Category: Antitrust

The High Cost of Health Care: Why Some Pay $240 for a $9 Bottle of Pills

Jonathan Darrow 2 Comments

By Jonathan J. Darrow

An earlier post discussed the equivocal efficacy of Propecia (finasteride) as a baldness remedy, ending with the provocative assertion that, efficacy aside, “there is little reason for anyone ever to buy or consume Propecia (finasteride), or any doctor ever to prescribe it, since a much cheaper and identical chemical sold under the trade name Proscar (finasteride), is available.” This post continues the discussion, addressing one small component of the rising cost of healthcare—the cost of finasteride.  It explores why consumers pay as much as $240 for a bottle of Propecia (finasteride) when a $9 bottle of an equivalent, FDA-approved supply of the identical chemical is readily and legally available at nearby stores.

In the exorbitantly priced landscape of prescription drugs, there is at least one low-cost oasis: Wal*Mart.  Though some find reason to criticize the discount store, few would disapprove of the dozens of prescription medications Wal*Mart offers for an unbeatable $4 for a 30-day supply.  Cost-sensitive consumers can purchase everything from blood thinners to antidepressants to antibiotics at this price, while a 90-day supply is only $10 (and this price includes shipping to your doorstep).  A handful of drugs that cannot be sold at $4 per month sell for a still-modest $9.  For the 300 or so drugs on Wal*Mart’s list, this means there is no longer a need for $10 co-pays or snowy treks to the pharmacy in 15 degree weather.  That’s right: the Wal*Mart total price is less than most insurance company co-pays.  Finally, a major industry player seems to have put effective downward pressure on prescription drug prices.  Read More

Reverse Settlements, Part 4: What Is the Baseline?

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In my final post on reverse settlements I want to offer three thoughts that are more directly related to the legal question of how to treat reverse settlements under antitrust law.

First, it strikes me as odd that we scrutinize reverse settlements of Paragraph IV challenges differently than settlements of patent suits of non-drug, even non-health products.  As Einer acknowledges in his Texas Law Review piece, nearly all patent litigation affects market structure and thus both the level of competition and the amount of consumer welfare (Elhauge and Krueger 2012).  In each of those cases, because the public is not party to the litigation, settlements between patent holders and alleged infringers will – in theory and perhaps in practice – tend to hurt consumers.  (The monopoly-duopoly wedge that gives rise to the problem of reverse settlements is by no means unique to the drug market.)  Yet my patent law colleagues tell me there is no systematic review of non-drug patent settlements as is being urged of drug settlements in the FTC v. Watson case.  It seems that under the FTC view, drug patents would be treated more harshly than other patents. I am not sure why that should be the case under antitrust law.

Second, the critical question in the antitrust litigation is the baseline against which reverse settlements are judged.  Reverse settlements are only problematic under antitrust law if they extend patent duration or scope beyond some baseline.  Should that baseline be expected duration with full litigation and no settlement – as critics of reverse settlements urge – or something else?  For expected litigation to be the baseline, one has to assume that Hatch-Waxman modifies patent law and that patent duration after litigation is what is now required.  I am not sure these assumptions are appropriate.

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Reverse Settlements, Part 3: Value of a Drug Patent

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In this third post on reverse settlements, I examine whether traditional legal standards for judging whether a drug patent is valid captures the social value from a drug patent.  This is important because the FTC takes the position that reverse settlements extend the expected life of a drug company’s patent as compared to litigation over patent validity under traditional legal standards for judging patent validity.  I conclude that those standards may seriously undervalue the social benefit of drug patents, even invalid ones.  First, patent validity standards do not appreciate that all drug patents – valid or not – are necessary to compensate drug companies for conducting clinical trials, which are half the cost of all R&D and are socially valuable even if the drug patent is not valid.  Second, profits from a drug patent – even if the patent is invalid – sustains research on a large number of other drug patents – which may be valid.  That cross-subsidization suggests a branded drug company ought be judged on their portfolio of patents, not on individual patents. Traditional patent validity standards fail to do that.

To be clear, I understand that patent law standards for validity are not perfect, and I do not expect them to be.  What I suggest is that there is a worse fit between patent validity standards in the pharmaceutical industry than in other industries. This is relevant for antitrust analysis because, if patent validity standards undervalue drug patents, then eliminating reverse settlements undervalues them even further since these settlements putatively extend the expected patent life of drug patents.

Let me begin with my first substantive claim: all drug patents, whether valid or not, are socially useful.  All drug patents encourage production of useful public goods, specifically information about whether a drug works.  The main reason is that, unlike patents for other products, a patent for a drug is obtained before research on the drug is completed.  Specifically, drug companies obtain patents on molecules after lab and animal testing, but before clinical test, i.e., testing on humans.[1] Yet human testing is roughly half the cost of all drug R&D (DiMasi, Hansen, & Grabowski, 2003). Moreover, the results from clinical trials, which are made public as part of the drug approval process, are a public good.  Once a drug is shown to be effective, everyone knows whether the molecule is medically valuable.  If a company did not have a patent that could prevent other companies from producing that molecule, it would never conduct the trial in the first place!

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