The Medicare Part D rules currently exclude government from negotiating with pharmaceutical companies on behalf of the Part D pharmacy benefit programs, which are currently administered by competing private-sector insurance companies and pharmacy benefit management firms. In contrast, the VA, DoD, Public Health Service, and the Coast Guard pharmacy benefit programs benefit from centralized bulk purchasing, competitive bidding by manufacturers of generic and multisource drugs, and by negotiating prices with makers of brand-name patented drugs. As part of the Obama health care platform, this and many other ideas are up for consideration, despite the fact that the Congressional Budget Office recommended against centralized purchasing and instead recommended setting discounts for brand drugs by Federal fiat.

Testifying before the Senate earlier this month, Tom Daschle, President Obama’s nominee for Secretary of HHS, said the idea of allowing the secretary to negotiate drug prices “ought to be evaluated and looked at.” While this is well short of an endorsement of this strategy, it’s an indication that this strategy is still on the table.

On the White House web site, President Obama announced that he proposes to lower prescription drug costs by

“allowing the importation of safe medicines from other developed countries, increasing the use of generic drugs in public programs, and taking on drug companies that block cheaper generic medicines from the market”

While, on the surface, this sounds impressive, let’s take a closer look to see if there are any new ideas that require major legislative initiatives:

• Current FDA policies regarding importation of medicines are based on the FDA’s interpretation of the Federal Food, Drug, and Cosmetic Act. Citing the Act, the FDA notes that “Congress has the power to determine which articles may be permitted importation into the United States from a foreign source and the terms upon which the importation will occur”.
  • Current policies tolerate importation of a 3-month supply of unapproved drugs for personal use for treatment of serious conditions where there is no comparable domestic treatment that is otherwise available. However, under current policy, “foreign-made chemical versions of drugs available in the U.S. are not intended to be [permitted to be imported into the US].” Any drug not manufactured in an approved facility pursuant to an approved New Drug Application is subject to seizure unless it falls under the above personal-importation policy. Commercial importation of new drugs would require approval of the drug based on a New Drug Application to determine that it is safe and effective. Anything less than this would create a back door for untested drugs.
  • The FDA already licenses foreign-manufactured drugs. Many generic drugs are manufactured overseas in modern facilities and are imported under FDA license. If a drug is approved for use in the USA, the FDA still needs to approve the facilities that it is manufactured in, unless an agreement is reached with the government where the foreign factory is located that would fast-track approval where the foreign government’s standards meet or exceed FDA standards. This may require both enabling legislation and negotiation of what would hopefully be reciprocal agreements with other countries.
  • Could the FDA simply come up with its own fast-track process for simplifying the certification of foreign manufacture of approved drugs? Most likely this would be simpler and quicker than new legislation and international negotiations.

• Increasing the use of generic drugs:
  • Mandatory generic programs are already common in Medicaid pharmacy programs – building such a provision into Medicare pharmacy programs and other Federal programs with appropriate provisions for true medical necessity. A review of existing legislation will be needed to see whether or not HHS can make these changes in Medicare and other Federal programs without further action by Congress.
• “Taking on drug companies that block cheaper generic medicines from the market”- this sounds like a catchy sound bite for consumption by the media, but the problem lies in poor public policies that can be addressed by an administration that wants to make real improvement in both patent and generic drug development and marketing practices:
  • Fast-tracking approval of generic drugs is within the power of the FDA – it’s a question of prioritizing and funding resources tied to the benefits the public and the generic manufacturers will receive from fast-tracking. Since government is a major payer for pharmaceuticals, there is already an alignment of cost and benefit.
  • Anti-competitive agreements between drug companies can be attacked under existing anti-trust laws – an area fully within the power of the Executive branch of government.
  • If a brand-name drug is coming off patent and that drug represents a major portion of Federal drug spending, there is nothing preventing the Federal government from proactively seeking bids from generic drug manufacturers on generic versions of the drug, contingent on certification of the generic by FDA. There are already Federal pharmacy programs that involve direct Federal purchasing, so this could probably be implemented through a minor policy change rather than waiting for new legislation. Once a generic version is approved and on the market, the price of the branded version would come down through normal competitive market forces. Open transparent competition in the generic market will overcome any alleged back-room conspiracies.
  • Existing regulations grant patent extensions on drugs in return for research into pediatric use. This was originally thought to be a “no cost” way of funding such research, but the cost of extending patent protection to a blockbuster drug this way is high compared to the public benefit, and there are ways to fund this research at much lower cost and in a more timely manner.

    If it is decided that these patent extensions are too generous compared to the public benefit of the research, then new legislation can modify the patent laws. For example, if extended patent protection would result in an additional $1 billion public cost in return for $10 million worth of research, the research could be funded through a tax or fee crafted to recover $10 million from sales of the generic version. The research could be opened up to competitive bidding rather than making it the exclusive decision of the current patent holder, which would keep the cost lower and would probably result in more testing of drug safety and effectiveness for pediatric and geriatric use. A carefully crafted policy could even create a way that the original manufacturer could recover additional test costs for pediatric and geriatric applications if it did those tests before or immediately after the testing performed for initial approval of a drug.

  • It’s high time that the patent protection DURATION for drugs had some correlation with the novelty of the drug. A drug that actually treats or prevents a condition for which there is no current effective treatment deserves a longer patent protection than a “me too” drug that is a minor variation on an existing drug. How often do we see a drug company come out with a minor change to their own drug that just came off patent, just so that they could produce a new patented version? If the new version does not provide a major improvement in outcomes compared to the old version (either through a major reduction in side effects or a major improvement in cure or prevention of disease), why should it enjoy the same duration of patent exclusivity? Such a well-crafted change in patent policy would discourage the development of me-too drugs and would redirect research dollars into the prevention and treatment of diseases that do not have safe and effective drugs.

What’s your opinion and how do you think policies can be changed to improve public access without ruining the pharmaceutical industry? Use the comment form below (note that comments are reviewed by our moderators before they are published to prevent spamming and other abuse).