The price of prescription drugs in the United States has long been a flashpoint of our nation’s healthcare debate. Last year 45 million Americans said they did not fill a prescription due to high costs. So why are drug prices so high? The short answer is that the pharmaceutical industry trade group PhRMA has spent almost $2 billion since 2003 to make sure pharmaceutical companies have a government protected monopoly on the market.
The government market barrier has three layers. First is the ban on importing prescription medications. Proponents of this ban say that it protects the health and safety of American consumers, despite the lack of evidence that imported drugs would be harmful. This ban should be overturned, and it should be legal to import prescription medications from certain countries with a comparable equivalent of FDA approval. The benefits of free trade are well known to any student of economics, and this is no exception. In the case of drug imports from Canada alone, Americans could save between 45-75% on common prescriptions for ailments such as Leukemia, Depression, and High Cholesterol.
The second layer provides generous patent protections for brand name drugs to keep generics off the market. Drug prices fall to 55% of their initial brand name cost with only two generic drugs per brand name on the market.
Approval for generic drugs often gets stalled by a citizen petition to the F.D.A. This is a process by which anyone can submit a petition questioning the bioequivalence of a generic drug to its brand name counterpart. By its own rules, the F.D.A. must consider and respond to all petitions which can take months or years. A 2016 study showed that 92% of such petitions were filed on behalf of major pharmaceutical companies. To its credit, the Federal Trade Commission has made moves to curb this practice based on anti-trust law. However, such harmful cronyism requires a fundamental shift in the approval process. Bioequivalence should be determined by independent laboratories with the generic manufacturer liable for any damages that result from inaccurate or misleading bioequivalence determinations. This will incentivize manufacturers to seek out the most trustworthy labs, and will incentivize labs to act in the highest standards of integrity and scientific acumen.
Another way to expedite the arrival of generic drugs to the market it to close a patent law loophole. Currently, pharmaceutical companies can apply for a patent extension based on changes to non-therapeutic drug components. That means they can tinker with the plastic coating on a pill and claim the right to a patent extension. This loophole needs to be closed. Patents should only relate to the clinically relevant components of a medication.
The third barrier imposes roadblocks on the market penetration of generic drugs when they finally do hit the market.
Congress has dictated that Medicaid must reimburse for the cost of all F.D.A. approved drugs, even if a more affordable equivalent is on the market. This eliminates any incentive on the part of the Physician and the Patient to consider cost-effective treatment options. As is done in National Health Systems throughout the world, Medicaid should be allowed to cap reimbursement of prescriptions drugs that have a generic counterpart on the market.
Although I’ve focused on Federal intervention thus far, 26 state governments have cost the healthcare industry tens of millions of dollars with a law that physicians must obtain patient consent before switching a prescription from a brand name to a generic drug. This mandate is a clear example of government intervention driving up costs and should be repealed by the states in question.
Allowing the import of prescription drugs and market access for generics will increase competition on the drug market significantly. Prices will drop. Competition for market share will prompt more intensive research and development. Eliminating protectionism in favor of movement towards a free market will benefit consumers and should be a part of any healthcare reform movement.