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Patent Rule Change for Generics Could Send Health Care Costs Through the Roof

Congressional Budget Office estimates $1.3 billion increase over 10 years

A patent law change sought by the pharmaceutical industry could cost federal health care programs $1.3 billion over a decade by delaying new generic medications, according to a report in the Wall Street Journal.

Pharmaceutical trade groups are asking Congress to exempt drug patents from being challenged through an administrative process that is cheaper and faster than the federal courts. The procedure has become popular with generic-drug companies looking to sell copies of brand-name products.

The Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization say brand-name pharmaceutical patents should be excluded from the procedure, called inter partes review (IPR), through patent legislation that Congress is considering. However, the potential for such an exemption to increase drug spending has intensified opposition from lawmakers, health insurers, and consumer advocates alarmed by rising drug costs.

The IPR system went into effect in September 2012 with the support of many technology companies, which saw it as a way to combat “patent trolls” — nonoperating companies that profit by accusing other companies of patent infringement. Under the IPR, judges employed by the U.S. Patent and Trademark Office (PTO) evaluate patent challenges that would otherwise be heard in lengthier court proceedings.

Several U.S. senators asked the Congressional Budget Office (CBO) this summer to estimate how much a pharmaceutical exemption for an IPR would cost. The CBO’s conclusion was that federal spending would increase by $1.3 billion over 10 years because the exemption would delay the launch of certain generic products.

Drug makers say the IPR process, in which judges employed by the PTO evaluate challenges, is being used to circumvent a decades-old system for settling patent disputes between generic and brand-name drug companies. That system, created by a 1984 law, requires the FDA to wait 2½ years before approving generic versions of medications whose patents are being challenged in court.

IPR challenges are usually decided within 15 to 18 months, using a different legal standard than that used in the federal courts, and which legal experts and drug makers say is less favorable to patent owners. Patents can be challenged through the IPR system and in the federal courts simultaneously, forcing drug makers to defend themselves on two fronts.

Individual drug companies, including Amgen and AbbVie, have lobbied lawmakers about changes to the IPR system, according to federal disclosure documents. But opponents of the exemption, such as the health insurance industry, say drug makers often use the slow pace of the federal courts to delay generic launches.

The IPR system “is a critical consumer protection,” said Matthew Eyles, executive vice president of policy and regulatory affairs at America’s Health Insurance Plans. “An exemption would be really bad for consumers and really bad for the system.”

Other groups opposing an exemption include the AARP, insurers represented by the Blue Cross and Blue Shield Association, and the Pharmaceutical Care Management Association, an industry group for pharmacy benefit managers.

Mylan, a generic drug maker, has filed more than a dozen IPR challenges against brand-name drug patents and has lobbied against the exemption, according to federal disclosure documents.

Source: Wall Street Journal; August 31, 2105.

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