Step 1: Ensure System Sustainability by Further Enabling Competition

A competitive private market is the best way to manage drug costs while preserving innovation. Policy solutions should focus on fixing specific market failures or gaps and enabling private market solutions. Policies that enhance competition will make drugs more affordable. Direct competition among products lowers prices, and competition in the prescription drug market has proven effective, with as few as six generic competitors lowering prices by 95%.
The prescription drug market is unique, with patent and exclusivity protections designed to incentivize innovation by creating monopolies, which grant manufacturers virtually unlimited pricing power for specific periods of time. When pharmaceutical companies extend monopolies beyond the intended period, competitors are prevented from coming to market as intended by policymakers, resulting in higher drug costs. This dynamic increases premiums for patients and families, costs U.S. taxpayers more money to sustain government programs, and adds to the financial pressures on employers, unions, and other health plan sponsors who design and pay for health care benefits.
To further enhance the private market’s ability to control drug costs, PCMA recommends the following policy solutions:
- Codify “evergreening,” “product hopping,” and the practice of creating a “patent thicket” as anticompetitive practices and empower antitrust enforcers to prosecute these practices as civil violations of antitrust law and assess civil monetary penalties.
- Curb patent thickets by capping the number of patents that patent holders can attempt to enforce per grouping of ancillary patents in infringement cases.
- Require drug patent holders to disclose to the FDA, for the purpose of inclusion in the Orange Book and Purple Book databases, all patents within 30 days of licensure and ban drug patent holders from suing for infringement if the holder did not disclose the patent to the FDA. The FDA should be required to publish patent information in the corresponding database upon receipt.
- Empower the United States Patent and Trademark Office (USPTO) with enhanced standards to increase its scrutiny of patent applications to deny patenting of incremental, obvious changes to existing drugs, or changes to devices used for medication delivery that have no bearing on the effectiveness of the drug and provide adequate resources to support continued coordination between USPTO and FDA.
- Reform terminal disclaimer practice to reduce the burdens of challenging duplicative patents.
- Protect the ability of generic companies to carve out “skinny labels” without facing inducement liability.
- Eliminate the potential for treble damages in patent infringement cases, which would reduce the often cost-prohibitive financial risks for potential competitors.
- Flip the burden of proof to the patentee. The burden of proving patent validity should be the responsibility of the brand/biological product sponsor and not the generic or biosimilar manufacturer with a competitive product.
- Limit orphan drug exclusivity (ODE) to drugs that have no reasonable expectation of recouping development costs through U.S. sales, and revoke ODEs granted otherwise.
- Reduce the market exclusivity period for biologics from 12 to 7 years and prohibit additional exclusivity periods for minor reformulations of the product.
- Change New Chemical Entity market exclusivity to align with its original intent to incentivize the development of fixed-combination products that improve patient outcomes by requiring manufacturers to demonstrate a meaningful change to the molecular structure of a drug to be eligible.
- Limit Clinical Investigation Exclusivity to products that demonstrate significant clinical benefit over therapies marketed during the prior 5-year period.
- Reduce the incentive for patent holders to file CPs to delay competition by simplifying the process the FDA uses to penalize filers if it determines that the CP was submitted with the purpose of delaying the approval of an application and the petition does not on its face raise valid scientific or regulatory issues.
- Codify a sham CP as a per se antitrust violation if the FDA determines the CP was filed to delay competition.
- Allow antitrust enforcers to initiate civil actions and impose civil monetary damages against entities involved with submitting CPs with the intent to delay competition.
- Amend the Biologics Price Competition and Innovation Act (BPCIA) to eliminate the “interchangeability” designation, which smooths the ability for pharmacists to substitute biologic drugs without provider intervention.
- Encourage the use of biosimilars by passing state laws and aligned regulations that are at parity with generic substitution laws to increase biosimilar switching or therapeutic substitution and reduce costs.
- Require a common billing code and weighted-average reimbursement for a reference biologic and its associated biosimilars.
- Encourage the use of more cost-effective drugs in Medicare Part D, including by implementing differential cost sharing for preferred vs. non-preferred brand drugs for low-income subsidy (LIS) enrollees or eliminating cost sharing on generic drugs for LIS enrollees.
- Educate the public to ensure widespread understanding that biosimilars are safe, effective, and have no clinically meaningful differences from their reference biologic, and interchangeability status does not change or limit these facts through FDA communications.
- Sufficiently resource the FDA to enable faster review so lifesaving drugs and drugs with no competition can get to the market as soon as safely possible.
- Protect the ability to place drugs with the lowest net cost on formularies and incentivize the use of such drugs to protect patients, employers, unions, and government programs from paying more than necessary for drugs.
- Allow the flexibility to make midyear formulary changes that result in lower net drug costs or lower costs for patients.
- Protect employers’ and health plan sponsors’ ability to make choices about pharmacy network design that allow them to effectively serve plan participants and save money.
- Where a patient acquires a drug can impact its cost significantly. Policies that restrict PBMs’ ability to develop pharmacy networks drive costs up, while well-managed pharmacy networks offer savings to both plan sponsors and enrollees. Health plan sponsors may select—or in the case of Medicare Part D, prefer—specific networks of pharmacies to provide drugs to their enrollees at competitive prices.
- Preserve the ability of PBMs to hold pharmacies to high-quality performance standards that ensure patient safety and optimal pharmacy performance.
- Allow plan sponsors to choose how to pay for prescription drugs.
- Support the use of accredited specialty pharmacies. Specialty pharmacies dispense drugs with complex handling requirements. Permitting use of specialty pharmacies in all appropriate circumstances typically saves between 11% and 45% on specialty drugs.
- Safe and Secure: Specialty pharmacies are safe and secure, providing lifesaving drugs, handled safely and with chain-of-custody controls, in compliance with U.S. Pharmacopeia guidelines and the federal Drug Supply Chain Security Act. Accreditation by independent organizations ensures patient safety and quality by verifying pharmacy capabilities.
- Seamless for Patients: Specialty pharmacies support patients by proactively confirming medical appointments, providing pre-testing requirements and safety reminders, and delivering drugs directly to the most appropriate location for the patient, such as their home, place of work, or site of care.
- More Affordable: Specialty pharmacies buy “in bulk,” which enables them to avoid additional price markups and pass on savings to patients, employers and other plans sponsors, and government programs.
- Enable home delivery in all markets. Home delivery, sometimes referred to as mail order pharmacy, is a service PBMs provide that allows patients to have their prescription drugs shipped to their preferred location and pay lower out-of- pocket costs. Home delivery removes certain barriers connected to social determinants of health, such as lack of transportation and the potential need to take off work or find childcare, which enables access and aligns with PBMs’ commitment to addressing health inequities.
- Limit CMS’s Maximum Fair Prices to drugs without competition.
- Remove drugs from the list of selected drugs for the upcoming plan year once a competing generic, biosimilar, derivative, or similarly active compound drug is approved.
- Ensure sustainability for Part D Plan (PDP) sponsors through transitions resulting from the IRA plan redesign, covering the period through plan year 2027
- Recategorize Medicare Prescription Payment Plan (MPPP or M3P) losses as Medical Loss Ratio (MLR) numerator medical costs in statute.
- Decrease the meaningful difference threshold from 15% to 10%.
- Continue improving the risk adjustment model using newer data trends.
- Codify PDP Stars quality bonuses.
- Allow PDPs to use Part A and B claims data for coverage determinations.
Why this matters?
Where a patient acquires a drug can impact its cost significantly. Policies that restrict PBMs’ ability to develop pharmacy networks drive costs up, while well-managed pharmacy networks offer savings to both plan sponsors and enrollees. Health plan sponsors may select—or in the case of Medicare Part D, prefer—specific networks of pharmacies to provide drugs to their enrollees at competitive prices.

A plan’s formulary (or drug list) is a list of prescription drugs approved for coverage by plan sponsors such as public and private employers, unions, government programs (e.g., Medicare and Medicaid), and retiree plans. In coordination with independent clinical experts on a pharmacy and therapeutics (P&T) committee, PBMs typically develop a recommended formulary for plan sponsors, who may customize it. When there are multiple options that are equally safe and work equally well, business decisions are made with cost considerations in mind. After PBMs make recommendations, plan sponsors always make the final decision about how their formulary will be structured. PBMs do not have decision-making authority over which drugs will be on a health plan’s formulary, or even where they will be placed. Employers and other plan sponsors need this flexibility to design their benefits because they are all different and have varying resources and patient populations. PBMs encourage use of the safest and most effective and affordable drugs for patients when designing formularies to recommend to plan sponsor clients. Due in large part to these efforts by PBMs, 90% of prescriptions are filled with generics and biosimilars.9 PBMs may also support uptake of biosimilars by placing these drugs on preferable tiers and support policy to bolster proliferation.
Additionally, PBMs encourage health care providers to prescribe lower-cost drugs and pharmacies to dispense generics where available. For prescribers, PBMs offer electronic tools to aid in the selection of lower-cost drugs at the point of prescribing. Electronic pharmacy benefit tools like Real Time Benefit Tools (RTBT), electronic prior authorization (ePA), and electronic prescribing (eRx) reduce administrative burden and speed access, enabling clinicians to allocate more time to direct patient care. Patient eligibility, benefit verification, and claim submissions have been streamlined as health care providers and pharmacies have fully integrated PBMs’ real-time tools. PBMs conduct 94% of eligibility and benefit verifications electronically, in real time. Full adoption of RTBT, ePA, and eRx offers similar promise to ensure patients and their health care providers understand what is covered by their prescription drug benefit and have timely access to the most affordable and effective therapy covered by their plan sponsor. PBMs, electronic health record providers, and pharmacies are equipped to facilitate RTBT, ePA, and eRx. To encourage prescribers to use these services, which support increased medication adherence and reduce medication abandonment, PCMA recommends policymakers take the following steps:
- Incentivize the use of RTBT.
- Require the use of eRx and ePA.
- Continue to advance interoperability.
Formularies are an effective, proven tool for managing drug costs; however, pharmaceutical manufacturers have found ways to protect their profits and promote higher cost products. Two key tactics they use are manufacturing of authorized generics and proliferation of prescription drug coupons.
To learn more about tactics drugmakers use to drive profits at the expense of patients and payers, click here.
Sources
FDA. (2019) Generic Competition and Drug Prices: New Evidence Linking Greater Generic Competition and Lower Generic Drug Prices. https://www.fda.gov/media/133509/download?attachment
PCMA. (2024) National White Bagging Savings Estimates: Appendix. https://www.pcmanet.org/wp-content/uploads/2024/02/APPENDIX-Benefits-of-White-Bagging-Dispensing-By-Stakeholder-2024.pdf