The Dilemma of Prescription Drug Pricing: An Opportunity for the Biden Administration

By Sarosh Nagar

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As the United States heralds the onset of the Biden administration, health policy issues have been receiving national attention, from the drive to vaccinate all Americans by the summer to ongoing questions about the fate of the Affordable Care Act before the Supreme Court.1 However, there is another health controversy that, while not as well-known, also has significant ramifications for the health of Americans for generations to come: drug pricing reform.

The controversy over drug pricing in the United States is nothing new. Americans, on average, pay nearly 1.5 to 2 times as much on most prescription drugs than most other developed nations.2 Americans pay these high prices especially on brand-name drugs, medications sold under a specific name or trademark usually via the company who originally developed and patented the drug.3 Consequently many people, especially those from low-income backgrounds, report having issues affording medication and have been forced to stop their treatment at times.4

It is therefore vital to understand why prescription drug prices in America are so high. In theory, the high price of prescription drugs is supposedly due to the fact that, according to many pharmaceutical companies, it can take around $500 million to develop a product and move it though multi-stage clinical trials worldwide.5,6 However, recent research suggests the cost of drug development is far lower than what some in the industry have claimed, leading many to speculate that high prices and hikes occur for reasons beyond mere research costs.7

In recent years, that speculation has been confirmed due to several major investigations, including one pursued by the House Oversight Committee in 2020. The House's investigated a cancer drug called Revlimid manufactured by the Celgene Corporation. When the drug was first launched in 2005, Revlimid only cost around $215 per pill, but in the last fifteen years, the drug's price has been hiked up nearly 22 times, so now a single pill of Revlimid can cost over $763.8,9 Many at Celgene claimed these price increases were due to research costs, but the House's investigation revealed internal Celgene documents indicating that company leadership was hiking up the price to increase revenue, and in many cases, ensure corporate executives received their bonuses.10

Sadly, Revlimid’s story is not unique. Contentious hearings over prescription drug pricing have gripped Washington for years, exposing representatives of major companies like Novartis, Amgen, and Mallinckrodt for outlandishly pricing mediation.11 But how do such companies get away with these price hikes? Oftentimes, the culprit of the cost is the rules surrounding the market exclusivity period of drugs, or the time when a drug's original manufacturer is the only company permitted to sell that medication.12 When a drug's active ingredient is discovered, often early in the drug development process, brand-name drug manufacturers usually file a 20-year patent on that new product.13 But after going through clinical trials and FDA review, this process leaves most regular drugs with about 12.5 years worth of patent-based market exclusivity.14

Market exclusivity is quite lucrative for companies, as it enables them to sell their product without competitors and earn more revenue.15,6 However, when exclusivity ends, other companies can start to produce so-called generic drugs, or new drugs that are biologically and chemically equivalent to the original medication.16 When a generic enters a market, it creates competition for the original product, causing drug prices to go down as manufacturers compete for market share.17

To limit competition, companies engage in various measures to extend their market exclusivity. Celgene, for example, attempted to extend its exclusivity on Revlimid by filing for various additional, or secondary patents, on various chemical formulations on their drug.12,13 Manufacturers may also attempt to create settlements with drug companies, file dubious petitions to FDA, and more, in order to maintain their exclusivity.18 As a result, generics have trouble entering the market in the United States, allowing the original manufacturer to keep drug prices high.

Given these price hikes, reform for prescription drug prices is a mostly bipartisan issue across the general population. Nearly 80% of Americans, a broad swath of the public, believe that the cost of prescription drugs is "unreasonable" due to their high cost.19 However, despite this interest, both parties have repeatedly disagreed on the mechanism to achieve reform. Republicans advocate a model that pegs drug prices to those seen in other developed countries, while Democrats advocate a broader array of internal regulations on the drug market.20 This division has long prevented Congress from achieving meaningful progress on drug pricing reform, which has forced past presidents to issue executive orders to tackle the issue, such as Trump's executive order to mandate price transparency.20 However, executive orders are legally constrained in the changes they can make, so any past measures have either been challenged in court or are barely a drop in the bucket on the larger issue of drug pricing.20

The Biden administration, however, now has a unique opportunity thanks to the Democratic control of the House, Senate and Presidency in Washington. They can now consider passing legislative solutions which would be more defensible in court and which could have a more meaningful impact. One solution, in particular, that the administration could pass is allowing Medicare to negotiate the price of brand-name drugs.21 Medicare is one of the nation's largest pharmaceutical providers, but they are unable to negotiate for better prices directly, instead relying on for-profit intermediaries that make only a minimal impact in lowering prices.21 The Medicare Negotiation and Competitive Licensing Act would change this situation, allowing the program to negotiate down prices directly for millions of Americans.22 Although Past partisan gridlock has previously kept the bill from becoming law, Democratic control in Washington now ensures a chance to pass the bill in an act that could benefit millions.23

The most promising solution to lower prices, however, would be to prevent manufacturers from extending market exclusivity and keeping generic drugs out of the market. In particular, the Biden administration could work with the Patent Office to eliminate weak secondary patents and deny petitions used by brand-name drug manufacturers to maintain market exclusivity and limit generic entry.22 This task, however, is again no small feat. There is tremendous industry pressure against attempts to pass these reforms, but if the administration is serious about meaningful action on drug pricing reform, these measures would go a significant way towards solving the problem.24

Whether these approaches or an entirely different one is taken, the Biden administration thus is in a good position to tackle one of the largest health-related controversies of the last century. With the cooperation of individuals, advocacy groups, experts, legislators, and more, it is possible that the United States will be able to come together and pass effective legislation to help lower the price of brand-name drugs and more. Such reform could help end this controversy and ensure effective medical treatment for millions of people nationwide that will no doubt help or save many lives.

About the Author

Sarosh Nagar is a student at Harvard College and an associate editor of the Harvard Health Policy Review. He is interested in topics related to pharmacoeconomics, pharmacoepidemiology, and more.

References

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