The Health-Care 'Trifecta'
For all their thousands of pages of complexity, the House and Senate health-care reform bills have three simple and admirable objectives: to bring good health care to more Americans, to improve the quality of care, and to control rising costs.
It’s hard to reconcile these three goals — and impossible by government diktat. But there is a mechanism that works in other sectors (think consumer technology, for example) that can achieve broader reach, higher quality, and lower costs. It’s called competition.
But when you read the bills, you find measures that deter, rather than enhance, competition. A prime example is the treatment of what are called biogenerics — in effect, generic equivalents of biotech drugs, also called biologics, which are typically made from living cells. In 2007, Americans spent $40 billion, or about one in every seven prescription-drug dollars, on biologics, including such blockbusters as Avastin for colon cancer and Lantus for diabetes. Biologics are wonder drugs, but they are expensive. Medicare alone spends more than $2 billion on Epogen, an Amgen drug that treats anemia in kidney patients.
Currently, when the patent on a biologic expires, the Food & Drug Administration provides no efficient pathway for generic competitors, so the companies that hold the patents find it easier to charge monopoly prices. Congress, at long last, wants to remedy that deficiency — just as it did in 1984 with the bipartisan Hatch-Waxman Act that provided an efficient route to generic competition for small-molecule, or conventional, drugs.
Unfortunately, the bill that passed the House and the one that is now on the floor of the Senate don’t fix the biologics problem; they sanctify it.
The bills give biologics at least 12 years of market exclusivity before biogenerics have a chance to compete. A Federal Trade Commission study said flatly that such a period was “too long” and “unnecessary to promote innovation.” The Congressional Budget Office estimated that a seven-year exclusivity period would save more than $9 billion over the next decade.
The right period to boost both innovation and competition and meet the three goals of proper health-care reform is probably five to seven years. That’s the view of such disparate groups as the Competitive Enterprise Institute on the right and the AFL-CIO on the left. Even the Boston Globe, with biotech firms in its backyard, believes the current bills are excessive. In an editorial Tuesday headlined “Biotech bills give drugmakers too many years of exclusivity,” the Globe stated, “In this case, what’s optimal for Massachusetts drug firms is not good for the nation or for suffering patients. A compromise is necessary.” (The Globe wants to split the difference between five years and 12 years.)
Perhaps it was the hope of the drug-company advocates of the long exclusion that no one would pay much attention. But the media are catching on. The New York Times recently reported that lobbyists for the biotech firm Genentech played ghostwriters for official statements made by 42 members of Congress on the biogenerics measure.
And bloggers have resurrected a story that first surfaced a year and a half ago, when a sharp-eyed Roll Call reporter pointed out a “Serious Wrinkle in a Biotech Bill,” as the headline had it. The wrinkle involved Botox, the popular beautifying treatment that, indeed, makes wrinkles disappear (or stretches them to smoothness).
The bill, originally introduced by Rep. Anna Eshoo (D-Calif.) and now part of the health-care reform legislation, exempted biotech pharmaceuticals that contain “select agents and toxins,” such as the botulinum toxin type A in Botox, whose manufacturer, Allergan, lobbied for special treatment, according to the reporter, Kate Ackley.
“They spin it as a national security issue,” said a lobbyist for the generics industry quoted by Ackley. “I don’t know how in the hell they justify how generic Botox is any more of a terrorist threat than brand-name Botox.”
But Botox aside, creating a pathway for biogenerics — or “biosimilars,” as they are also called — would expand the reach of these lifesaving drugs (by making them affordable to more patients), sustain or increase quality (by getting more drug companies into the act), and control costs (in Europe, reports the Globe, prices have dropped 25 to 30 percent with the introduction of biogenerics). That’s a health-care trifecta.
The Obama administration has said it favors an exclusion roughly half as long as what’s in the House and Senate bills. Believers in market competition agree. But Congress, so far, is saying otherwise. There’s still time to change minds.
James K. Glassman, former U.S. Undersecretary of State for Public Diplomacy and Public Affairs, writes often about economics and technology.