Howard Stephenson: Protecting taxpayers from out-of-control medication costs

Rick Egan | The Salt Lake Tribune Utah state Sen.Senator Howard Stephenson

As the debate over repeal and replace of the Affordable Care Act (ACA), better known as Obamacare, winds its way through the halls of Congress, one thing is clear: Health care costs are out of control and something must be done to rein them in.  

While untangling the regulations of the ACA and freeing up market competition among health plans will go a long way towards reducing the cost burden of health care for Americans, doing so is merely one part of the health care system in need of increased market forces. Certain anti-competitive practices in the pharmaceutical space, for example, are preventing generic drug competition and driving up the costs of medication, costing taxpayers and patients billions of dollars.

Rising prescription drug prices continue to strain the finances of hundreds of thousands of Utahns who rely on a steady and affordable supply of medication. Since 2008, the average cost of a branded drug has increased nearly 208 percent while their generic equivalents have decreased nearly 74 percent.

Generic drugs are 89 percent of the prescriptions dispensed in the U.S. but only account for 26 percent of drug costs. In 2016 alone, nationwide Medicare and Medicaid savings from generic drug purchases totaled almost $115 billion, compared to buying the brand name equivalent, including more than $1.9 billion in direct savings to Utah’s taxpayers, including on overburdened Medicare and Medicaid programs.

Despite the cost savings that generic drugs offer over brand name drugs, the brand name drug manufacturers deserve our support — to a point. Indeed, there is no question that pharmaceutical companies that spend billions of dollars developing these drugs need a period when their inventions are protected so they can recover research and development costs and turn a reasonable profit. The U.S. Constitution even grants Congress the power to promote the progress of science by securing limited times to inventors the exclusive right to their discoveries. But limited time, not perpetual time, is the key concept concerning the public’s general interest and well-being.

Unfortunately, some branded drug manufacturers are exploiting a Food and Drug Administration (FDA) patient safety program referred to as Risk Evaluation and Mitigation Strategies (REMS) to block the entry of generic competitors into the market beyond the 14-year patent period, effectively granting themselves a monopoly beyond their patent period and subverting free market forces.

The result is more than $5.4 billion in lost annual savings from generics competition that should have been passed on to taxpayers and consumers.

One of the main ways that REMS abuses occur is through restricted distribution networks designed to protect certain consumers from dangerous medications. Some brand name drug manufacturers, however, have started to use these networks to prevent generic manufacturers from purchasing samples of their drug for the purposes of equivalency testing.

As more and more branded manufacturers misuse REMS programs to delay generic entry, it has become clear to our leaders in Washington that something must be done. 

The Creating and Restoring Access to Equivalent Samples Act of 2017 or the CREATES Act, introduced by a bipartisan group of senators, including Utah Sen. Mike Lee, addresses the most common REMS abuses while maintaining patient safety and intellectual property protections.

REMS abuses are prohibited by statute, but currently no mechanism exists to enforce these rules. Instead of introducing more regulation and government bureaucracy, the CREATES Act provides a pathway to combat these anticompetitive behaviors, ultimately discouraging the practice. The bill provides enforcement mechanisms of existing law by providing a narrowly tailored legal pathway to enable generic manufacturers to seek drug samples through court action if faced with excessive delays.

The alternative solution is new and potentially over broad FDA regulation that would raise costs on bad firms and innocent actors alike. We should instead strive to keep government out of the business of business and the CREATES Act does just that.

The failures of the ACA have shown us that excessive government regulation in healthcare results in higher costs and less coverage. The good news is that there is a way to curb the misuse of REMS programs and increase generic drug competition without more government regulation or bureaucracy. The CREATES Act provides a clear pathway to confront what Sen. Lee described as “Two of the biggest problems faced by American consumer — high drug prices and burdensome regulation.” The result will be significant savings to patients and taxpayers through increased free market competition.

Howard Stephenson is a Utah state senator from District 11 in southern Salt Lake County