Pills and PlayStations: Conniving for higher prices through product hopping
How drug companies keep prices high through tricky marketing and sales tactics
Guest Author: Brian Atkins, George Washington University Law School, JD 2023 (Summer 2021 U.S. PIRG Health Care Campaigns Intern)
When Sony announced the PlayStation 5, thousands of people clamored to spend over $500 on the new console. This included my roommate, who had a PlayStation 4 with almost the same features. It seemed crazy to shell out so much cash for something almost identical to the last model, but customers still came out in droves.
Many drug companies are following the Sony consumer-tech playbook with a practice called product hopping. As a brand name manufacturer’s drug patent expiration date looms closer, the company moves its current patients to a similar drug with a new patent. Patents establish government-sanctioned monopolies to allow pharmaceutical companies to recoup their investment in researching and developing new therapies. During a patent’s lifetime, other manufacturers cannot enter the market for that drug. This exclusivity means the original developer can set drug prices without fear of a lower-priced competitor.
By using the product hopping technique, the “new” drug is protected from lower cost competition because the company has obtained new patents for minimal innovation. Even something as simple as offering the same active ingredient through different delivery or dosing methods could qualify the drug for a new patent: changing a tablet to a gel capsule, or a twice-a-day pill to once-a-day, for example. The market exclusivity provided by the new patent extends the patent of the original drug by years with no new clinical benefit or better patient outcomes.
Product hopping is costly to both the consumer in out-of-pocket costs and to the healthcare system as a whole. And unfortunately, it’s becoming a commonly used tactic to keep lower cost drugs out of the market. In fact, just five of the largest-selling drugs that have undergone product hopping add $4.7 billion to U.S. health expenditures annually.
Take Namenda IR, a drug used to treat confusion from Alzheimers. When Namenda first hit the market in 2004, the manufacturer Actavis was awarded a patent that allowed it a monopoly on that drug until 2015. Actavis then employed its product hopping scheme. In 2014, just before Namenda IR lost its patent exclusivity, Actavis obtained a new patent to offer the same drug in an extended release pill under the new name Namenda XR. They had changed the number of daily doses but not the underlying active ingredients or the efficacy of the drug. The new patent effectively extended Actavis’ monopoly for its Alzheimer’s drug an additional 14 years until 2029.
Actavis then sought to pull the twice-a-day Namenda IR off the shelves, essentially forcing patients to switch to its new once-a-day Namenda XR. At the same time, they employed an Aggressive marketing campaign, persuading providers to prescribe the new drug and offering rebates and discounts to entice patients into making the switch.
In 2015, when generic versions of the original Namenda IR could enter the market due to the original patent’s expiration, these companies were faced with a bleak outlook because patients had already switched to the new medication. This made generic drug companies less likely to even try to compete.
The reason for this hesitation is that the best opportunity for generics to compete with brand-name drugs occurs through “automatic substitution.” State prescription drug laws allow pharmacists to automatically substitute the less expensive generic drugs for the brand-name listed on a patient’s prescription. Automatic substitution was expected to reduce Namenda IR’s market share by 80%. But pharmacists can only automatically substitute the lower cost generic drug ($12.60) for patients with a Namenda IR script, not those with the newer Namenda XR prescription ($415.) Patients get stuck paying for higher cost medications because they had already hopped off the “old” brand name drug onto the “new,” and more expensive, brand name drug.
Product hopping has to stop. Legal action against pharmaceutical companies has had some success. In the case of Namenda, a New York court ordered Actavis to keep the twice-daily-pill on the market until 30 days after generic competition started, allowing for some automatic substitution and cost-savings to occur. Of course, consumer-friendly decisions are not guaranteed, but some legal action could help prevent unnecessary price hikes.
Prescription drugs are not the newest gaming console. My roommate’s life doesn’t depend on getting the PlayStation 5, but someone’s life may depend on their medication. While we should never have to pay hundreds more for something of nearly equivalent value, it is especially dangerous when that something is necessary medication. Greater oversight and enforcement is needed by federal regulators like the Food and Drug Administration (that approves new drugs), the Patent and Trade Office (that approves new patents) and the Federal Trade Commission (that challenges antitrust violations). These agencies must collaborate to ensure tricks that unnecessarily extend the life of a drug patent are identified and stopped. Only then will the PlayStation playbook stop creeping into the pharmaceutical industry.
Photo by Chris Potter on Flickr
Senior Director, Health Care Campaigns, PIRG
Patricia directs the health care campaign work for U.S. PIRG and provides support to our state offices for state-based health initiatives. Her prior roles include senior director of health policy with the National Consumers League, senior policy advisor at NJ Health Care Quality Institute, and advocate at AARP and NJPIRG. She serves on the Ground Ambulance and Patient Billing Advisory Committee at the Centers for Medicare and Medicaid Services. Patricia enjoys walks along the Potomac River and sharing her love of books with her friends and family around the world.