In addition to the high-profile cases on marriage equality that are slated for consideration this week, another crucial legal battle that begins on Monday could have huge implications for the future of the health care industry. Federal Trade Commission (FTC) v. Actavis could save consumers and the government hundreds of billions of dollars in health care spending, prompting one plaintiff to dub it “the health care reform case of 2013.”
The case centers on the widespread and arguably collusive practice of “reverse payment” settlements — commonly referred to as “pay for delay” — between brand name drug manufacturers and their cheaper generic drug counterparts. Such arrangements involve brand name drug makers paying off generic manufacturers to delay a generic drug’s release into the market, allowing the brand name producers to further profit off of their significantly more expensive drugs:
Congress saw the difference that generic drugs could make in health care spending when in 1984 it passed the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act.
That law, together with amendments passed roughly 20 years later, encouraged generic drug makers to challenge the patents protecting lucrative brand-name drugs.
But a loophole in the law has turned the theory of patent infringement on its head, allowing a brand-name company to pay the generic drug maker to keep its low-price version off the market for a given number of years. That is the opposite of how a patent-infringement case is usually settled, with the generic infringer paying the brand-name patent holder. Thus, the deals are known as “reverse payment” settlements.
These schemes cost American consumers as much as $3.5 billion every year by delaying access to relatively cheap generic drugs and keeping prescription drug costs unnecessarily high, despite recent drops in drug spending driven by the greater use of generics. In fact, brand name drugs only constituted “18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending,” and Big Pharma companies use the massive profit margins produced by that dynamic to effectively silence their competitors by offering a deal that’s too good to refuse. Brand name and generic drug makers — who both have plenty to gain financially through the shoddy arrangements — argue that such deals are actually beneficial for the consumer, as expensive patent lawsuits between the two industries could end up delaying a generic drug’s release even further.
But that argument is a smokescreen that ignores Congress’ original intent in passing the Drug Price Competition Act. It is an unintended consequence — as confirmed by none other than bill author Rep. Henry Waxman (D-CA) himself. In an amicus brief filed with the Court urging the justices to side with the FTC, Waxman wrote, “The Hatch-Waxman Amendments’ intention was to promote competition by generic drug manufacturers. The possibility of agreements such as those involved in this case is an unintended consequence of the legislation. Hatch-Waxman was never intended to foster such agreements, still less to render the antitrust laws’ prohibition of anticompetitive agreements among competitors inapplicable to agreements allowing generic manufacturers to exact a potion of a brand-name manufacturer’s monopoly profits in return for withholding entry into the market.”