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Fighting the high cost of health care: both insurers and consumers have an interest in widely available, low-cost generic drugs. The big pharmaceutical companies have stymied competition from makers of generic alternatives. Trial lawyers have joined forces with insurers to stop them.

Article Excerpt
According to statistics from the U.S. Census Bureau, roughly 85 percent of Americans have some type of health insurance. (1) Some people get coverage through government-subsidized programs, but most have employer-provided or independently purchased private insurance.

That most insurance comes from private companies should be no surprise--it's a fact that grows out of this country's failure to adopt a comprehensive national health insurance program. Accordingly, private insurers play a vital role, partly because of the sheer number of people who rely on them, and partly because of skyrocketing health care costs, which can be financially devastating to a family when a loved one becomes seriously ill.

Because they shoulder a significant financial load, (2) health insurers and other third-party payors (TPPs), including health and welfare funds and self-insured employers, have an abiding interest in keeping health care costs down. Recently, in addition to more traditional cost-saving measures, TPPs have found that litigation can be an effective way to recoup some costs. Insurance companies are certainly no strangers to the courtroom, but in this context, TPPs are occupying the plaintiffs' seat, closest to the jury box. The dynamic is nontraditional; the results are mixed and compelling.

Third-party payors generally pursue two types of actions: antitrust cases against manufacturers of brand-name prescription medications and actions against medical device manufacturers. Although different in theory, the goal of both types of lawsuit is the same: to obtain reimbursement from companies that wrongfully line their coffers at the expense of those who ultimately bear the ever-increasing cost of health care.

The manufacture and sale of prescription drugs is one of the most profitable industries in the United States. American consumers account for approximately 45 percent of the world's prescription pharmaceutical revenues, (5) and the cost of prescription drugs has been rising at a rate of 14 percent to 18 percent per year. In 1997, over $97 billion worth of prescription drugs was dispensed in the United States. By 2005, that figure had ballooned to about $200 billion. (4)

In short, the market for prescription drugs is huge--one of the largest in our economy--and brand protection has become a top priority for drug companies. When companies that make brand-name drugs go too far in their attempts to block competition from bioequivalent generics, TPPs seek to recover the unrealized cost savings from the entry of these lower-cost alternative treatments.

To ease the entry of generic drugs into the market, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, also called the Hatch-Waxman Act. (5) Under Hatch-Waxman, a company seeking FDA approval for a generic alternative drug may file an Abbreviated New Drug Application (ANDA) that relies on, but need not independently replicate, the FDA's previous findings about safety and efficacy for the comparable patent-protected drug. The ANDA must include a certification that the proposed generic drug would not infringe on existing valid patents by its manufacture, use, or sale. (6)

If the generic applicant claims that the patent is invalid or will not be infringed by its product, it must submit a certification to the FDA and notify the patent holder. (7) This is known as a "paragraph IV" certification. The first applicant to submit an acceptable ANDA with a certification for a generic version of a brand-name drug receives a 180-day period of exclusivity before other ANDAs for the same drug can be approved by the FDA. Thus, the first generic ANDA applicant has the opportunity to compete directly with the brand-name manufacturer for 180 days without the threat of competition from other generic manufacturers. (8)

The "branded" patent holder has 45 days after this notification to bring a patent infringement suit against the applicant. If the patent holder does file suit, the FDA's approval of the ANDA is automatically delayed for 30 months or until the patent is declared invalid or not infringed.

This stay is automatic, regardless of the lawsuit's merits.

'Working' Hatch-Waxman

The Hatch-Waxman Act was designed to stem the rising cost of prescription drugs and bring less expensive generic drugs into the market more quickly. (9) Studies have...