The healthcare reform juggernaut, arguably the most radical attempt to remake the economy and the nation’s healthcare infrastructure in history, was supposed to have flown through Congress before the August recess with nary a peep.  Instead, as Americans have gotten wind of its alarming provisions and exorbitant costs, the plan appears to be fizzling fast in the summer heat. 

However, squirreled away in the monstrous Kennedy-Dodd-Pelosi-Reid legislative morass is an important healthcare matter which must be dealt with even after taxpayers succeed in killing, slowing, or transforming the current plans; something that everyone agrees would reduce healthcare costs.  That issue is creating a regulatory pathway for generic drug makers of the next generation of medications called biologics.

Biologics are medications and treatments that are made from living organisms rather than chemicals.  They now represent one in four pharmaceuticals sold in the United States, used to treat, prevent, or diagnose certain diseases, including diabetes, multiple sclerosis, Alzheimer’s, and Parkinson’s.  According to a June 2009 Medicare Payment Advisory Commission Report, “The top six biologics account for 43 percent of spending on separately billed drugs in Medicare Part B.”

Twenty-five years ago, the Hatch-Waxman Act provided a regulatory pathway for generic chemical drug makers seeking FDA approval for equivalent generic drugs.  In creating this pathway, Congress struck a balance among competing interests by preserving incentives for cutting-edge innovation and protecting intellectual property and safety, while also ensuring that more affordable medicines could be brought to market for the benefit of consumers.  The law has been successful, and, despite initial (and woefully low) estimates of cost savings to the U.S. healthcare system of $1 billion in the first decade, a recent Generic Pharmaceutical Association study reveals a $734 billion savings since 1998.        

While there is agreement on creating the pathway, there is disagreement on how long a brand-name biologic should have the market to itself before generic versions of those medicines can enter, driving costs down.

A bill sponsored by House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) and Rep. Nathan Deal (R-Ga.) would grant five years of exclusivity. The other bill, sponsored by Reps. Anna Eshoo (D-Calif.) and Joe Barton (R-Texas), would grant 12 years of exclusivity—a proposal that sounds like a pathway but in reality will look more like a brick wall.  If members of Congress are serious about saving money, they should embrace the generic pathway that is most likely to quickly and safely drive down the cost of biologics, and that is Waxman-Deal.

The five-year monopoly window in the Waxman-Deal bill has the support of AARP, consumer and taxpayer groups.  In a June 24, 2009, letter to Chairman Waxman, Office of Management and Budget Director Peter Orszag and Office of Health Reform Director Nancy-Ann DeParle wrote that “lengthy periods of exclusivity will harm patients by diminishing innovation and unnecessarily delaying access to affordable drugs.”  The administration supports a seven-year window.  A June 2009 Federal Trade Commission report stated that a 12-year exclusivity period was excessive and would inhibit innovation.  Yet the Senate Health, Education, Labor and Pensions Committee ignored those arguments and included such a provision in the biologic portion of its version of the healthcare reform bill, throwing up formidable obstacles to getting generic versions into the market. 

The Waxman-Deal proposal should be supported by “Blue Dog” Democrats, and their healthcare point person Rep. Mike Ross (D-Ark.), who has been leading the effort to delay consideration of the expensive healthcare legislation in the House and Senate.  They should agree that generic alternatives would put downward pressure on costs, a big plus at a time when Medicare and Medicaid budgets are deteriorating more rapidly than expected.  That may be one reason why Sen. Blanche Lincoln (D-Ark.) has wisely thrown her support behind the Waxman-Deal proposal, which is being carried in the Senate by Sens. Chuck Schumer (D-N.Y.) and Susan Collins (R-Maine).

The legislative outcome of the current healthcare overhaul bill will reverberate for decades to come and Congress must get it right.  Regardless of its fate, moving quickly and aggressively to open up a pathway to generic biologics should be a slam dunk for Congress and American consumers.  Otherwise, there will not be any downward pricing pressure on brand-name biologics, and patients and taxpayers will continue to pay higher than necessary healthcare costs.

- Thomas A. Schatz, President, Citizens Against Government Waste and Orson Swindle,
CAGW Board Member and Federal Trade Commissioner from 1997-2005