This is a practice that had essentially been dormant for years until last year - in fact, before 2005, this practice was ruled as anti-competitive and unfair to consumers by the Federal Trade Commission. As a result, Big Pharma gets to retain its patent for drugs longer, and therefore charge the higher prices for such drugs, and the generic drug companies get millions of dollars in exchange for not challenging the patent in order to bring a less expensive version of the drug to market.
And similar to the Medicare D(ebacle), We the People get the shaft.
First, a bit of background. Even though it is obvious that brand-name drugs are considerably more expensive than the generic counterparts, we have reports from the AARP indicating how bad the impact of these higher prices are. Not even considering the Medicare D(isaster), we have 2 studies that show how bad the situation has gotten. For starters, a recently released study indicates that, for the sixth year in a row, prices of brand name drugs increased more than the overall rate of inflation.
The latest results of the survey by AARP's "Rx Watchdog" were released today and show the average price increase of 193 brand-name drugs was 6 percent last year, when inflation was just 3.4 percent. Generic drugs actually experienced a price decrease.
That increase is nearly DOUBLE the rate of inflation. But wait, it gets worse. In response to the 2005 price increases AARP Director of Policy and Strategy John Rother said:
"Prices for brand name drugs have jumped 40 percent on average over the past six years, compared to inflation of only 17 percent. Since these price increases charged to wholesalers are generally passed on in the prices consumers ultimately pay, brand name drugs have become substantially less affordable for consumers at the same time they are becoming ever more essential to good medical care."
"These prices are reflected both in higher premiums for drug coverage as well as in higher out of pocket costs at the pharmacy counter," he added.
Here is a chart that shows the increase of brand-name drug prices vs. the rate of inflation:
Conversely, a study by the AARP noted here shows that the average price of generic drugs paid by senior citizens (defined as Americans 50 and older) actually dropped by nearly 1% after being indexed. So, keeping in mind not only that many seniors are living on fixed incomes and are getting screwed by the Medicare D program but many Americans in general are fighting to make ends meet, and would gladly pay less for the same medication. That rate of decrease is one-quarter the rate of inflation (decrease of 0.8% vs. inflation rate of 3.4%)
In fact, an article from last Friday indicates indicated that:
A Consumers Union analysis found taxpayers, insurers and Medicare Part D beneficiaries would save $8.2 billion in 2007 alone if concerted efforts were made to shift statin users to lower-cost generic statins.
$8.2 billion less. In 2007 alone.
Another study shows that consumers can save around 50% by using the generic version of certain drugs.
And that is why this deal is so disgusting. To switch gears back to these deals between the generic drug companies and Big Pharma, I want to first reiterate that these deals had occurred in the early to mid 90's but were not very common, and were stopped altogether in the late 90's.
The WaPo article gives some good background on generic drugs vs. brand name drugs:
Generic drugs, which generally cost a fraction of the brand-name original, come to the market after the product's 20-year patent expires. The law and business practices governing patents can be complicated, however, and many generics become available only after successful court challenges.
[W]hen brand-name and generic companies agree to end their patent litigation, both generally benefit but the public suffers. The agreements allow the branded companies to maintain their patent exclusivity for longer periods, while the generic company receives money for, in effect, dropping its challenge. The generic companies also often enter into agreements to produce lower-priced versions of the brand-name company's drug at a predetermined date -- far in the future.
Sounds fair enough, at least to the consumer. After 20 years, a generic version of a drug is available, and while the brand name drug is still available (and still widely used), a lower cost version is also made available, so as to (1) let the Big Pharma company that invested the resources to manufacture the drug get exclusive rights for a prescribed period of time and recoup some (or all and then some) of their investment and development costs and (2) allow consumers to be able to afford a less-expensive but exactly the same version of the drug once that 20 year period has lapsed.
The market for generic drugs is huge, as you would expect. Additionally, the amount of overall spending on generics is very low - mainly due to their lower cost. According to WaPo:
More than 53 percent of prescriptions are now filled with generic drugs, and that percentage is expected to climb as employers and government programs seek to control health costs. Because generics are so much cheaper, they account for only about 12 percent of drug purchases.
But what these deals are doing is allowing the Big Pharma companies to retain exclusive rights to manufacture and distribute the drugs, thereby being the only player in the market and setting the price at whatever level they choose. It also allows the generic drug companies to pocket many many millions while sitting on their hands.
And it also results in We the People paying 50% or more for drugs that would otherwise (and up until last year) have been on the market sooner in order to ease some of the pain that arises from the fact that one is sick enough to have to shell out lots of money for the drugs to begin with.
Two of the recent examples of "screw the people, we want our money" are as follows:
Cephalon Inc. made deals to get four generic companies to drop challenges to its patents on the sleep-disorder drug Provigil. All four generics agreed to stay out of the market until 2011, and together they will receive licensing payments of $136 million from Cephalon.
Also this year, the two makers of the blood thinner Plavix (Bristol-Myers Squibb Co. and Sanofi-Aventis) agreed to pay a generic challenger to defer its entry to the market until November 2011 in exchange for dropping its patent challenge.
So why is this coming up now, if it was deemed to be unfair to consumers and anti-competitive? Well, the 11th Circuit Court of Appeals ruled in favor of Schering Plough last year, reversing the FTC's ruling. The FTC is pushing back by:
[asking] the Supreme Court to reverse an 11th Circuit Court of Appeals decision in a similar case involving the drug company Schering-Plough.
The FTC said last month it planned to subpoena nearly 200 pharmaceutical companies as part of a probe of possible anticompetitive practices in the prescription drug industry.
The subpoenas, which require Office of Management and Budget approval, would form part of an investigation into whether pharmaceutical companies are stifling competition by releasing authorized generic copies of their own brand-name drugs to coincide with the debut of generic challengers made by competitors.
It [the FTC] indicates that if the Supreme Court doesn't, it could give brand-name and generic companies "carte blanche to avoid competition and share resulting profits," FTC Commissioner Jon Leibowitz said.
And do we really want to hang our hat on this Supreme Court to do something in favor of the American public at the expense of Big Pharma?
I think we know and fear how that would likely turn out.