Forty years after passage, the law that codified the generics system needs an overhaul
This article was originally published in STAT+
As the Hatch-Waxman Act approaches its 40th anniversary, it’s time to critically examine its legacy and what it actually gave us: the highest drug prices in the world.
One of the main objectives of the Hatch-Waxman Act was to bring more generic drugs into the market. If viewed through that lens only, the act has been an overwhelming success. As PhRMA consistently reminds us, about 92% of all prescriptions in the United States are generics.
However, a more complete look at the impact of the act explains why Americans continue to pay more for prescriptions than ever before. Instead of cutting costs, this piece of legislation has become a powerful tool for pharmaceutical companies to maintain monopolies and keep drug prices sky-high.
In 1984, the Hatch-Waxman Act reshaped America’s pharmaceutical landscape, introducing a system that would link two distinct regulatory systems for the first time, the drug regulatory and patent systems. This intersection created a perfect storm of monopoly power for pharmaceutical companies through:
- Extended monopoly periods. The act granted pharmaceutical companies up to seven and a half years of uncontested market exclusivity for newly approved drugs. New drugs without patent protection would also receive a five-year market exclusivity. The pharmaceutical industry also pushed to have patent laws rewritten to give the industry a patent term extension, where up to five years of monopoly could be restored to patent holders for any marketing time lost while developing the product and getting regulatory approval.
- The Orange Book loophole. The act required branded pharmaceuticals to list certain patents in the FDA’s Orange Book, a publication and database that identifies drug products on the basis of safety and effectiveness and related patent and market exclusivity. Generic companies would be required to prove non-infringement of these patents before gaining approval. This system, known as “patent linkage,” has been routinely exploited. Despite having no experience dealing with patents, the FDA was now responsible for managing the patents that would be listed in the Orange Book.
- The FDA’s inaction. Despite having the authority to prevent improper patent listings, the FDA consistently avoided this responsibility, claiming a lack of expertise. This regulatory vacuum emboldened pharmaceutical companies to invest heavily in shady legal strategies like patent thickets and evergreening to stifle competition.
The consequences of this system are dire. More than one-third of Americans cannot afford to take their medications as prescribed, despite the proliferation of generics. Patients who cannot afford their medications may experience deteriorating health, leading to increased medical costs and a diminished quality of life. Studies indicate 125,000 deaths per year are caused by medication nonadherence, often due to the cost. And public health systems are strained as they try to cope with the financial burden of overpriced drugs, diverting resources from other critical areas of need.
Consider Sanofi’s insulin product, Lantus. Despite its primary patents expiring in 2015, Sanofi listed numerous additional patents in the Orange Book. This tactic delayed the approval of a cheaper biosimilar version by Mylan for five years. During this extended monopoly, Sanofi raked in an additional $14 billion in revenue. Notably, Sanofi failed to defend any of the 21 patents it listed, but the damage was done — patients were denied access to more affordable alternatives for half a decade. Had the FDA prevented the improper listing of patents by Sanofi according to the act’s requirements, patients could have seen competition and lower prices earlier.
Despite the often repeated narrative that the Hatch-Waxman Act was a skillfully crafted law balancing two conflicting policy objectives — incentivize brand drug companies to invest in new drug research and development while simultaneously allowing less costly generic versions — the law has fueled a vicious cycle:
- Pharmaceutical companies exploit loopholes to extend monopolies.
- Extended monopolies lead to higher drug prices.
- Higher prices increase industry profits and lobbying power.
- Increased lobbying further entrenches the system.
The FDA, tasked with protecting public health, has become a victim of regulatory capture. Industry lobbying and the agency’s reliance on user fees from pharmaceutical companies have eroded its independence. The FDA’s advisory committees often include experts with financial ties to the industry, further compromising its objectivity.
So yes, while 92% of prescriptions in the U.S are for generics, the remaining 8% is made up of branded drugs, which account for 87% of all drug spending. Gross spending on prescription drugs continues to rise and is projected to grow from the current level of $722 billion to well over $1 trillion. Rising drug prices and the increasing monopoly power of the pharmaceutical industry are not going away, but will only get worse under current systems like the Hatch-Waxman Act.
To address these issues and realign our health care system with public interests, we must do six things.
First, empower the FDA. The agency must use its rulemaking power to prevent improper patent listings and prioritize public health over industry profits. It cannot continue to kick the can down the road through multidisciplinary working groups, or defer to courts, the Federal Trade Commission, or Congress to address the problem.
Second, increase transparency. FDA meetings should be publicly accessible, and engagement with diverse stakeholders beyond the pharmaceutical industry is crucial.
Third, eliminate conflicts of interest. FDA advisory committees should exclude experts with financial ties to the industry; those experts are regularly co-opted by their consulting deals in the same way that the FDA has become compromised by user fees.
Fourth, rethink patent linkage. Congress needs to reevaluate the wisdom of having the FDA manage patents as part of the generic drug approval process.
Fifth, strengthen antitrust enforcement. The FTC should be given more resources and authority to combat the anticompetitive use of patents by the pharmaceutical industry.
And last but not least, reform patent laws: We need to raise the bar for what qualifies as an invention in order to curb the industry practice of building patent thickets.
The Hatch-Waxman Act, despite its intentions, has become a monopoly-extending machine that prioritizes pharmaceutical profits over public health. A 40th birthday is a good chance for anyone to rethink where their life is headed — and major legislation is no exception.
Congress must act decisively to protect public health and ensure that our government serves the interests of all Americans—not just the pharmaceutical industry. We need a system that does more than just balance the rewards for genuinely new inventions with affordability as the Hatch-Waxman Act intended. We need one that doesn’t force patients to choose between their health and their financial stability.
The health of our nation depends on it. We’ve had 40 years of a system that clearly isn’t working for the American people.
Tahir Amin is the co-founder and CEO of the Initiative for Medicines, Access & Knowledge (I-MAK), a global nonprofit organization that works to lower drug prices.
IMAGE: “Prescription Drugs – Prescription Bottle – Pills” by weiss_paarz_photos is licensed under CC BY-SA 2.0