Impact of new FDA generics rule on payers depends on effect on drugs' availability

Drug Cost Management Report,  July 11, 2003  

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The new rule published by FDA last month that's designed to speed the approval process for generic drugs could help generate savings in pharmacy costs, according to health insurers and their trade organizations. But to do that, it will have to be effective in its implied purpose: to make more generic drugs available to consumers.

"Removing obstacles to generic drug approvals will be helpful in getting more generics on the market," says American Assn. of Health Plans spokesperson Susan Pisano. She says that encouraging the use of generic drugs when appropriate is "one of the important ways" that health plans can make a broad range of drugs available to the populations they serve.

But the Pharmaceutical Research and Manufacturers of America, or PhRMA, charges that the rule could "undermine the incentives for continued pharmaceutical innovation." The organization says that generic drugs "never reflect new research or new progress."

The rule, which was published in the June 18 Federal Register and takes effect Aug. 18, "closes loopholes" in implementation of the Hatch-Waxman Act, according to FDA. The administration estimates that the rule will reduce consumers' prescription drug spending by some $35 billion over the next 10 years.

However, in a June 12 statement, PhRMA contended "the current Hatch-Waxman law works well," cautioning that the new rule is "lengthy and complex" and that its effects remain to be fully known.

FDA stresses first what has not changed about Hatch-Waxman. "There has been no change in the way we evaluate therapeutic equivalence," Gary Buehler, director of the agency's Office of Generic Drugs, tells DCMR.

On the list of changes under the new rule, though, is a limitation of only one 30-month automatic stay to delay generic and 505(b)(2) "reformulated" drug approvals if a brand-name pharmaceutical manufacturer sues over patent infringement. That amount of time is "an appropriate time period for courts to resolve cases of patent infringement," FDA maintains. According to the U.S. Department of Health and Human Services, generic versions of "certain important drugs" in the past have been kept off the market by multiple patent challenges.

Just as significant, the rule places restrictions on the reasons for which brand-name drug manufacturers can submit drug patents for inclusion in the "Orange Book," FDA's listing of patents for all aspects of medications. This change will "significantly reduce opportunities to list inappropriate patents just to prevent access" to a generic equivalent, FDA says.

Previously, brand-name drug manufacturers could submit patents to the Orange Book for "drug packaging and other minor matters," according to FDA. But those "minor" patent submissions allowed the manufacturers to file infringement lawsuits--without having to prove whether their infringement claims were valid--and thereby secure an automatic 30-month stay in the approval of the allegedly infringing generic drug.

FDA maintains that an example of this sort of tactic was Bristol-Myers Squibb Co.'s filing of a new patent for its anti-anxiety drug BuSpar (buspirone) on Nov. 21, 2000, the day its existing patent expired. Although Bristol-Myers described the new patent as pertaining to a metabolite produced by the body once the drug was administered--rather than the drug itself--the patent allowed the company to prevent Mylan Pharmaceuticals Inc.'s generic buspirone, which was ready to ship the next day, from reaching the market. This patent was later thrown out by a court, however.

Under the new rule, manufacturers must provide with patent submissions information that includes a drug's active ingredients, formulations/composition and approved uses. Also, FDA says it now requires that a "more detailed signed attestation" accompany the submissions, adding that, should the information provided in such attestations prove false, it "can lead to criminal charges."

Payer Forecasts and Strategies

"Anything that shortens the time from a generic drug application to the drug becoming available to consumers is a good thing for the payer," says Craig Stern, Pharm.D., president of ProPharma Pharmaceutical Consultants, Inc. He notes that of all prescriptions filled in the United States, between 41% and 44% are for generic medications. Yet generics represent only about 11% of annual prescription spending in the nation, according to Stern.

He points out that last year, FDA approved only a fraction of the number of new brand-name drugs that it approved in prior years. So with fewer drugs being patented, and with greater numbers of drug patents expiring, "there's a window for generics to play a bigger role." However, it could be a narrow window, Stern says--there is an upsurge in new biotechnology products expected in 2006 by industry experts.

But in terms of the actual impact on pharmacy payers' wallets, "that's going to depend," Stern contends. First, when a new generic drug becomes available, a health plan or PBM must determine where the corresponding branded drug falls in overall utilization. "If the branded drug is on your top 10 or 25 list, that's going to have the greatest impact," he says.