A new report from Sen. Maggie Hassan, D-N.H. claims that drug maker GlaxoSmithKline built a “patent wall” around its Flovent inhaler to block low-cost generics from entering the market.
The allegation is deeply misleading. Claims that drugmakers “game” the patent system to extend monopolies and keep prices high ignore how pharmaceutical innovation actually works — as well as the real drivers of high drug costs.
After a drug receives regulatory approval from the Food and Drug Administration (FDA), companies routinely invest in improving formulations, delivery mechanisms, and manufacturing processes, as well as finding effective off-patent uses. This post-approval research is an essential phase of drug development.
Those improvements are not trivial. They can make medications safer, more effective, and easier for patients — especially children — to use. Inhalers, for instance, often undergo refinements that improve dosing accuracy or reduce side effects.
These advances require significant investment. Patents make that investment possible by granting innovators rights to a period of sales exclusivity, wherein they can earn a return on the capital they deployed up front.
If competitors could simply copy the incremental innovations that post-approval research yields, there’d be no incentive for a drug maker to engage in it. The result would be fewer medical advances.
Policymakers searching for the root causes of high drug prices should look not at patents but at the business practices of pharmacy benefit managers.
PBMs assemble formularies, or lists of covered drugs, for insurers. As a result, they wield enormous influence over which drugs patients can access — and at what cost.
In exchange for prime placement on a formulary, PBMs typically demand substantial rebates from drug manufacturers. That business model often leads them to prefer drugs with high list prices since there’s more room for a manufacturer to offer a discount — and more potential revenue for the PBM to claim.
Patients’ cost-sharing is typically based on a drug’s list price, not the lower net price that a PBM secures. So a patient may end up facing a hefty out-of-pocket bill at the pharmacy counter or online — even as his health plan and PBM rake in rebate revenue.
Further, PBMs can entrench the dominance of drugs with high list prices. They may be less inclined to cover lower-cost options when they enter the market — or may place them on less favorable formulary tiers to discourage patients from selecting them.
So even when a generic becomes available, patients may not have access to it through their health plan — simply because it makes the PBM less money.
Blaming patents for high drug prices may be politically convenient. But it leaves PBMs free to continue distorting the market — and risks undermining the very engine of progress in health care that allows patients to live longer lives.
Sally Pipes is president, chief executive, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is ‘The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It.’