The last year has been a roller coaster-ride of both successes and set-backs in the fight to eliminate pay-for delay settlements. These multi-million dollar sweetheart deals have been used more and more by brand-named drug makers to get their generic competitors to agree to delay bringing affordable generics to the market.

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

Undeterred, leaders in the House then included the measure in an appropriations bill approved on July 1st. But the Senate passed one appropriations bill on July 22 without the provision. In the aftermath of this setback, consumer champion Senator Herb Kohl (D-WI) and others succeeded in including this vital reform as an amendment to the FTC’s budget authorization. Kohl and others then  overcame the next major hurdle yesterday, narrowly stopping  drug industry lobbyist efforts to strip the measure in the Senate Appropriations Committee.

Yesterday’s vote was a dramatic one.  Senator Arlen Specter (D-PA) introduced an amendment to remove the pay-for-delay provision from the Committee bill. When four Democrats voted with Specter  to strip away the pay-for-delay provision, the AP reports 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.”
Recent settlements shielding $9 Billion in drug spending from generic competition

The Federal Trade Commission (FTC), which has consistently challenged these anti-competitive agreements in the courts and through testimonies before Congress, called yesterday’s vote a significant victory. FTC chairman Jon Leibowitz testified before Congress earlier this week that these types of pay-for-delay agreements, which delay the entry of generic drugs, are becoming more common (see graph). Legal decisions permitting these agreements have led to their proliferation from none in 2004 to a former high of 19 such agreements in 2009. The FTC notes that in just the first 9 months, the number of pay-for-delay settlements in fiscal year 2010 has already topped last year’s record high.

FTC-graph-PFD_Agreements_07-26-2010

Graph: Federal Trade Commission

The FTC’s preliminary analysis of the agreement filed this fiscal year concludes that 21 pay-for-delay agreements entered into this year are protecting $9 billion in prescription drug sales from generic competition. Combined with the earlier agreements in effect, this could mean that as much as $29 billion in annual spending on drugs are improperly shielded from generic challengers.  That is a significant loss of possible savings.  The FTC estimates (conservatively, in our opinion) that these settlements are costing consumers and our health system at least $3.5 billion a year.

FTC has continued to raise the alarm about these settlements, and their effect upon consumers. In a press release coinciding with testimony before Congress, FTC Chairman Jon Leibowitz summed it up:

“That’s almost an epidemic,” Chairman Leibowitz said, “and left untreated, these types of settlements will continue to insulate more and more drugs from competition. Every single FTC Commissioner, going back through the Bush and Clinton administrations, has supported stopping these unconscionable agreements.”
On the legal front, PAL continues to support efforts to do away will these settlements. PAL and AFSCME District Council 37 filed an amicus brief in May in support of the Second Circuit’s reconsideration of the legality of these agreements in the Cipro litigation. And the PAL-member lawsuit challenging the pay-for-delay settlements concerning Provigil continues.

FTC Chairman Leibowitz testified that some of these recent events, such as the Second Circuits Cipro decision and the fact that the House has already passed a ban on these settlements, gives him “reason to believe that the tide may be turning, both in the courts and in Congress.” Yet, Chairman Leibowitz wisely cautioned that bringing about such a reform through the Courts will take time, which means that  “legislation would be the most effective way to stop these deals.”

Thus the successful Senate Committee vote yesterday “means that consumers are one step closer to saving billions on their prescription drugs” according to Leibowitz.  And help can’t come too soon.  The bill’s Senate sponsor, Senator Herb Kohl, points out why:

“The cost of brand-named drugs rose nearly ten percent last year. In contrast, the cost of generic drugs fell by nearly ten 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.”
We view yesterday’s decision as a crucial step  to put legislation in place to end these agreements and foster consumer access to affordable generic drugs.