The high price and steep increases in the price of prescription drugs in the United States significantly contribute to the rise in healthcare costs. While pharmaceutical companies argue that these prices are necessary to fund research and development, there is growing evidence that anti-competitive practices and market consolidation contribute to inflated drug costs. A pivotal study published in the Journal of the American Medical Association (JAMA) meticulously examines the Federal Trade Commission’s (FTC) actions in the pharmaceutical market from 2000 to 2022, underscoring the need for more robust government intervention to protect patients and ensure fair drug prices.
The JAMA study, conducted by researchers from the Program On Regulation, Therapeutics, And Law (PORTAL) at Brigham and Women’s Hospital and Harvard Medical School, analyzed FTC legal actions in the pharmaceutical market over 22 years. The findings reveal that the FTC brought an average of only one enforcement action and three merger actions per year against pharmaceutical manufacturers during this time. These actions addressed a small fraction of the estimated misconduct and consolidation in the pharmaceutical marketplace, underscoring the urgent need for more robust oversight and intervention.
Delayed Introduction of Generics
One of the most detrimental types of misconduct identified in the study was settlements between brand-name and generic drug manufacturers that delayed the introduction of generic competition. These ‘pay-for-delay’ agreements inflict a significant financial burden on patients and payers, costing them billions by extending the monopoly period for brand-name drugs. The FTC has estimated that such settlements could cost $35 billion by 2019, yet they recovered just over $1 billion from these cases between 2000 and 2022.
The study also found that the FTC’s reliance on drug divestitures as a condition for allowing mergers decreased significantly after 2017. This shift in approach may contribute to increased market consolidation and reduced competition in the pharmaceutical industry. Mergers and acquisitions can lead to higher drug prices, as evidenced by recent high-profile cases such as Mylan’s acquisition of the EpiPen and subsequent price hikes.
The Mylan Episode
In 2007, Mylan acquired the rights to the EpiPen, an autoinjector device used to deliver epinephrine in cases of severe allergic reactions. Following the acquisition, Mylan implemented a series of price hikes that resulted in the cost of an EpiPen two-pack rising from around $100 in 2007 to over $600 by 2016.
This significant price increase drew widespread criticism from patients, advocacy groups, and lawmakers, who argued that Mylan was exploiting its market dominance to inflate prices. The EpiPen case became a high-profile example of how pharmaceutical companies can use their market power to drive up drug prices, making essential medications unaffordable for many patients.
In response to the public outcry, Mylan introduced a generic version of the EpiPen at half the price of the branded product. However, this move was seen by many as a tactic to maintain market share and profits while deflecting criticism. The company also faced legal challenges, including a $465 million settlement with the U.S. Department of Justice over claims that Mylan overcharged the government for the EpiPen under the Medicaid Drug Rebate Program.
The EpiPen controversy highlighted the need for greater scrutiny of pharmaceutical mergers and acquisitions, the importance of ensuring competition in the marketplace to keep drug prices in check, and the crucial role that government agencies, such as the FTC, can play in preventing anti-competitive practices and protecting patient access to affordable medications. These principles are not just ideals, but they are the bedrock of a fair and equitable healthcare system that serves the needs of all patients.
Major FTC Limitations
While the FTC faces legal and practical limitations in its ability to oversee the pharmaceutical market, the study authors argue that essential tools remain untested. For example, the FTC can define ‘unfair methods of competition’ through rulemaking, which could help prevent repetitive patterns of anti-competitive behavior. However, to effectively carry out these tasks, the FTC needs more resources. Congress may need to take action to strengthen the FTC’s enforcement capabilities and increase funding for merger reviews. With a 2023 fiscal year budget of $430 million to execute its broad agency mandate, the FTC needs more resources to adequately investigate anti-competitive practices across U.S. industries.
As healthcare leaders, we are responsible for advocating for policies prioritizing patient access to affordable, high-quality, effective medications. The government is obligated to regulate the pharmaceutical marketplace in a way that balances the needs of all stakeholders, ensuring that drug companies can generate adequate revenue for research and development while keeping prices in check. This requires a multi-faceted approach that includes more vigorous FTC enforcement, legislative action, and collaboration between industry stakeholders.
By shining a light on the FTC’s actions in the pharmaceutical market, the JAMA study underscores the urgent need for reform. As we build a healthcare system that leverages the power of artificial intelligence and other advanced technologies, we must also ensure that the fundamentals of fair competition and patient access remain at the forefront. Only by addressing the root causes of high drug prices can we create a sustainable, equitable healthcare system that serves the needs of all patients.
Sources:
Federal Trade Commission Actions on Prescription Drugs, 2000-2022, JAMA, May 20, 2024
Mylan’s EpiPen Pricing Scandal, Seven Pillars Institute, September 14, 2017
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