The patent absurdity of pharmaceutical prices

Few things are as frustrating as medical care in the United States.

Too often when patients complain about minor ailments to their family doctor, they are passed off to specialists who conduct a barrage of ridiculously expensive tests only to shrug their shoulders and conclude that they don’t know what’s wrong.

In other cases, they are able to pinpoint the problem and prescribe medicine, which turns out to be so costly that patients need to decide what is more painful—the disease or the financial burden.

Like myriad Americans, I’ve experienced some of medical care’s shortcomings and been flabbergasted by the exorbitant costs. A doctor recently suggested a lab test for a non-life-threatening—albeit a quality-of-life—issue. With my insurance, they told me, it would cost about $2,300 out-of-pocket. For another complaint, a doctor prescribed some eye drops that would have cost about $600 a month. I promptly said “no thanks.”

Don’t get me wrong. Doctors and other medical professionals serve critical roles, especially when you’re facing a life-threatening health issue, and the medications they prescribe can feel like a godsend—just don’t look at their price tag. Similarly, American healthcare is far better than what you receive in a single-payer system, although it is still seriously flawed and expensive.

Like just about everything else over the past few years, the price of pharmaceuticals has been edging ever higher from already inflated levels. While there are plenty of reasons for this, the government bears part of the blame by perpetuating a patent system rife with loopholes.

Patent policy is supposedly intended to spur innovation and allow companies to recoup research and development costs, while eventually permitting competition. It works by giving inventors exclusivity to their invention’s rights generally for a term of 20 years—essentially a temporary monopoly.

In the case of pharmaceutical companies, they incur an inordinate amount of research, development and regulatory expenses. A recent estimate suggests that it costs anywhere from $314 million and $2.8 billion and takes about 10 years to bring a single drug to market, and pharmaceutical companies try to recoup this investment in the 20-year exclusivity time frame and turn a profit.

Considering that patients rely on doctors’ advice when prescribing drugs and are often virtually willing to pay whatever price for life-saving medicines, drug manufacturers are well-positioned to generate a pretty profit. They obviously do even better during the 20-year span in which they face no competition on newly patented drugs, but this privilege isn’t supposed to last forever.

When the monopoly period ends, competitors are free to recreate the patented products and sell them to consumers. As it pertains to pharmaceuticals, these generally come in the form of generic medications and so-called biosimilars, which come at a steep discount—to the delight of patients and insurers alike. In 2021 alone, Americans and their insurers saved over $370 billion by opting for generics and biosimilars (a drug that is similar to an FDA-approved biologic drug), and increased access to biosimilars could save another $100 billion over the next five years.

However, within the federal government’s patent system are methods of extending the exclusivity period and muscling out competitors, which burdens those in need of medical care. By employing a few different strategies—thanks to patent policy loopholes—the exclusivity period is sometimes extended far beyond 20-years. Evergreening is one such approach. It is the process of filing new, secondary patents on already existing products, and it has led to exclusivity extensions for 70 percent of the top 100 drugs.

Other strategies for extending monopoly privileges include product hopping, which is the process of tweaking a drug’s recipe ever so slightly and remarketing it under a new name, and relying on patent thickets. The latter happens when manufacturers file a host of interrelated patents at different periods of time to make it impossible—or at least very difficult—to develop cheaper generic drugs.

If our country’s patent policy is intended to increase innovation, then there are some notable pitfalls within its design. Loopholes permitting evergreening, patent thickets and product hopping do little to foster further pharmaceutical development. Rather, they simply attempt to maintain the status quo, extend monopoly protections in perpetuity and keep medical prices elevated. Don’t blame pharmaceutical companies for this. They are just working within a government-created framework. If the government created avenues to generate additional revenue, why wouldn’t companies want to pursue it?

Fixing the patent system won’t change everything within the modern medical system. There will still be plenty of frustration and head-scratching expenses, but subtle reforms, like closing loopholes, could foster the introduction of more generics and biosimilars, which will lower prices and put more medicines within Americans’ reach.