Politics & Policy

Does Obama Take Health Costs Seriously?

His stand on generic competition for biotech drugs will provide the answer.

Revelations of an $80 billion bargain between the White House and PhRMA (Pharmaceutical Research and Manufacturers of America) are upsetting many Democrats. “We were never part of that deal,” said Rep. Henry Waxman (D., Calif.), chairman of the House Energy and Commerce Committee, one of three panels that wrote the House bill. “We are not bound by that deal. It was not particularly a deal I would have made.” As the Daily Kos, a popular left-wing blog, put it, “Congressional Democrats should say ‘hell, no’ to this deal.”

But the deal may have a bigger problem than anger on the left. It threatens to come apart over a seemingly arcane question: When a company develops a drug called a “biologic” — a complex medicine derived from living plant and animal cells — how long should it keep its exclusive right to sell said drug? “Drug companies that had agreed to support the Obama administration on healthcare reforms have found themselves once more at odds with the president” on this issue, FoxNews.com reported recently.

The reason for the possible unraveling is evident: The companies PhRMA represents have an immense interest in keeping the profits that come with exclusivity. But if the president can’t show he wants to tame drug expenses through competition — the best and simplest means to an important end — it’s hard for anyone to take him seriously on the critical issue of controlling health-care costs overall.

Aside from biologics, the deal seems to be going well. PhRMA agreed to cut drug costs by $80 billion over ten years, mainly by offering discounts for medicines in the “donut hole” not covered by the Medicare drug benefit enacted during the Bush administration and by paying out higher rebates for drugs under Medicaid. PhRMA also agreed to run advertisements — reportedly valued at $150 million — in support of health-care reform. (Some of those ads were produced by AKPD Message and Media, formerly headed by Obama adviser David Axelrod.)

In return, the White House agreed to retain restrictions on importing cheaper drugs from abroad and to continue to deny the government the ability to negotiate drug prices downward by using the enormous bargaining power of Medicare. These are both important concessions by Obama.

But the biologics issue was so contentious that the White House and the large drug companies could not reach a consensus. Ryan Grim, a former Politico.com reporter who now covers Congress for The Huffington Post, revealed the contents of a memo, dated July 7, that described the terms of the White House–PhRMA deal. One clause said this: “Agree to get FOBs done (but no agreement on details . . . ).”

The issue involves what are called “follow-on biologics” (FOBs) — essentially generic versions of biologic drugs that are currently patented (drug patents last 20 years). The big question is over drug companies’ retention of exclusive access to the data they compiled in testing the drug — data that competitors can use to speed along FDA approval of generic drugs. Until this period of exclusivity ends, FOBs can’t compete, and the makers of the original drugs effectively keep monopolies.

Monopoly is appropriate and crucial to innovation — and enshrined in Article I, Section 8, of the U.S. Constitution: “Congress shall have power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” The difficult matter is how long the “exclusive right” should last — how long should we give drug inventors monopoly power to make research profitable before introducing competition to bring down prices?

In 1984, the Hatch-Waxman Act (named for Republican senator Orrin Hatch and Waxman) created just such a pathway for conventional, or “small-molecule,” drugs, and the result has been billions of dollars in savings for consumers and, it is generally agreed, a great deal of innovation as well. It did this by giving companies five years of test-data exclusivity.

So what about biologics? A quarter-century ago, there was no inkling that biologics would register $40 billion in annual sales in the United States alone and account for one in seven prescriptions — a proportion that is rising rapidly. So no provision was made in Hatch-Waxman for FOBs, and to this day they receive no test-data exclusivity at all.

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Everyone agrees that some exclusivity is in order, but patented biologics can be expensive — Remicade, which treats rheumatoid arthritis, costs $20,000 for a year’s course of treatment, and some cancer-fighting biologics cost more than twice that — and enduring monopolies put a enormous burden on consumers and government programs. Peter Orzag, the president’s budget director, and Nancy-Ann DeParle, who heads the White House health-care reform effort, said in a June letter to Waxman that “seven years of exclusivity . . . strikes the appropriate balance between innovation and competition.”

Drug companies have been lobbying hard for an exclusion of 12 to 14 years. A National Journal article on August 11 said that PhRMA “spent $13 million lobbying in the first six months of 2009, compared with $8.63 million for the first half of 2008. . . . Forms list that PhRMA used the funds to promote comparative effectiveness research, health information technologies and patent procedures and regulatory approval pathways for biologics.”

Individual drug firms have spent heavily as well. Amgen, the largest biologic maker, pledged $5 million recently to help create the Edward M. Kennedy Institute for the United States Senate. The late Senator Kennedy supported an exclusion of at least twelve years.

On the other side is a remarkably diverse collection of actors. The Obama administration opposed such a lengthy period, as did organizations ranging from the AARP, AFL-CIO, and Consumers Union on the left to the Council of Citizens Against Government Waste, the Competitive Enterprise Institute, and FreedomWorks on the right.

But efforts by the long-exclusion forces — led by the Biotechnology Industry Organization (BIO) under former Republican congressman Jim Greenwood, and including such notables as former Vermont governor Howard Dean — have so far paid off. On July 13, the panel that Senator Kennedy chaired, the Senate Education, Labor and Pension Committee, approved a twelve-year exclusion, and on July 31, the House Energy and Commerce Committee, by a vote of 47–11, did the same.

The argument of PhRMA and BIO is that a long exclusion is needed to provide drug companies with the incentive to invest the large sums needed to bring a biologic to market. As already mentioned, the Constitution itself acknowledges that innovators need a term of monopoly status as an incentive to invest and create. But a twelve-year exclusion is clearly excessive. It will almost certainly mean no competition for biologics at all.

What’s required, especially at a time when health-care costs are preoccupying the nation, is balance. A Federal Trade Commission study released June 10 said flatly that a 12-to-14-year exclusion is “too long . . . particularly since [biologics makers] likely will retain substantial market share after FOB entry.” That’s because of other restrictions on competition, including a prohibition on pharmacies’ automatically substituting FOBs for biologics.

No wonder there’s tension between the administration and the drug companies. Still, the White House has not explicitly attacked the long-exclusion measures that Senate and House committees have passed and, until lately, it has seemed reluctant to draw attention to what has become an important battle.

In an op-ed in the New York Times on August 16, Obama wrote that “reform will finally bring skyrocketing health care costs under control.” But if the president and members of Congress can’t take a firm stand against a twelve-year ban on competition with biologic drugs — the medicines of the future — how can the public possibly take them seriously on broader matters of cost control?

– James K. Glassman, former undersecretary of state for public diplomacy and public affairs, writes frequently about technology, health, and public policy.

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