium for a four-person family averaged $12,700, and that the average for a single worker was about $4,700. (18)

    Hospitals have also faced severe hardship in this economic crisis. Many necessary drugs have risen in price over 100%. (19) Acthar, a Questcor Pharmaceuticals' drug treating spasms in babies, increased in price from $1,650 a vial to $23,269 a vial. (20) Ovation's Cosmegen, to treat Wilms' tumor, jumped from $16.79 to $593,75 in January 2006. (21) What are hospitals doing about these increased costs? According to Alan Goldbloom, president of Children's Hospitals and Clinics of Minnesota, most hospitals are either "eating the cost," going further into the red, or "passing it along to insurers," causing the premium rates to increase, as mentioned above. (22)

    As people feel the stress of this depressed economy, they respond by trying to cut costs wherever possible. People have started juggling checkbooks and credit cards just to cover the bare necessities, like housing payments, utility bills and food, and are foregoing any extras. With noted concern, doctors and physicians have noticed that one of the places people are making these cuts is with their health. The Consumer Health Information Corporation reported that patients are either opting to not refill prescriptions or cutting the dosage to make the prescription last longer. (23) In a survey conducted by Rockefeller Foundation/Time Magazine, participants were specifically asked if, within the past year, they had not filled a medical prescription because of cost. (24) Twenty-three percent responded yes. (25) Unfortunately, it is not simply pain or allergy medication these patients are cheating on. When people do not take their pain or allergy medication, the consequences are readily felt. (26) Rather, it is the cholesterol medication, blood pressure medication and even diabetes medication being played with. (27) If one skips a day or two, or takes half a dosage of these medications, patients cannot feel the result of that change. "Playing doctor" in this fashion, however, has many adverse consequences for the patient, from disease progression to loss of drug effectiveness over time.

    Alternatively, to combat these rising costs, individuals, hospitals and insurance companies alike have turned to generic substitution. Once a generic is on the market, its competition with the brand name drug in the prescription arena can lower the costs of a medication anywhere from 70-80%, yielding lower prices overall. (28) Furthermore, generics, in their first year alone, can capture up to 80% of the market of the brand name as well, showing that consumers are ready for this drug competition. (29)

  2. Where Are the Generics?

    1. The Hatch-Waxman Act and Paragraph IV Challenges

      New drug development is both risky and costly. (30) Not only is the approval process for new drugs long, taking sometimes upwards of twelve years to get from laboratory to shelf, (31) it is also extremely costly. (32) In 2000, the estimated cost of research and development for a new drug, prior to getting FDA approval, was $802 million. (33) If costs of post-approval research and development are added to that figure, by the time a new drug reaches the market, the sponsoring pharmaceutical company spends, on average, $900 million. (34) Given the investments such large companies make, patent protection is understandable, and it is easier to see why name-brand drugs tend to be more expensive once they enter the market. Large pharmaceutical companies, in exchange for their investment of time and money into a new drug and release of that drug to the public, look to the government for some form of protection. Large pharmaceutical companies, under patent protection, must then sell their new drug for a price at which the companies can recoup their research and development costs (and make a little profit).

      Prior to 1984, both brand name drugs and generics seeking to enter the market had to undergo a lengthy and costly FDA approval process, though the generic may not necessarily have to endure the research and development costs. In 1984, to speed the entry of generics and encourage challenging brand name patents, Congress passed the Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the "Hatch-Waxman Act," to amend the Federal Food, Drug and Cosmetic Act. (35) Instead of having to file a New Drug Application (NDA) with the FDA, a long and expensive process through which a company shows the safety and effectiveness of its product, generic companies could file an Abbreviated New Drug Application (ANDA). (36) In an ANDA, the generic company need only prove it is a bioequivalent to the existing brand name drug, which had already been approved for safety...

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