Trump administration officials keep searching for solutions to rising prescription drug prices, which are increasing faster than inflation. "Drug makers and companies are not living up to their commitments on pricing. Not being fair to the consumer, or to our Country!" President Trump tweeted on Jan. 5.
Most of the administration's suggested remedies have been threats or the imposition of various types of price controls. On Thursday, Jan. 31, Department of Health and Human Services Secretary Alex Azar said the department would propose a rule effectively ending the widespread practice of rebates, which the administration calls "hidden kickbacks," to middlemen, or pharmacy benefit managers.
An administration that claims to be conservative should know better than to go down the path of innovation-stifling government intervention. Officials should also be savvy enough to know that responsible regulatory reform is a better way to foster pharmaceutical innovation, drive prices down, and help patients.
We suggest two ways to do that.
The first would be to correct a glitch in patent laws. The Hatch-Waxman Act of 1984 established an effective balance between the interests of brand-name and generic drug manufacturers. It created the abbreviated new drug application process that requires generic manufacturers to demonstrate only that the generic is "bioequivalent" to an approved brand drug and granted brand-name drugs certain periods of market exclusivity and patent term restoration.
That trade-off worked well. But in 2011, when technology patent trolls, who buy up patents but don't intend actually to make a product, were wreaking havoc in the tech world, Congress attempted to protect true innovators by creating a new patent adjudication process called inter partes review, whereby patents could be challenged at the Patent Trial and Appeal Board. Congress didn't intend IPR to disrupt Hatch-Waxman protections; rather, it intended to create a streamlined process to challenge technology patents, an area not governed by Hatch-Waxman.
But because IPR can also be used by challengers of drug patents, the process inadvertently created a form of double jeopardy, allowing pharmaceutical patent challengers to try their hand in two separate venues: both the federal courts and in IPR. The use of both adjudication forums not only raises fairness questions, but it also drives up the cost of branded medicines through unnecessary legal costs and greater uncertainty about the patent life of a drug.
To address that problem, last year, Sen. Orrin Hatch, R-Utah, introduced the Hatch-Waxman Integrity Act. Although it would not harmonize standards between venues or prevent drug patent challengers from using IPR, as might have been wise to do when IPR was created, it would require challengers to pick one legal venue and stick to it, thereby restoring the balance between promoting innovation and fostering generics. Congress should take up and pass the bill now.
Our second suggestion to lower prices is congressional authorization of drug-approval reciprocity among select foreign counterparts, giving patients rapid access to drugs that already have been proven to work safely in countries whose testing and review regimens are similar to our own. It would immediately put more drugs in the U.S. marketplace, providing additional choices for physicians and for institutions' formularies.
The availability of more options means more competition, which would put downward pressure on prices.
Reciprocity of drug approvals would also alleviate shortages of critical drugs in the U.S., another driver of increased prices. An analysis by STAT News, published on Jan. 1, found a 27 percent increase in new drug shortages in 2018. According to an academic study published last year, "[t]hese shortages cause an estimated $230 million in additional costs each year because of the rising prices of drugs under shortage and the higher costs of substitute drugs."
Reciprocity of approvals would make numerous needed alternative drugs available. It could have been in place decades ago, if only the Food and Drug Administration had met its long-standing commitment to pursue it through the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.
Congress must step in, both to pass the Hatch-Waxman Integrity Act and to establish reciprocity of approvals. Market forces are more effective than bureaucrats' price controls.
Henry I. Miller, a physician and molecular biologist, is a senior fellow at the Pacific Research Institute. He was the founding director of the FDA's Office of Biotechnology. Mr. Stier is a senior fellow at the Consumer Choice Center.