Medicare reform closes Hatch-Waxman loopholes

April 2, 2004

The new Medicare drug law will be a boon to the generics industry.

The Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003 contains provisions that will be a boon to the generics industry, industry experts believe. "It will provide greater access to more affordable generic drugs," said Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association (GPhA), based in Washington, D.C. "For one thing, it closes unintentional loopholes in the Hatch-Waxman law that have been used by some pharmaceutical companies to expand their patents and block competition."

Officials of the Centers for Medicare & Medicaid Services (CMS) who will administer MMA agree with Jaeger's assessment. "In the past, generics couldn't come to market quickly enough, and it kept brand prices up,"said Leslie Norwalk, acting deputy administrator and COO for CMS. "Now we will reduce the time it takes to reach the market, and that will help bring down drug costs." Many of the changes in Hatch-Waxman took place upon the MMA's enactment on Dec. 8, 2003, and built on regulations issued by the Bush Administration in 2003.

Other provisions of MMA, including those that create tiered payments to encourage the use of generics by low-income recipients (see sidebar), fall under a new section of Medicare called Part D and take effect Jan. 1, 2006. Another Part D provision that affects all recipients is a new requirement that pharmacists serving Medicare recipients inform their customers of the existence of generic alternatives and relevant price differentials. "These provisions affect cost-containment," noted Jaeger. "They provide greater access to drugs and promote fiscal responsibility by encouraging the use of generics."

 

STANDARD BENEFIT Singles over $13,471; Couples over $18,180100% OF POVERTY Singles under $8,980; Couples under $12,120135% OF POVERTY Singles $8,981 - $12,123; Couples $12,121 - $16,362135% to 150% OF POVERTY Singles $12,124 $13,470 Couples $16,362 $18,180
• $35 estimated monthly premium • $250 deductible • 25% co-pay on covered drugs from $251- $2,850 • 100% co-pay on covered drugs from $2,851- $3,600 out-of- pocket • 5% co-pay on covered drugs over $3,600 out-of-pocket ($5,100 total covered costs)• $0 monthly premium • $0 deductible • no gap in coverage • no gap in coverage •$1 co-pay for generics; $3 co-pay for name brands • must be Medicaid- eligible• $0 monthly premium • $0 deductible • no gap in coverage • $2 co-pay for generics; $5 co-pay for name brands • nursing home dual eligibles exempt from co-pays • subject to asset test ($6,000 singles $9,000 couples)• sliding-scale premium • $50 deductible • 15% co-pay on covered drugs up to $3,600 • $2 co-pay for generics over $3,600 $5 co-pay for name brands

 

Part D's price differentials will no doubt result in an increase in the use of generics, but it is the Hatch-Waxman reforms that have the greatest potential for a profound effect on accessibility of generics. "Over the years, the unclear language of the [Hatch-Waxman] law has led to many law- suits that have independently delayed approv-al of less expensive generic drugs," asserted Jaeger.

Only one 30-day stay

Under Hatch-Waxman, approval of generics by the Food & Drug Administration is allowed when a new drug's patent and market exclusivity protection expire. But brand-name expirations are almost always followed by a 30-month stay of a generic manufacturer's Abbreviated New Drug Application (ANDA), used to establish bioequivalency, or a 505(b)(2) application—a new drug application containing one or more pharmaceutical investigations necessary for approval that were not conducted by the applicant and for which an applicant has no right of reference.

The stays are invoked under Hatch-Waxman if a brand-name company receives notice of a generic applicant's ANDA, which contains a "paragraph IV certification" stating the brand-name company's patents are invalid or not infringed upon by the ANDA, and if the brand-name manufacturer files suit for patent infringement within 45 days of that notice. They are frequently accompanied by the filing of a new patent for the same drug, often reflecting a small difference in the chemical structure of a drug.

The new patent application is invariably challenged, either by a generic manufacturer or by the FDA itself, or both. The result can be a series of overlapping and consecutive 30-month stays, greatly slowing the opportunity for a generic equivalent to hit the market, even if the generic has met all FDA requirements.

A 2002 study by the FDA showed that multiple 30-month stays led to delays in generic drug marketing of up to three and one-half additional years. "Hatch-Waxman's intent was not only to provide incentives to the development of new treatments through patent and exclusivity protections, but also to facilitate access to generic versions of the drug after the innovator's patent or exclusivity expiration," Jaeger said. "But some pharmaceutical companies have used the stay provisions to keep generics off the market much longer than was the legislators' intention."

MMA provides for only one 30-month automatic stay, at most, in patent infringement litigation involving an ANDA.

Clarifying declaratory judgments

Another provision applies to declaratory judgments in patent suits. According to GPhA, the declaratory judgment language of MMA "helps to clarify the pathway for generic companies to pursue declaratory judgment actions so that patent disputes receive swift resolution" and consumers have access to affordable medicine.

"Most generic manufacturers cannot afford to expose their corporation to significant liability by going to market without the resolution of the patent dispute," said Jaeger, "so a brand company could effectively delay generic competition by not suing a generic manufacturer and using the threat of a potential lawsuit as a weapon. The declaratory judgment provision will enable generic manufacturers to seek a resolution to the dispute and enter the market in a timely manner."

How much the provision regarding declaratory judgment changes current law is unclear, according to a statement of interpretation of the MMA's Hatch-Waxman reforms, published by the Washington law firm Arnold & Porter (available at www.arnoldporter.com ). "In some cases a court might decline to allow a case to proceed when there is no immediate harm to plaintiff and because the ANDA might never be approved, so the dispute might ultimately be academic," reads the Arnold & Porter statement.

The 180-day exclusivity rule

Another MMA provision regarding Hatch-Waxman clarifies the existing incentive of 180 days of exclusive marketing rights for the first generic company that obtains approval of a generic drug. However, a first generic drug applicant forfeits its 180-day market exclusivity if it doesn't market its product "in a timely manner" once it's able to do so. The idea is to prevent first generic marketers from keeping subsequent generic applicants out of the market, GPhA officials explained.

Finally, MMA requires brand and generic companies that reach out-of-court settlements to notify the Department of Justice and the Federal Trade Commission "to ensure that any and all settlements between a brand firm and a generic firm or a generic firm and another generic firm are disclosed to the government for review," according to the GPhA.

"As a result of MMA, patients will benefit from greater and more predictable access to safe, effective, and low-cost generic alternatives to brand-name medicines," commented Jaeger. "It will help reduce expensive lawsuits over drug patents and make the generic drug approval process more efficient. It will also help to lower national healthcare costs by reducing the cost of bringing safe and effective generic drugs to market."