A significant vote by the Senate Appropriations Committee last week has focused renewed attention on vital cost-saving reforms on prescription drugs that failed to make it into health reform. At issue is the drug industry practice of paying off generic competitors of expensive brand-name drugs to delay access to low-cost generics. Community Catalyst has opposed this practice through our advocacy and with consumer class action lawsuits through our Prescription Access Litigation project.

How serious are these multi-million dollar sweetheart deals that prevent consumer and health system savings? The Federal Trade Commission, the federal government’s consumer protection watchdog, reported in January that these agreements delay the entry of generic drugs into the market by an average of 17 months. Given that generic entry can reduce the price of branded drugs by up to 90 percent, the FTC estimates conservatively that the cost of these delays is at least $3.5 billion in lost savings per year.

Through these pay for delay deals, the brand-named drug manufacturer gets to continue to be the exclusive seller of the drug and the generic manufacturer makes money for not bringing a generic (non-patented) version of the drug to market. It is then left to consumers and the government to pay the price for the high drug costs that result from these agreements.

21 new pay-for-delay deals in 2010 may cost consumers and the health care system $9 billion

The FTC warned in recent Congressional testimony that pay-for-delay agreements are becoming more common and have reached the point of being “almost an epidemic” (see graph). Deals rose from only three in 2005 to 19 last year and 21 in the first nine months of 2010. This dramatic increase followed court decisions since 2005 by a few appellate courts that, according to FTC, “misapplied the antitrust law” to uphold these agreements as not anticompetitive.

Federal Trade Commission

The FTC’s preliminary analysis of the 21 agreements filed this fiscal year concludes that they cost $9 billion in lost savings. Past pay-for-delay agreements to date are estimated by FTC to cost all public and private purchasers at least $20 billion — an estimate that may rise given the current spike in agreements. FTC estimates that these settlements cost consumers and our health system at least $3.5 billion a year, while other experts suggest that the potential total savings could be closer to $12 billion a year if pay-for-delay settlements were ended.

The federal government — and health reform sustainability — would benefit greatly from banning these agreements. The Congressional Budget Office estimated the savings to the federal government alone of around $2.6 billion over the next ten years.

Legislative History

A bill to ban these agreements was included in the House’s health care reform proposal last fall. Unfortunately, though a similar measure was supported by the White House and considered by the Senate, the procedural and jurisdictional rules in the Senate kept the measure from being included in the national health reform bill enacted last March.

House leaders were undeterred by this set-back and added language banning these deals to an appropriations bill approved on July 1st. Unfortunately, the Senate went on to strike this provision from an appropriations bill they subsequently approved. But two weeks ago, the bill’s longtime advocate, Senator Herb Kohl (D-WI), along with Senator Richard Durbin, succeeded in including this provision as an amendment to the Senate’s Financial Services and General Government Appropriations Act.

On July 29th, an effort by pharma to strip this provision was narrowly defeated in the Senate Appropriations Committee. Senator Arlen Specter (D-PA) had introduced an amendment to strip the provision from the Committee bill, and when four other Democrats voted with Specter, the Associated Press reported that:

“Drug company lobbyists in the audience thought they had the vote won, provided they could win over every panel Republican. But Sen. Richard Shelby, R-Ala., voted against the drug companies, helping give Kohl and Durbin [the author of the Appropriations Bill] a surprise win.”

The successful Senate Committee vote signaled to FTC Chairman Leibowitz that “the tide may be turning,” and that “consumers are one step closer to saving billions on their prescription drugs.”   The bill’s Senate sponsor, Senator Kohl, pointed out why this decision can’t come soon enough:

“The cost of brand-named drugs rose nearly 10 percent last year. In contrast, the cost of generic drugs fell by nearly 10 percent. At this time of spiraling health care costs, we cannot turn a blind eye to these anticompetitive backroom deals that deny consumers access to affordable generic drugs.”

This recent vote is a crucial step. The potential savings to both consumers and the government is substantial and is particularly important in these turbulent financial times. A New York Times editorial this week emphasized that these potential savings “would reduce the federal deficit by $2.6 billion over the next decade, freeing up money for worthy programs that would otherwise be cut.”

Why should we allow these agreements to continue to the financial benefit of only a small subset of the U.S. population when the savings that would result from banning these agreements could benefit a far greater number of individuals? It is about time for the pay-for-delay settlement to meet its long-awaited demise.

The final vote in Congress on the Appropriations bill will likely come sometime after the election. It will take vigilance and aggressive action by supporters to combat PhRMA’s tactics again — just last week they released a new report disputing the FTC analysis. But in Pharmalot, an FTC representative states: “The pharmaceutical industry can fund as many studies as it wants, but it can’t change the facts — these pay-for-delay deals cost consumers $3.5 billion a year.”

— Emily Cutrell, legal intern — Wells Wilkinson, Director of Prescription Access Litigation project