Instead of Trump's "most favored nation" policy on drug prices, what could be a more effective way to lower drug costs?
For context, this is a question I answered on Quora
Actual competition among drugmakers, instead of price setting cartels, including from both domestic generic drug producers and foreign ones as well. The latter is currently illegal and the asinine practice of evergreening their monopolistic claims over certain drugs for several years past the expiration of the original patent with secondary applications is the main reason why Americans spend more on prescription drugs than every other industrialized country.
A review published in the Journal of the American Medical Association 9 years ago concluded that the most ‘most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval (regulatory exclusivity) and by patents and the main mitigating factor against price gouging by patentees is the availability of generic biosimilars after the expiry date of the patent and regulatory exclusivity.
A comprehensive analysis of FDA orange book data on patents and regulatory exclusivities given to drug makers by the FDA (vaccines and other biologics were excluded here) between 2005 and 2015 found that 78% of patents awarded during this period were provided for existing drugs that had already been patented and nearly two-thirds of patented drugs received at least two additional secondary patents while nearly half received at least three additional secondary patents on formulas, delivery methods, dosage schedules and uses. This practice, known colloquially as ever-greening, added a mean 6.5 years to the drug monopoly when applied to supplementary formulas of the drug and nearly 7.5 years when applied to supplementary uses/delivery methods. While these can be challenged in court they require generic drug makers to first infringe on the patents and incur the cost of years of ligation. Allowing one generic competitor can drop drug prices by as much as 20% in the first 6 months (the first generic is given 6 months of exclusivity) while thereafter allowing multiple generic makers on the market can drop the price by 80–85%.
An analysis of the Unapproved Drug Initiative that the FDA ran from 2006 to 2020 wherein the agency gave regulatory exclusivity to the first producer to receive approval for a legacy drug until a similar noninterchangeable drug with the same active ingredient and similar route of administration was approved, found that UDI approval for 8 drugs resulted in a decrease in the number of manufacturers for 6 specific drugs and price hikes for 5 specific drugs by a median of 157%.
An analysis of Medicare Part D drug event data between 2007 and 2018 found that prices of previously patented drugs declined 20% with three generic producers selling it 2–3 years after entry and up to 80% with ten or more generic producers entering the same market 2–3 years after patent expiration.
A cost analysis of four biologics and one small molecule drug protected from biosimilar and generic competition through patent thickets, i.e. secondary patents filed and granted after FDA approval that cover peripheral features of a compound or biologic other than the active ingredient, found that these patent thickets cost patients between $1.8 billion and $7.6 billion over one year by delaying competition. The authors note that the drug pricing provisions in the inflation reduction act for Medicare part B and D drugs does nothing to discourage patent thickets and may delay competition that can lower costs for private payer patients.