[Ip-health] Washington Post editorial: Dangerous Side Effects

[Malini Aisola]

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/15/AR2009071503378.html

Dangerous Side Effects
Thursday, July 16, 2009

A law meant to spur prescription drug competition has instead delayed
it. Congress could change that.

EVERY YEAR, American consumers pay an estimated $3.5 billion too much
for health care because of a loophole in a law regarding the marketing
of prescription drugs.

The 1984 Hatch-Waxman Act was supposed to help consumers by offering a
180-day exclusive marketing period to generic companies that could
develop their own "bio-equivalent" versions of brand-name drugs without
infringing on the brand-name drugs' patents. Allowing brand-name patent
holders to sue if they thought the generic equivalents came too close to
the patented drug's composition, the act was designed to promote the
development of cheaper alternatives and encourage challenges to weak
patents. But the result has been an increasing number of out-of-court
settlements in which brand-name drug companies simply pay generic
competitors to stay out of the market. A measure intended to make
cheaper, generic alternatives available sooner has had the paradoxical
effect of delaying competition.

The laws that are in place are not working. Courts have been divided on
the subject of "exclusion payments" -- with several finding that only
settlements that delay the entry of a generic alternative beyond the
expiration of a brand-name's patent can be deemed anti-competitive. But
this holds only for companies whose patents are strong. And it misses
the point of the incentives that Hatch-Waxman was designed to create: to
test whether a company's patent blocks entry into a market and to allow
generic competition sooner if it does not.

When a generic competitor offers a solid case against a brand name's
patent but accepts payment instead of going to court, consumers pay a
substantial price. The drop-off in price between brand-name and generic
drugs is vast and ever-increasing; the prices of many generic drugs are
85 percent lower than the brand-name versions, while some are as much as
95 percent less.

As Congress embarks on major health-care reform, it has a chance to fix
the system. Banning all "pay-for-delay" settlements except where they
can be proven to be pro-competitive would be a good start. True, some
pay-for-delay settlements inadvertently benefit consumers by allowing
generic products to enter markets sooner than they would have after
litigation. But that is no excuse for failing to fix a system with
fundamentally flawed incentives. The only difference between one company
paying another not to produce a competing product and one company paying
another not to produce a competing product yet is that the second is
still, paradoxically, legal. This must change.


--
Malini Aisola
Knowledge Ecology International
1621 Connecticut Avenue NW, Suite 500, Washington DC 20009
malini.aisola@keionline.org|Tel: +1.202.332.2670|Fax: +1.202.332.2673