Discussing the Laffey Plan to Remedy High Drug Costs, Part 2
The next two problem/solution pairs proposed in Steve Laffey’s plan to remedy high drug costs concern different aspects of the problem of regulation. (The first two problem/solution pairs are discussed here) .
1. The first issue is the relationship between the pharmaceutical industry and the Food and Drug Administration…
Today’s Problem: FDA regulates drugs foremost on financial interest–not consumer safety (i.e. Vioxx)In 1992, the Federal Government implemented a “user fee” system where drug companies pay the government to help provide the resources needed for drug testing.
Laffey’s Solution: Eliminate fees for FDA approval and ban experts with financial ties on drug advisory committees.
The problem with a user fee system is not conscious corruption. The problem is the nature of government bureaucracy and its incentive structure. In the private sector, success is measured in terms of a profit. In government, where there is no profit, we foolish humans still need some way to score our successes and failures. In public bureaucracy, management often measures its success in terms of its ability to increase its budget allocation. (An article in the Spring 2002 issue of the Cato Institute journal Regulation, mostly supportive of the user-fee system, agrees with this principle).
Once user-fees are built into the system, pressure inevitably builds on the government to push as many drugs through the testing process as possible in order to collect as much fee money as possible. It is certainly plausible that the 1.56% increase in drug recalls between 1993-1996 and the 5.35% increase in drug recalls between 1997-2001 reported by the Journal of the American Medical Association (via the Christian Science Monitor) is related, in part, to the bureaucracy’s tendency to act, not evilly, but shortsightedly, thus warranting some re-examination of the practice of user-fees.
2. A second reform proposal focuses on the issue of patent law…
Today’s Problem: Generic drugs are priced 20%-80% below brand names drugs, but comprise on 10% of total drug sales.A patent is supposed to be a deal that benefits both innovators and the public. An innovator gets rewarded for his work by having and exclusive period to market and/or license his product. In return for granting a period of exclusivity, the public learns the details of the innovation and, after the patent expires, is allowed to build upon those innovations.
Laffey’s Solution: Increase generic drug distribution by closing drug loopholes, ending anti-competitive payoffs and adjusting effective patent life.
Unfortunately, patent law’s current structure and enforcement is not consistent with its purpose. As soon as the generic drug maker notifies the Food and Drug administration that it is preparing to produce a generic version of drug about to enter the public domain, the brand name manufacturer can sue for a 30-month extension. In that period (and because of the sorry state of patent scrutiny in this country) they can attempt repatenting their original product, triggering other delays. Here’s an example from reporting from PBS’ Newshour with Jim Leherer showing how current law allows frivolous patents to stifle the purpose of the patent process…
What brand name manufacturers have done in some instances is go back and file new patents on those same drugs, some of them frivolous patents. In one instance, for example, a company suddenly went back and decided to patent the brown bottle that the cancer drug came in, because it said this brown bottle will preserve the potency of this drug. So it filed that patent anew. That triggered another 30-month stay.Other provisions in patent law encourage generic drug producers to sue brand-name producers in an attempt to shorten the lives of patents. A provision in the law allowing a generic drug producer an 180-day period of exclusivity after winning a patent-shortening suit caused an explosion in litigation starting in the 1980s. Robert Goldberg, Director of the Manhattan Institute Center for Medical Progress, explains the effect that this has had…
During the 1980s only two percent of generic drugs tried to cut patent life short as a way to approval. Today over 20 percent of all generic drugs now enter the market through legal attacks on patent life. And generic firms are attacking as soon as a drug hits the market — with multiple challenges of the same patent in many cases. No wonder generic companies such as Barr Labs make most of their money not from selling medicines but from suing drug companies and settling cases.The Laffey plan would address these problems by simplifying patent law. Drug companies would not get an automatic 30-month extension on their patents. And to make sure that the get fully rewarded for their innovation, Mayor Laffey suggests reforming the law so that the clock on pharmaceutical patent doesn’t start until the drug actually hits the market.
Clearer and simpler patent law would have a positive effect of creating a stable, non-litigious playing field for the production of both brand name and generic drugs.