How Big Pharma Is Wrecking the Inflation Reduction Act
It was a dose of qualified good news. Signed in 2022, Joe Biden’s Inflation Reduction Act gave the Centers for Medicare and Medicaid Services a power they’d sorely lacked since the agency’s conception: the ability to negotiate drug prices directly with the manufacturers. The law was by no means perfect. The cost savings are only for 10, albeit very expensive, drugs, and the negotiated prices only apply to Medicare and Medicaid rather than extending to every health care insurance plan.
Despite these limitations, estimates predict that price negotiations will save the government around $6 billion every year and send a clear signal to the pharma companies that the government was going to have a stronger hand in dictating prices. Here’s the bad news: The $6 billion the government is supposed to save from drug price negotiations is very close to the amount Medicare has already lost thanks to Big Pharma’s abuse of the patent system.
Earlier this month, the consumer watchdog Public Citizen released a report outlining how four of the 10 drugs subject to negotiation would have faced competition from less expensive generic brands before price negotiations went into effect were it not for tactics perpetrated by the pharmaceutical industry known as “evergreening.” Put simply, evergreening is when a pharma company patents minor modifications on the drug as “new inventions” and then uses the new patents to extend their monopoly, freezing out competition and artificially keeping prices high. As a result, the report estimated Medicare will lose between $4.9 and $5.4 billion in savings that should have accrued had the medications come off patent earlier. The problem for many generic drug companies is that most medicines have multiple patents—which means there are many avenues for this kind of abuse.
Take, for example, one of the four drugs mentioned in the report, Enbrel. Sold by the pharma company Amgen, the medication is used to treat severe rheumatoid arthritis. In 2023 alone, the drug generated $3.7 billion in revenue. A separate report from Public Citizen revealed that Medicare could have saved over $1 billion in less than four years on Enbrel if generic competition had been allowed to enter the market in 2019 when the underlying patent was set to expire. Amgen filed three times as many patent applications for Enbrel in the U.S. compared to Japan and Europe, and 72 percent of all patent applications were filed after the drug received approval in 1998. Amgen has filed a total of 57 patent applications on Enbrel in the U.S. with the aim of extending its monopoly by 39 years. Enbrel’s patents are now due to expire in the U.S. in November 2028. In Europe they expired in 2015.
Big Pharma has many excuses to defend its abuse of the patent system. In fairness to pharma companies, it can take a long time from when the first patent is filed to when the drug goes through all the necessary clinical trials and makes it to market. By the time the first dose is sold, about half the life span of the patent has expired, leaving the pharma companies relatively little time to recoup the research and development costs. Pharma companies argue that along the way they develop legitimate new ways of administering or dosing the drug, and that these new inventions warrant new patents. This is all fair and good until you compare how many patents pharma companies file in the U.S. for a single drug compared to Europe.
A 2022 study from the Journal of Law and Biosciences examined whether patent thickets protecting biologic drugs were responsible for the delayed entry of generic competition to the market. It concluded that “on average nine to twelve times more patents were asserted against biosimilars in the United States than in Canada and the United Kingdom.” The report looked at Humira, a blockbuster drug sold by AbbVie, and found it was made of roughly “80 percent non-patentably distinct (duplicative) patents,” which is permitted by the U.S. Patent and Trademark Office rules. The report found that, in contrast, there were far fewer non-duplicative European patents covering Humira. Humira went off-patent in Europe in 2018 and only last year in the U.S.
Another excuse drug companies like to leverage is that R&D is expensive and that drug price negotiations under the Inflation Reduction Act will undermine research and result in far fewer new drugs. But a report from Public Citizen earlier this year found that the manufacturers of all 10 drugs selected for Medicare price negotiations spent $10 billion more on dividends to shareholders, executive pay, and stock buybacks than they did on R&D in 2022. The report added that the Congressional Budget Office concluded there is no relationship between a medication’s R&D cost and its final price, and that “the current price of drugs reflects what companies believe the market will bear in response to their monopolistic pricing power.”
Obtaining fair prices for drugs will require a major rethink of not only the patent system but also the understanding that lifesaving medicine is not a “product,” nor are sick people “consumers.” In its essence, a patent is a bargain between society and an inventor. It allows the inventor to receive financial compensation in the form of a temporary monopoly while society enjoys the benefits of that invention. But something about that bargain is fundamentally broken when pharma companies abuse the system to rake in profits that far outstrip anything they originally invested in the invention.
Fixing the patent system should be one of the few bipartisan issues everyone can agree on, and yet there is legislation floating around Congress that would make it harder for generic firms to challenge evergreening and patent abuse. The Prevail Act, sponsored by Senators Chris Coons and Thom Tillis, is one such piece of legislation that advanced out of the Senate Judiciary Committee in November of this year. Perhaps not coincidentally, after being named chairman of the Senate Judiciary Subcommittee on Intellectual Property in 2019, Senator Tillis received more than $124,000 from political action committees tied to drug manufacturers, which was more than any other member of Congress. The third biggest recipient that year was Chris Coons.
Looking ahead to the next administration, one would think that a president so obsessed with getting good deals that he wrote a book about it would make price negotiations for all Medicare and Medicaid drugs a core part of his platform. Unfortunately, that does not appear to be the case, and many Republican members of Congress have vowed to do their utmost to repeal Biden’s Inflation Reduction Act, including the limited provisions for price negotiations. For the moment, it looks like the only people getting a good deal from the next administration are the ones making the drugs.