When you fill a prescription for a brand-name drug, you might assume the pharmacist will automatically give you the cheaper generic version-especially if your state law allows it. But what if the drug company made sure that version no longer exists?
How Generic Substitution Is Supposed to Work
In most U.S. states, pharmacists are allowed-or even required-to swap a brand-name drug for a generic version if it’s bioequivalent. That means the generic has the same active ingredient, works the same way, and meets the same safety standards. This system was designed to save money. When a patent expires, generics typically take over 80-90% of the market within months. Prices drop by 80-95%. Patients save billions. The system works. But in recent years, brand-name drugmakers have found ways to break it.Product Hopping: The Legal Loophole
The most common tactic is called product hopping. It’s simple in theory: when a drug’s patent is about to expire, the company pulls the original version off the market and replaces it with a slightly modified version-like an extended-release pill, a new coating, or a different delivery method. The new version gets a new patent. The old one disappears. Why does this matter? Because state substitution laws only apply to the original drug. If the original is gone, pharmacists can’t substitute the generic. Patients are forced to switch to the new version-even if it costs ten times more. Take Namenda, a drug for Alzheimer’s. In 2014, Actavis withdrew the original immediate-release version and replaced it with Namenda XR, an extended-release tablet. Thirty days before generics could enter the market, the old version vanished. Patients couldn’t refill their original prescriptions. Pharmacists couldn’t substitute. Generics were locked out. The result? The price stayed high for years. The Second Circuit Court of Appeals ruled in 2016 that this wasn’t innovation-it was anticompetitive. The court said Actavis didn’t just introduce a new product. It destroyed the market for the old one to kill competition before it even started.Why Courts Are Split
Not all courts see it this way. In 2009, AstraZeneca switched patients from Prilosec to Nexium, a similar heartburn drug. But Prilosec stayed on the market. The court dismissed the antitrust claim, saying offering a new version was just competition. The difference? Availability. If the original drug is still sold, courts say consumers have a choice. If it’s pulled, they don’t. That’s why the Namenda case succeeded and the Nexium case didn’t. Another example is Suboxone, a drug for opioid addiction. Reckitt Benckiser pulled the tablet form and pushed a film version, claiming the tablets were unsafe. They even sent letters to doctors warning about the tablets. The FTC found this was a scare tactic. The tablets weren’t dangerous-they were just cheaper. The court agreed. Reckitt settled for $1.4 billion in 2020.
The REMS Trap: Blocking Generic Samples
Even if a generic company wants to enter the market, they need samples of the brand-name drug to prove their version works the same. That’s required by the FDA. Here’s the catch: brand-name companies control access to those samples. They use FDA-mandated safety programs called Risk Evaluation and Mitigation Strategies (REMS) to block access. They claim it’s for safety. But studies show more than 100 generic manufacturers have been denied samples. A 2017 study found that when REMS are abused, it costs consumers over $5 billion a year in delayed generic entry. The FTC calls this a textbook case of monopolization. Why? Because the conduct makes no economic sense unless it’s meant to hurt competitors.Who’s Winning? Who’s Losing?
The winners? Big Pharma. Between 2005 and 2020, the average price of brand-name drugs rose over 300%. Revlimid, a cancer drug, jumped from $6,000 to $24,000 per month. Humira, Keytruda, and Revlimid alone cost U.S. payers an estimated $167 billion more than they would have in Europe, where generic substitution is faster and harder to block. The losers? Patients. Medicare. Medicaid. Employers. Taxpayers. People who can’t afford their meds. One study showed that when product hopping works, generic market share drops from 80% to under 20%.
Enforcement Is Starting to Catch Up
The FTC has been fighting back. After its 2022 report on product hopping, the agency launched a wave of investigations. In the Namenda case, they got a court order forcing Actavis to keep selling the old version for 30 days after generics entered. In Suboxone, they forced Reckitt to pay billions in settlements. The Department of Justice has gone further. In 2023, Teva paid a $225 million criminal fine for price-fixing with other generic makers. Glenmark paid $30 million. These aren’t just civil cases-they’re criminal. The message is clear: manipulating the system won’t be tolerated. State attorneys general are also stepping in. New York sued Actavis in 2014 and won an injunction. California, Illinois, and others have followed.What’s Next?
The legal landscape is still messy. Some judges still see product hopping as innovation. Others see it as fraud. That inconsistency is why Congress is starting to act. In 2023, the House Appropriations Committee directed the FTC to propose new rules to close the loophole. Experts are pushing for three fixes:- Make it illegal to withdraw a drug solely to block generic substitution.
- Require brand companies to provide samples to generics without delay or restriction.
- Let pharmacists substitute generics even if the original drug is discontinued-as long as the generic is bioequivalent.
Why This Matters to You
If you or someone you know takes a chronic medication-diabetes, high blood pressure, depression, arthritis-you’re paying for this game. Every time a drug company delays a generic, you pay more. Insurance premiums go up. Government programs get stretched thinner. Pharmacies can’t help you save money. This isn’t about innovation. It’s about profit. And it’s happening right now, in pharmacies across the country. The fix isn’t complicated. Stop letting drugmakers pull the rug out from under substitution laws. Let generics do what they’re meant to do: bring down prices and save lives.What is product hopping in the pharmaceutical industry?
Product hopping is when a drug company withdraws an older version of a brand-name drug just before its patent expires and replaces it with a slightly modified version-like a new pill coating or extended-release formula. The goal is to block pharmacists from substituting cheaper generics, since substitution laws only apply to the original drug. This delays generic entry and keeps prices high.
Is it legal for a drug company to pull a medication off the market?
Yes, companies can legally discontinue a drug for business reasons. But if they do it specifically to block generic competition-like withdrawing the only version that can be substituted under state law-it may violate antitrust laws. Courts have ruled this way in cases like New York v. Actavis, where Namenda IR was pulled to stop generics.
How do REMS programs block generic drugs?
REMS are FDA safety programs meant to manage drug risks. But brand-name companies use them to deny generic manufacturers access to the samples they need to prove their version is safe and effective. Without samples, generics can’t get FDA approval. Over 100 generic firms have reported being blocked this way, costing consumers more than $5 billion a year in delayed competition.
Why don’t pharmacists just substitute generics anyway?
State substitution laws only allow pharmacists to swap a generic for the exact brand-name drug that was prescribed. If that drug is no longer available, the pharmacist can’t substitute-even if the generic exists. That’s why product hopping works: by removing the original drug, the company removes the legal basis for substitution.
What’s being done to stop these practices?
The FTC and DOJ have launched investigations and won major settlements, like the $1.4 billion deal with Reckitt over Suboxone. The FTC’s 2022 report pushed for legislative changes, and several states are now considering laws that let pharmacists substitute generics even if the brand drug is discontinued. Congress is also reviewing the issue, with hearings in 2023 targeting REMS abuse and product hopping.
How much money do these tactics cost consumers?
Experts estimate delayed generic entry through product hopping and REMS abuse costs U.S. patients and payers over $167 billion in just three drugs-Humira, Keytruda, and Revlimid-compared to what they’d pay in Europe. Revlimid’s price rose over 300% in 20 years. When product hopping works, generic market share drops from 80% to as low as 10-20%.
