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How A Patent Law Tweak May Add $1.3 Billion In Drug Costs

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If the pharmaceutical industry has its way, a little-known patent challenge will soon be as antiquated as using bloodletting to treat illnesses.

The downside for consumers, however, is an additional $1.3 billion in estimated pharmaceutical costs for Medicare over the next decade, according to The Wall Street Journal. The estimate comes from an analysis performed by the Congressional Budget Office this summer, which hasn't been released to the public, according to the report. The CBO didn't immediately return a request for comment.

At the center of the debate is a process called "inter partes review" (IPR) which was introduced in 2012 as a way to fight patent trolls, or companies that make money through litigating patents but that don't actually create anything. The IPR process allows judges hired by the U.S. Patent and Trademark Office to examine patent challenges, a faster process than the older route of going to court.

So why doesn't the pharmaceutical industry like the IPR process? After all, it's both faster and cheaper than actually going to court. The problem, according to the Journal, is that big pharmaceutical companies believe the IPR process has been abused, citing several challenges from a hedge fund manager who has targeted companies he's selling short.

Of course, generic drug makers are also using the IPR process to challenge brand-name drugs, with The Journal noting that the shorter process uses a legal standard that's not quite as favorable to patent owners. The older process of litigation was created in 1984, and requires the FDA to wait 2 1/2 years before approving generic versions of brand medications whose patents have been challenged in court.

"We agreed on a system 30 years ago for how generic drugs should be litigated," Tom DiLenge, general counsel of the Biotechnology Industry Organization, told the publication. "Now we're seeing generic drug companies trying to skirt those rules."

On the other hand, such challenges may be more beneficial for consumers who would like to pay less by finding generic versions of expensive brand-name drugs, which is where the CBO estimate comes in.

If pharmaceutical companies are allowed to bypass the IPR, taxpayers would be socked with additional costs of $1.3 billion over the next decade, because generic drug makers would be forced to rely on the older court-based system, delaying the debut of some generic drugs. The CBO estimate gauges estimated higher spending by Medicare, the taxpayer-funded health-care plan for senior citizens.

Not surprisingly, one of the groups that's opposing exempting the pharmaceutical industry from IPRs is the AARP, the advocacy group for older Americans. It's unclear what the overall cost impact would be on the overall population, which relies on private health-care insurance, Medicaid and out-of-pocket funds to pay for medical care.

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