Washington Post Editorial: Dangerous Side Effects- A law meant to spur prescription drug competition has instead delayed it.

Washington Post Editorial: Dangerous Side Effects- A law meant to spur prescription drug competition has instead delayed it.
Copyright by The Washington Post
Thursday, July 16, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/15/AR2009071503378.html


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.