The Other Republican Health Plan

Democrats have spent most of this week accusing Republicans of trying to create a dystopia where Americans are denied basic health-care treatments. So note that the Food and Drug Administration, under new political management, took initial steps this week to lower the cost of prescription medicine for patients. You might not have noticed amid the latest Trump Twitter meltdown.

Earlier this week FDA published a list of drugs that don’t face competition from generic alternatives even though their intellectual property protections have expired. FDA said it will expedite the approval process for such applications “until there are three approved generics for a given drug product.” The agency says it will take more steps and has announced a July meeting for public feedback.

For some drugs on the roster, no company has submitted a generic application. One reason is that the cost of developing a generic product can run into the millions of dollars, and many can’t fetch the profit to recoup the expense. Yet competition is essential for lowering prices: Consumers pay 94% of the branded price on average when one generic firm enters the market, but that drops to 52% with two competitors and to 44% with three, according to an FDA analysis.

 

The savings ripple across the health-care system, and last year generics saved $253 billion, according to a June report from the Association for Accessible Medicines. Case in point are alternatives for chronic troubles like the cholesterol-reducing statin, Lipitor, which cost $3.29 a unit before its patent expired. The generic version last year cost $0.11.

One barrier to innovation is that some manufacturers are abusing FDA safety and risk mitigation regulations to protect monopoly positions. A generic competitor has to prove equivalence to the branded product to win FDA approval, and that requires extensive testing with anywhere from 1,500 to 5,000 tablets of the original treatment. But companies are invoking FDA safe-use and distribution restrictions to avoid handing over the capsules.

In 2014, Alex Brill of Matrix Global Advisors analyzed reported cases of this misuse. Delayed competition for 40 products cost $5.4 billion annually in lost savings, Mr. Brill found. About $1.8 billion of the cost is picked up by the federal government through Medicaid and other programs. This issue will no doubt capture attention at the agency’s public meeting next month, and Congress could help by codifying changes as part of an agency reauthorization. Bills to rein in this behavior have been introduced.

A larger challenge for FDA is developing an approval process for “complex generics,” like the allergy shot EpiPen, that require a device or present some other complication. The good news is that no scholar has devoted as much attention to the issue as new FDA Commissioner Scott Gottlieb, who has testified to Congress that the generic approval process was written when most products were molecule pills that were straightforward to recreate. Regarding EpiPen, FDA regulations helped keep a generic alternative off the market by requiring an identical device to deliver a shot of adrenaline.

This week’s announcement is the beginning of a process, and other unresolved issues include that most generics are not approved on the first round, and revisions create substantial work for companies and FDA staff. The agency also has a backlog of applications and has struggled to hire enough staff to keep up with applications.

None of this will ever attract the media attention of “Pharma bro” Martin Shkreli, who jacked up the price of a treatment that faced no competition, or the periodic mugging of some drug company CEO in front of Congress. But Dr. Gottlieb has dedicated much of his career to explaining the benefits that competition can bring to medicine, and now he’s bringing that experience to one of the most resistant bureaucracies in Washington.

 

Appeared in the July 1, 2017, print edition.

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