Hatch-Waxman, 40 Years Old and Still Relevant
This year is the 40th anniversary of the Drug Price Competition and Patent Term Restoration Act, better known as the Hatch-Waxman Act. A law that has had a lasting impact on the drugs we depend on every day. It was conceived by its two namesakes, Orin Hatch, a Republican Senator from Utah, and Henry Waxman, a Democrat Representative from California. They were searching for legislation that would increase access to prescription drugs by lowering their cost through the introduction of generics while still maintaining the incentives to encourage the research and development (R&D) required to discover new drugs.
Representative Waxman was concerned that the existing high cost and regulatory requirements to get a generic drug approved would continue to inhibit and often prevent the entrance of a generic alternative to a brand-name drug. He was also fearful of legislation that was being introduced that would extend the patent life of a new drug up to seven years which would further increase the difficulty for the development of generic alternatives. His fear was almost realized when the legislation fell just two votes short of a 2/3 majority that would bypass regular order and enact the Senate bill. There obviously needed to be a compromise. Something that seems to be a pipe dream in today’s Congress but was still in vogue in the early 80s. A compromise was agreed upon. Waxman supplied the language to streamline the FDA’s requirements for generic drug approval, and Hatch encouraged the patent protection and exclusivity needed to encourage innovation. Their work was rewarded when it was passed by the House and Senate, and President Reagan signed it in 1984. Now it’s 40 years later . . . how did it do?
I have one sentence that summarizes its success: Today, 90% of the medicines we take are generics, and the U.S. is the world’s leading innovator of new prescription drugs. It is estimated that, in the last 10 years, our country saved $2.9 trillion through the use of generics. Many people focus on the reported abuse of the system by some pharmaceutical manufacturers, and, as always, there are bad actors that are using schemes to delay generic entry and to extend patents - these problems need to be solved. However, it should be noted that the average patent life of a prescription drug has remained stable since the act’s inception. Many point out that 10% of the branded drugs are responsible for 80% of the cost. Is this too much or is it a reasonable cost for the research and manufacturing needed to bring a new drug to the marketplace and to pay for the R&D cost of the drugs that never make it to market? These are all questions that lawmakers are wrestling with, and it leads to another - does the act need some tweaks or should we throw it out and start over? A portion of this question has been made rhetorical since the balance of access and innovation provided by the Hatch-Waxman Act has already begun to be impacted by the Inflation Reduction Act and its price-setting provisions.
There are two places, however, where we do need some solutions.
The discovery and growing influx of biologics have not been met with the same influx of lower-cost biosimilars. Biologics are larger, many times more complicated, and harder to manufacture than historical small-molecule drugs. They are becoming the new source of lifesaving and life-altering medicines. We need to discover the access and innovation balance for these new medicines that we found in Hatch-Waxman for small-molecule drugs.
Drug shortages are growing and threatening our access and, subsequently, our health. Hatch-Waxman worked so well that it often drove manufacturers to ever cheaper and unstable supply chains. It also reduced the profitable entry of competitors, which opened the gates to unwarranted price increases. We need to encourage the use of stable, reliable, and fairly rewarded suppliers and manufacturers. It’s not an easy problem to solve, but we can’t wait long for a solution.
Here’s my view of 40 years of Hatch-Waxman and the problem of maintaining the balance between access and innovation - Hatch-Waxman worked! It worked because it somehow struck the right balance between access and innovation. I want to point out that it was successful also because of the Bayh-Dole Act that was passed at the end of 1980. This Act provided the pathway that encouraged a huge increase in discovery which enabled the needed critical mass required to fuel the growth of the generic drug industry. There was another boost to access to prescription drugs when the Medicare Prescription Drug Act (Part D) was passed in 2003. Here are three government programs whose births are periodically celebrated and whose popularity remains high, around 90% for part D. They came along at the right time and complemented each other to the benefit of trillions of dollars in savings for you and me. We don’t need to throw out programs that the government somehow got right!
Do we need to improve on these programs? Yes, there are places for improvement as the science changes and the world changes. The question is – what should be the focus? It should be on the true customer, the patient . . . you and me. The way I see it these days, the supply lines are convoluted, and there are too many other customers who are driven by too many perverse incentives. When I say perverse, I mean incentives that don’t encourage better service and access. I think any solution needs to be patient-focused.
We don’t need sledgehammer changes to programs that have worked for decades, we need thoughtful updates that recognize the impact any changes will have on us – the patients. We need to all let our lawmakers know that we expect them to realize who the real customer is.
Best,
Thair