WASHINGTON (March 31, 2021)—Rapidly rising health care costs have put the spotlight on generic drugs, which save American patients millions of dollars every year. Yet, drug companies have gamed the system using patent-backed strategies called “product hopping,” which stymie competition and keep prices artificially high.

A new policy study from R Street senior fellow on technology and innovation Charles Duan, finds that product hopping—in which a drug company strategically shifts the market from one drug product to another right before generic competition can occur—costs Americans and the health care system an estimated $4.7 billion a year.

The study finds that product hopping depends on an especially potent combination of patents and regulatory costs, which enable pharmaceutical manufacturers to extend monopoly protections over drugs with virtually no consumer benefit.

The author offers three key proposals to target product hopping: greater transparency about clinical benefits of modified drug products, enhanced consumer choice through expanded state substitution laws and stronger patent examination to prevent the grant of improper monopolies on drugs.

“[T]he effectiveness of [solutions to product hopping] depends upon how well they are able to minimize the confluence of patents and regulation that enables product hopping,” said Duan.

Read the full policy study, “Product Hopping: Federal and State Approaches,” here.