By Mark Huffman
ConsumerAffairs.com
June 25, 2009
Congress and the White House are busy with health care reform, of which a major focus is reducing health care expenses. The head of the Federal Trade Commission (FTC) says one way to help would be to eliminate "pay for delay" in the drug industry.
In a speech to the Center for American Progress in Washington, D.C., FTC Chairman Jon Leibowitz said an internal FTC analysis projects that stopping collusive "pay-for-delay" settlements between brand and generic pharmaceutical firms would save consumers $3.5 billion a year and also reap significant savings for the federal government, which pays approximately one-third of all prescription drug costs.
"Pay for delay" refers to the practice of a major pharmaceutical company reaching a settlement with a generic drug maker, paying the generic to delay production of a generic version of a more expensive name brand medication.
Leibowitz urged Congress to pass pending legislation to ban or restrict such anticompetitive patent settlements, in which manufacturers of brand-name drugs pay potential generic competitors to stay out of the market, as a way to control prescription drug costs, restore the benefits of generic competition, and help pay for health care reform.
"From my perspective, the decision about whether to restrict pay-for-delay settlements should be simple," Leibowitz said. "On the one hand, you have savings to American consumers of $35 billion or more over ten years — about $12 billion of which would be savings to the federal government — and the prospect of helping to pay for health care reform as well as the ability to set a clear national standard to stop anticompetitive conduct. On the other hand, you have a permissive legal regime that allows competitors to make collusive deals on the backs of consumers."
Leibowitz said eliminating pay-for-delay deals is one of the FTC's highest priorities. More than two decades ago, Congress passed the Hatch-Waxman Act, which was designed to make it easier for generic drugs to enter the market, while giving brand-name manufacturers the patent protection they need to encourage lifesaving research. While the legislation initially worked as intended, resulting in significantly lower prices for consumers through generic drugs, Leibowitz says drug companies eventually found they could delay generic entry by settling patent litigation using pay-for-delay tactics.
While the FTC successfully stopped such illegal payments earlier this decade, Leibowitz said recent appellate court decisions, beginning in 2005, have blessed these anticompetitive settlements. These decisions have "opened a Pandora's box of settlements" with generic firms competing to be the first to get paid off to stay out of the market instead of competing to be the first to come to market, he said.
A new agency analysis of available economic data provides useful information about the potential savings from banning pay-for-delay settlements. The analysis projects that eliminating such settlements could save consumers $3.5 billion each year, totaling $35 billion over a decade. The FTC data analysis, he said, provides further evidence of "the cost of failing to eliminate pay-for-delay patent settlements."
In addition, because the federal government currently pays about one-third of the nation's $235 billion prescription drug bill, prohibiting such anticompetitive settlements could save the government roughly $1.2 billion a year, or $12 billion over 10 years.
