Generic drugs — those with the same active ingredient as a brand-name drug, manufactured after that drug’s patent has expired — have long been touted as a way to achieve lower health-care costs, both directly for individuals and broadly for the health-care system. Generics are typically significantly cheaper than their brand-name counterparts, even though the competition they offer usually forces down the price of the brand-name drug as well. Because of this price difference — and because often a generic drug exists to treat the same condition as a different, still patented brand-name drug — health insurance plans, both private and public, typically offer lower co-pays for generics in their prescription drug coverage. Choosing generics thus usually leads to lower out-of-pocket costs for patients, as well as lower costs for the insurance provider — resulting, at least in theory, in lower private-insurance premiums.
Developing a new drug requires, of course, an enormous investment of time and money to ensure safety and efficacy. That is why new drugs are granted patent protection, giving pharmaceutical companies a period of years in which no one else may manufacture or sell the drug — letting them charge higher prices than if they had competition. But how long should this period be? New-drug manufacturers argue that the longer a company enjoys the exclusive right to manufacture a drug, the greater incentive it has to invest in expensive, innovative research that may lead to a breakthrough treatment. Generic manufacturers argue, in turn, that longer exclusive rights often give the original manufacturer windfall profits, and that competition helps consumers in the form of lower prices.
Last week, President Obama weighed in on the issue in his 2012 budget proposal. In a bid to lower the federal government’s health-care costs — and in the process also offer more generic options to people with private insurance or who pay for their drugs out-of-pocket — he proposed shortening the period of exclusivity for manufacturers of new biologic drugs from 12 to 7 years. Biologics are drugs composed of proteins, the building blocks of hormones and other active substances within the body. These drugs are usually more complex to develop and manufacture than traditional drugs, which consist of chemicals with much smaller molecules that tend to be more stable; biologics often require refrigeration to prevent deterioration. Biologic drugs include insulin and other injectable drugs for diabetes, such as exenatide (brand name Byetta) and liraglutide (brand name Victoza).
According to a Reuters article, the White House estimates that shortening the exclusivity period for biologics to seven years would save the federal government $80 million starting in 2015 and eventually $2.3 billion for the ten-year period of 2012 through 2021, by reducing costs within its Medicare and Medicaid programs. The greater availability of generic drugs resulting from such a change would, of course, also affect people who get their prescription drugs from a source not funded by the federal government. Not surprisingly, Obama’s proposal was criticized by the Pharmaceutical Research and Manufacturers of America as well as by the Biotechnology Industry Organization, both of which argued that the change would stifle new drug development. The proposal was praised, in turn, by the Generic Pharmaceutical Association.
What do you think — does President Obama’s proposal make sense? What outcomes should lawmakers seek when they set the length of patent protection for new drugs? Are you more concerned by the price of prescription drugs or by the prospect of stifling innovative new drugs and treatments? Is there a balance to be struck — and if so, where? Leave a comment below!