Bernie Sanders Prescription for Big Pharma

Terrance Heath

Two years ago I blogged about being one of millions of Americans who has to swallow one of Big Pharma’s bitter pills every morning.

Over the last few years, drug-makers have embraced a startlingly simple tactic for fending off competition from generic brands: paying them off. In a nutshell, the company that holds the patent on a profitable drug strikes a deal with the maker of the cheaper generic brand: you hold off on marketing your generic for several years, and in return, we’ll give you a share of our profits on the drug.

The vehicle for these deals is patent litigation. When a generic drug is approved to come to market, the maker of the more expensive name-brand drug sues the generic for patent infringement. But instead of a conventional settlement, in which the generic pays the patent-holder to settle the claim that it infringed the patent, the payment goes the other way: the patent-holder pays the maker of the generic, in exchange for a pledge to delay bringing the generic to market. That suggests the patent-holder fears its patent wouldn’t hold up in court, as many don’t. And it runs counter to the intent of the Hatch-Waxman Act of 1984, which sought to speed the path of generics to market, and to provide a legal framework for these cases.

So common have these deals become lately that they’ve been given a name: pay-for-delay. The approach — a textbook anti-competitive tactic — is worth billions to drug-makers, because it essentially allows them to buy more protection than their patent confers.

While Republicans are touting Medicare/Medicaid cuts that don’t cut health care costs, Sen. Bernie Sander’s has a prescription for Big Pharma that could help everyone’s medicine go — not to mention prescription drug prices — go down.

Drugs are cheap. There are few drugs that would sell for more than $5-$10 a prescription in a free market. However, many drugs in the United States sell for hundreds of dollars per prescription and, sometimes, several thousand dollars per prescription. There is a simple reason for this fact: government-granted patent monopolies.

The government gives patent monopolies to provide an incentive for drug companies to carry through research. This is an incredibly backward and inefficient way to pay for research. It leaves us paying huge amounts of money for cheap drugs. It also often leads to bad medicine.

We can do better – and Senator Bernie Sanders has proposed a way.He has introduced a bill to create a prize fund that would buy up patents, so that drugs could then be sold at a free market price. Sanders’s bill would appropriate 0.55% of GDP (about $80bn a year, with the economy’s current size) for buying up patents, which would then be placed in the public domain so that any manufacturer could use them at no cost.

This money would come from a tax on public and private insurers. The savings from lower-cost drugs would immediately repay more than 100% of the tax.

If you’ve been to your local drug store lately, you know your pharmacy bill is growing. The same holds true for America’s pharmacy bill. In February, a Government Accountability Office study reported that prescription drug prices rose faster than average medical costs in 2010.

If your pharmacy bill seems to be growing larger faster, that’s because it probably is. In the past four years, prescription-drug prices have increased much more quickly than the prices of other medical products and services, the nonpartisan Government Accountability Office said this week.

The GAO study, which Congress requested after the federal government spent $78 billion — or about 31% of the $250 billion U.S. total — on prescription drugs in 2009, found that prices for common prescription drugs grew at an average annual rate of 6.6% from 2006 through the first quarter of 2010. That’s much higher than the medical consumer price index’s 3.8% average annual increase.

And the prescription-drug-price hikes follow years of previous increases. In 2007, another GAO report found that the average price for commonly used brand-name prescription drugs had grown approximately 6% per year from January 2000 through January 2007.

The GAO study also revealed that generic drug prices actually went down, but that hardly matters as long as drug companies pull maneuvers like the one mentioned above, to keep drug prices and profit margins rising. It’s one of many tricks Big Pharma has up it’s sleeve. Jim Edwards, at Placebo Effect has a handy list of Big Pharma’s top ten tricks, along with proposed reforms. I’d like to propose Bernie Sander’s bill as a remedy for what Edwards calls drug companies’ monopoly power and "pay-for-delay" deals, both of which serve to keep generics off the market.

I was all set to research and report Big Pharma’s malpractice upon our health care system, but Edwards did it so well, I can’t think of anything to add to it. From pricing fraud, to lobbying and bureaucratic loopholes, it’s already there. And there’s too much good information there blockquote it. The best I can do is recommend you go read the whole thing.

But here are a few of the stories out there:

What makes it worse is that even as Americans are cutting back on medications as a result of the recession, going bankrupt due to medical costs, and the government pays more and more for prescription drugs, Big Pharma’s CEOs are happy to tell us why they keep hiking prices: Because they can.

Four healthcare CEOs did something extraordinary at the Reuters Health Summit last week: They admitted that drug companies put up prices just for the hell of it. It was a rare moment of group candor from Big Pharma and its allies, who usually argue that prices are set by the market or that companies need high prices to pay for innovative R&D.

Prices in the drug business only ever seem to go up, making healthcare in the U.S. among the most expensive in the world. About 60 percent of bankruptcies in the U.S. are linked to medical bills. Although an increasing number of medicines are going off-patent to become cheap generics, bringing some prices down, that alone does not subject the remaining on-patent drugs to the kind of price competition you’d want to see in a healthy, free market.

The only “free” thing about drug marketing right now is CEOs’ freedom to raise prices whenever they want. Shire (SHPGY) CEO Angus Russell said:

“Prices were just shoved up every year to make more money and meet earnings, to be blunt,” Shire (SHP.L) Chief Executive Angus Russell said.

He was referring to so-called mass market drugs used to treat common conditions like high blood pressure, rather than the specialty products for rare genetic diseases that are Shire’s hallmark.

If that’s enough to make you sick, well, Bernie Sander’s has the prescription. Whether or not we’ll get it remains to be seen.

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