New Provision in NAFTA Treaty Will Harm Efforts to Lower Drug Prices Through Generic Competition

November 1, 2018

 

President Trump declared that lowering prescription drug prices was one of his highest priorities. However, his renegotiation of the North American Free Trade Agreement (NAFTA) contains protections for brand name drugs and pharmaceutical companies that go way beyond the original treaty. These protections will block generic drug competition and actually increase drug prices at home and abroad. If the President is serious about reducing drug costs, he should eliminate these provisions and promote drug competition and innovation.

 

The new agreement, called the US-Mexico-Canada Agreement (USMCA), includes a clause to protect biologic drugs from competition for ten years. Biologic drugs are made from the cells of living organisms, and they represent the very cutting edge of medical research. The provision gives drug companies a minimum of ten years' exclusivity for biologic drugs. This patent exclusivity would allow them to keep the price of these medicines incredibly high for a decade before facing any market competition from generic versions of the drugs (also called biosimilars). As a result, brand name drug companies would reap huge profits. And since this is a binding treaty that all three countries would have to abide by, it could make it more difficult for Congress to promote competition for biosimilars by reducing the exclusivity period for brand name drugs.

 

Generic drugs are an effective way to reduce prices-they generate an enormous amount in savings, and drug prices decline by 60% a year after a generic drug is introduced. They also save the federal government money, since Medicare and Medicaid pay lower prices for generics instead of buying costlier brand drugs. A ten year exclusivity period for biologic drugs would stifle generic competition, harm consumers by forcing them to pay exorbitant prices, cost the federal government more money, and harm innovation and drug development.

 

The Trump administration claims that lowering drug prices is a major concern. But so far, it has a dismal record on this issue. A recent investigation by the Associated Press found that during the first seven months of 2018, brand name prescription drug prices increased. For every price cut, there were 96 price increases-an extremely lopsided balance! And Pfizer, which announced it would postpone drug price increases after Trump criticized them, just stated that it will increase prices again next year. The recent proposal to reduce prices in Medicare Part B is promising, but much work remains to be done.

 

In order to promote generic drugs, consumer choice, and lower prices, the administration should eliminate these exclusivity periods for biologics from the new treaty.

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