Competition: the Wonder Drug for Health Care

Bubble chartOne broad goal for US health care that most of us can agree on is the need to rationalize and reduce overall costs. As a society, we can meet this goal — but only if we ensure that the health care industry remains competitive in each of its component sectors.

Competition update

Unfortunately, in key sectors this goal remains distant — one that in some cases we are even moving away from. Here’s some of what’s happening in three of the largest sectors:

Pharmaceuticals. Most of the profits here are made in branded drugs, where prices are significantly higher than in the corresponding generics.  Some of these drugs generate revenues in the tens of billions of dollars each year.  When a period of patent protection expires, these revenues typically fall drastically (the ‘patent cliff’).

Certain pharma companies have begun to pay generics manufacturers not to produce a generic version, which presumably would erode the branded version’s profitability.  Such ‘pay for delay’ seems on the face of it to be designed to discourage competition, and has the net effect of keeping drug prices relatively high.  The US Supreme Court has apparently reached the same conclusion, and on June 17 ruled that these agreements could be pursued by the Federal Trade Commission as anti-competitive. Whether or not FTC enforcement will follow through remains to be seen, but it’s a step in the right direction.

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