A Prescription for America's Prescriptions

• Jurisdiction: United States,Federal
• Citation: Vol. 35 No. 1
• Publication year: 2021
• topic: Trademark,Insurance Law,Federal,Health Law

A Prescription for America's Prescriptions

Haley Gintis

A PRESCRIPTION FOR AMERICA'S PRESCRIPTIONS

Introduction

While taking questions from the audience during a town hall in Nevada in September 2019, presidential candidate Bernie Sanders was confronted by Navy veteran John Weigel who had one topic on his mind: medical costs.¹ Weigel explained that he had been diagnosed with Huntington's disease and had accumulated over $139,000 in medical debt.² After Sanders asked Weigel how he planned to pay for these expenses, Weigel replied "I can't. I can't. I'm going to kill myself."³ The crowd fell silent as Sanders asked Weigel to wait for him after the event so that he could connect the veteran with needed resources.⁴ Although the interaction gained headlines because of the veteran's shocking response, Weigel's plight is far from uncommon. An estimated 137 million Americans are saddled with medical debt due to the exorbitant prices of prescription drugs.⁵ During the first six months of 2019, the price of more than 3,400 drugs increased an average of seventeen percent from the price just the previous year.⁶ In 2015 alone, prescription drug spending within the United States totaled about $457 billion.⁷ This number has continued to grow, and the Centers for Medicare and Medicaid Services (CMS) is projecting average annual increases of 6.7% through 2025.⁸

A major factor leading to the increase of drug prices is a provision in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("MMA"), which includes a noninterference clause prohibiting the federal government from negotiating the price of prescription drugs with pharmaceutical manufacturers.⁹ Supporters of the peculiar noninterference clause opined that the free market system would ensure that drugs were sold at

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reasonable prices and requiring manufacturers to engage in price negotiations would suppress research and development (R&D).¹⁰ However, prescription drugs are distinct from other products for which the competitive market can determine a reasonable price for two major reasons. First, U.S. patent law allows manufacturers to monopolize the prescription drug market, thereby decreasing the competition.¹¹ Second, Americans need their prescription medicines for their well-being, creating an inequality of bargaining power with individuals forced to pay prices much higher than what is reasonable or forgo treatment.¹² Recognizing the need to reform the regulatory landscape and repeal the MMA's noninterference provision, democratic and republican members of Congress have introduced legislation that would allow the federal government to negotiate with manufacturers and impose price caps on prescription drugs.¹³ Yet, many of the proposals struggle with how to establish a "reasonable drug price" and how to decide which drugs to subject to price caps, which is necessary to balance drug innovation with ensuring access.¹⁴

Using a reasonable drug price scheme to reduce prescription drug prices is not a novel idea; in the past twenty years, the United Kingdom, India, and Germany have all established legislation that guides the government to determine a reasonable selling price for prescription drugs.¹⁵ Because the United Kingdom, India, and Germany established such different reasonable pricing schemes, the United States can learn which policies and implementation tactics have been successful, and just as important, which regulatory mechanisms to

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avoid. This Comment examines five federal proposals aimed to reduce prescription drug prices through implementing a reasonable pricing scheme. This Comment then argues that the United States should leverage lessons learned from the United Kingdom, India, and Germany to establish a scheme that subjects both name brand and generic drugs to a reasonable price. The reasonable price should be determined by referencing the price of similar drugs in other countries, factoring in the value that the drug adds to the prescription drug market, and considering how much the manufacturers have invested in R&D.

This Comment is divided into four sections. The first section provides an overview of the current prescription drug regulatory system in the United States and explains why federal legislation is necessary to address the exorbitant prices of prescription drugs. The second section explores five proposals introduced to reduce prescription drug prices. The five proposals were selected for examination because they differ as to the factors used to determine the reasonability of a drug price and as to which drugs are subjected to reasonable price caps. The third section explains the reasonable drug pricing schemes implemented in the United Kingdom, India, and Germany. The fourth section explains how the United States can leverage the lessons learned from the aforementioned countries to recognize strengths and weaknesses in the recently proposed legislation. The fourth section argues that the Lower Drug Costs Now Act has the most promise in reducing prescription drug prices by combining a reference-based and value-based system, while continuing to incentivize R&D.

I. Making Sense of the Exorbitant Prescription Drug Prices

The high costs of prescription drugs have dominated the political arena, with both presidential and congressional candidates promising to reduce drug prices as part of their 2020 campaign platforms.¹⁶ In 2019, spending on prescription drugs in the United States was the highest to date.¹⁷ However, the debate of how much regulatory power the government should have over the prescription drug market is not new—attempts to use federal legislation to lower drug prices have been prevalent since the 1980s.¹⁸ After recognizing that some manufacturers and drug distributers monopolized certain pockets of the prescription drug market,

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Congress passed legislation with the goal of increasing competition by facilitating the introduction of generic drugs into the market.¹⁹ Yet, even with the number of generic drugs in the market at an all-time high,²⁰ the price of prescription drugs has not decreased.²¹ Moreover, legislation passed in recent years that aimed to increase the number of American's with health insurance did little to address the price individuals were actually paying for prescription drugs.²² Because of the failure on the federal level to decrease drug prices, states tried passing legislation to address the high price of prescription drugs but encountered issues with opponents claiming Commerce Clause and First Amendment violations.²³ The lack of success on the federal and state levels in reducing drug prices highlights the need for federal legislation mandating pharmaceutical companies sell drugs at reasonable prices.

A. The Current Prescription Drug Regulatory Landscape in the United States

In the early 1980s, congress attempted to incentivize manufacturers to create generic drugs as a way to reduce drug prices.²⁴ The Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the Hatch-Waxman Act ("the Act"), allowed the Food and Drug Administration (FDA) to fast track regulatory approval of generic drugs.²⁵ The Hatch-Waxman Act amended the former Abbreviated New Drug Application process²⁶ by allowing generic manufacturers to use already published clinical data.²⁷ The Hatch-Waxman Act changed the pharmaceutical market significantly by increasing the number of generic drugs on the market.²⁸ In the early 1980s, only thirty-five percent of top-selling drugs had any generic competitors following patent

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expiration.²⁹ In 2012, generic drugs were estimated to account for eighty-four percent of dispensed prescriptions.³⁰ Yet, critics of the Act maintain that too many loopholes exist, allowing pharmaceutical companies to extend their patent exclusivity which results in the delay of generic formulations.³¹ In addition to existing loopholes, some argue that the requirements for manufacturers to demonstrate that their new drug is interchangeable with the product already on the market, thereby qualifying as a "generic" which lowers the approval process threshold, are quite demanding.³² More concerning, however, is that the Act created a tiered scheme of additional market exclusivity provisions which extended the length of market exclusivity for some manufacturers.³³ In fact, the tiered scheme led some critics to declare that the true winner of the Hatch-Waxman Act was the pharmaceutical industry because of the additional monopoly periods.³⁴ Further, the Act catalyzed the prevalence of "Pay-for-Delay" schemes penetrating the market.³⁵ A Pay-for-Delay scheme allows the company which invented the drug to monopolize the market while imposing high drug prices.³⁶ Such agreements have led drug manufacturers to continue to monopolize the market long after their period of market exclusivity, thus counteracting Congress's purpose in enacting the Hatch-Waxman Act.³⁷

Recognizing the need to amend the Hatch-Waxman Act to achieve the goal of reducing drug prices by increasing generics, Congress passed the MMA in 2003.³⁸ While the Hatch-Waxman Act granted the first generic drug entering the

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market a 180-day exclusivity period which blocked the approval of other generic formulations during this time,³⁹ the MMA sought to provide more stringent requirements for generic drug companies to receive such exclusivity.⁴⁰

Prior to the MMA, a manufacturer was designated as the first applicant by filing an Abbreviated New Drug Application (ANDA).⁴¹ The MMA changed this by designating the first applicant to be any generic drug approved on the "first day," meaning that if multiple generic drugs were approved for the first time on the same day, they would share this 180-day period of market exclusivity.⁴² The MMA also added a forfeiture clause, which provided that an applicant forfeits their market exclusivity period if it fails to market its product either within seventy-five...