New Drug Pricing Reforms Would Undo Hatch-Waxman's Historic Progress
By Merrill Matthews
Senate Democrats and White House officials are hastily piecing together a revised version of the Build Back Better Act, after Senator Joe Manchin announced he couldn't support the version passed by the House.
Early reports indicate that any updated bill will still allow Medicare to set drug prices, which proponents claim will result in cheaper medicines for American patients.
They're mistaken. Ironically, price controls will reduce patients' access to low-cost generic medicines, at least in the long run. That's because the Build Back Better Act would undermine a landmark Reagan-era law that has enabled thousands of generics to reach patients.
Passed in 1984, the Hatch-Waxman Act created a legal framework that allows generic drug makers to manufacture and sell lower-cost versions of brand-name medicines. Any American who has ever saved money by purchasing a generic medication has the law to thank.
Hatch-Waxman granted new drugs a five-year exclusivity period, during which the company that invented the medicine has the market to itself. Generic companies can use that time to develop and test their versions of the drug. Once that time elapses, generic competitors can launch their own versions at a lower price.
The purpose of these reforms was twofold: To increase access to low-cost generic drugs while also encouraging companies that invent original drugs to continue to invest in innovation. On both counts, the law has proven wildly successful.
Whereas generics accounted for less than 20% of prescriptions filled before Hatch-Waxman, today they account for 90%. This has made it far easier for patients to afford their medicines, as generics typically cost 80% to 85% less than brand-name drugs.
The Hatch-Waxman act also had a significant impact on drug innovation. In the time since, America has emerged as the undisputed leader in new-drug development.
The bipartisan group of legislators who passed the law went to great lengths to strike a proper balance between promoting innovation and affordability. Now, though, the Democrats' drug-pricing proposal would destroy the law's system of incentives.
For there to be a thriving generic drug market, there must first be a thriving brand-name market. The United States has both, but not if the U.S. Senate adopts the House's misguided drug pricing provisions.
Democrats claim their proposal allows for the government to "negotiate" prices of targeted drugs with brand-name drug companies. But drug companies either agree to the government's price or lose nearly all revenue from the sale of a drug. Given manufacturers won't know what the government's "negotiated" price will be until the drug is developed, many new, potentially life-saving drugs will never be explored.
For nearly four decades, Hatch-Waxman has fostered a competitive market for low-cost generic drugs, while helping medical science advance to new heights. Democrats' drug-pricing plan would undermine that success story.
Because there can be no inexpensive, generic version of a brand-name drug that's never invented.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.
