Medicare and the New Generic Drug Legislation

MedicareThe high cost of prescription drugs in the U.S. today is of major concern to many segments of the population, especially the large number of older adults. Because expenditures on medications have risen sharply during the past two decades, Congress has been under great pressure from the elderly and other consumer groups to control drug prices. However, price controls would reduce the number of new drugs introduced into the market; prices are high partly because research and development (R&D) is very expensive.

The recent passage of the Medicare Modernization Act (MMA), formerly known as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (DIMA) by Congress addresses this concern through the proposed elimination of the loopholes in the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act). There are now new regulations to help speed the introduction of generic drugs to market, thereby giving patients some lower-cost alternatives.
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This article reviews the obstacles that were encountered when generic drugs were first introduced in the U.S. and the federal legislation that ultimately led to the provisions about generics in the recently passed Medicare law.


In 1984, the Drug Price Competition and Patent Term Restoration Act, more commonly known as “Hatch-Waxman” patent reform legislation (Public Law 98-417), sought to strike a balance between (1) name-brand (or “pioneer”) drug companies seeking increased patent life because of the long time it took for the U.S. Food and Drug Administration (FDA) to approve a new drug and (2) generic companies that wanted to increase competition by bringing their alternatives to market. The Hatch-Waxman Act was a “compromise” piece of legislation that balanced the needs of the pioneer drug industry to recover part of a drug’s patent term that was lost during the approval process at the FDA and the need to bring generic drugs to market upon the immediate expiration of the drug’s patent term.
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The Hatch-Waxman Act initially resulted in a win-win situation for consumers, by providing incentives for generic drug manufacturers to bring their products to market—and they did. Since the passage of the Act, the generic share of the drug market has increased from 19% to 42%. The Act also included patent extensions as incentives for name-brand companies to develop new products. After Hatch-Waxman was passed, name-brand companies spent more money on R&D than they did before passage.

Category: Drugs

Tags: Generic Drug, Medicare

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