Patent Law Change Could Increase Health Costs by $1.3 Billion Over 10 Years

An analysis from the Congressional Budget Office (CBO) estimates that a patent law change sought by brand name pharmaceutical industry stakeholders would add $1.3 billion in costs over 10 years to the US health care system by delaying generic drugs’ entry to the market. This coalition of pharmaceutical trade groups, led by the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization (BIO), are asking Congress to consider exempting drug patents from facing challenges via the Inter Partes Review (IPR) process. The IPR system first came into effect in September 2012. Through IPR, judges employed by the US Patent and Trademark Office review patent challenges that would otherwise be heard in longer court proceedings.

The IPR process is cheaper and faster than the federal court system and has become a favorite dispute resolution avenue for generic drug companies. The procedure for complaints established under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA) takes an average of 30 months to review and issue a ruling in a patent case, while the IPR system has historically solved challenges in about 15 to 18 months. Although the faster resolution time is the basis for the CBO’s assumption that delayed proceedings would add costs, both PhRMA and BIO disagree with the CBO estimates because there is no direct evidence that suggests the IPR process actually helps bring generics to market more quickly.

Brand name pharmaceutical companies allege that IPR is being used as a vehicle to circumvent the legal framework that already exists in the Hatch-Waxman and BCPIA language. The Coalition for Affordable Drugs, led by hedge fund manager Kyle Bass of Hayman Capital, has challenged more than 20 patents this year on behalf of generic manufacturers. Additionally, brand manufacturers say, the IPR system harms the investment climate for pharmaceuticals. Investors are discouraged by the fact that patents can be challenged through both the IPR system and the federal courts concurrently. They argue that this threat can stunt innovation, which in turn affects patients and access to new medicines.

In a July letter to the House of Representatives, PhRMA and BIO asserted that the IPR process threatens to undermine the original intent of Hatch-Waxman and BCPIA. These 2 previously established laws, they argued, worked in tandem to increase the availability of generic drugs while protecting incentives for research and development for new, innovative medicines. According to the letter, the uncertainty “caused by IPR challenges to patents on FDA-approved products threatens to undermine this delicate balance. Rather than working in harmony with the goals of Hatch- Waxman Act and BPCIA, as some have argued, the IPR process threatens to disrupt the careful balance that Congress achieved…by increasing uncertainty for innovative biopharmaceutical companies having to defend their patents in multiple venues and under differing standards and procedures, ultimately diverting finite resources away from the research and development of new cures and treatments, to the detriment of patients.”

Drug industry stakeholders, health insurers, lawmakers, and other advocates for the IPR process, however, maintain that the CBO’s cost increase forecast is sound and that any provision that may increase drug costs—in particular, generic drug costs— would negatively affect patients. Representative Bob Goodlatte (R-VA), said in a committee meeting, “When I talk to my constituents, they frequently express concern about the high cost of prescription drugs…I certainly would have to answer to my constituents as to why I allowed a provision into a bill that makes their medicine more expensive.”

Both the House of Representatives and Senate are considering bills that could include the drug patent exemption rule change.