The Upcoming Supreme Court Case That Could Dramatically Reduce Health Care Costs

The Supreme Court is already preparing to take up several game-changing cases next year on issues ranging from human gene patenting to promoting the off-label use of drugs. And now the nation’s highest court is slated to hear another landmark case within the pharmaceutical industry that could have enormous ramifications for Americans’ prescription drug costs.

Federal Trade Commission v. Watson Pharmaceuticals addresses the widespread practice of “pay for delay,” a scheme in which brand name drug manufacturers — whose products are considerably more expensive than their generic counterparts — pay off generic drug manufacturers in exchange for their consent to delay the release of a drug’s generic version into the market. While the drug industry claims the controversial practice is more efficient than potential costly patenting lawsuits over similar drugs, federal trade regulators argue that it actually serves to line industry pockets at the expense of American consumers:

“This is the health care reform case of 2013,” said David Balto, a former FTC policy director who helped file the first lawsuit against pay-for-delay deals back in the 1990s.

“There’s no other case that can have as much impact on reducing health care costs.”

The FTC has estimated the deals cost consumers $3.5 billion annually by delaying access to cheaper generics, an estimate disputed by pharmaceutical companies. The Congressional Budget Office estimated that legislation introduced to restrict the deals would save the government more than $2.5 billion over 10 years in federal health care spending. […]


FTC Chairman Jon Leibowitz has made the delay-deals a signature issue, arguing that they illegally prop up profits for drug companies at the expense of consumers. And in July, the U.S. Court of Appeals for the 3rd Circuit sided with the FTC, upsetting more than 10 years of precedent upholding the arrangements.

The case is particularly relevant in an era of skyrocketing brand name drug prices. Proposals to lower Medicare spending without harming benefits also often involve negotiating Medicaid drug rebate rates for Medicare beneficiaries — a tactic that would benefit even further from the earlier release of generic drugs.