Today’s New York Times reports that PHARMA has finally staked out their agenda in health care reform – avoiding cost controls, and keeping generics off the market.

An undisclosed deal announced this past Sunday between the drug industry, Sen. Baucus, and the Obama administration would help pay as much as half the cost of brand name drugs for seniors in the costly ‘donut hole’ under Medicare. (Currently, a Prescription Drug Plan regulated under Medicare Part D pays three fourths of the first $2,700 in yearly prescription costs, but then stops at the ‘donut hole.’ This forces the consumer to pay all of the next $3,454 in costs out of pocket. Medicare Part D coverage starts back up when the drug costs exceed $6,100.)

Due in part to the continually rising costs of prescription drugs, a fourth of Medicare beneficiaries hit their donut hole. One out of seven of the seniors who hit the donut hole then stop taking their medications due to cost.

A White House spokesperson notes that the deal would save these elderly consumers $30 billion over the next 10 years, but that an additional $50 billion would go to the federal government over the next decade, possibly in the form of rebates to Medicaid or other federal programs purchasing drugs.

While proposals to control or reduce drug costs are needed, our experience with drug pricing fraud by the drug industry teaches us that reliable and transparent price benchmarks are needed to keep this proposal from being a sham. For instance, a nationwide class action lawsuit by PAL members revealed that drug wholesaler McKesson Corp. manipulated reported prices that were used as reimbursement benchmarks, which cost Medicaid, private insurers, and consumers over $7 billion from 2001 to 2005. Another PAL class action lawsuit revealed that over 13 of the largest drug manufacturers engaged in a scheme between 1991 and 2004 to inflate their reported reimbursement prices on doctor-administered drugs, costing Medicare part B, insurers, and consumers billions of dollars.

Finally, a government report from 2006 showed that even when the federal government negotiates contracts with drug makers that guarantee federally funded community health centers the best possible price, the drug industry failed to comply with the contracts, costing hundreds of millions of dollars each month, and possibly billions of dollars a year. In this case, lax monitoring and enforcement by HHS left community health centers and other front-line government programs with little recourse.

These lawsuits and other lessons illustrate the need for full transparency, to allow consumers advocates to monitor progress, and ensure that Medicare consumers truly benefit from this proposal.

In addition to heading off cost controls, the other prong of the drug industry’s agenda is to shoulder aside their generic competitors. As pointed out in today’s Wall Street Journal, this ‘discount program’ may actually discourage seniors on Medicare from switching to less expensive generic drugs.

PHARMA has also come out against legislation that would prevent brand name drug companies from paying their generic rivals to delay bringing new generics to the market. These “pay-for-delay” settlements have become common since 2005, and have cost consumers and insurers an estimated $12 billion a year in lost savings.

For instance, the current class action lawsuit by PAL member AFSCME District Council 37 has challenged multiple settlements between Cephalon Corp. and generic manufacturers Teva, Barr, Mylan, and Ranbaxy. These settlements, totaling up to $136 million dollars, have stopped all four of these generic companies from bringing a generic version of the drug Provigil to the market.

The House version of the bill to prevent “pay-for-delay” settlements, HR 1706, passed an important hurdle on June 3rd, when it was approved by the House Subcommittee on Commerce, Trade, and Consumer Protection, and sent to the full Committee on Energy and Commerce. The NY Times reports that the Senate version of the bill, S. 369, is poised for a vote this week.

The Times article noted that President Obama’s budget criticized these settlements as “anticompetitive agreements” that keep generic drugs off the market. The FTC, which continues to challenge the anti-competitive nature of these settlements in court, sees consumers being harmed. FTC chairman Jon Leibowitz said that allowing these settlements to continue would cost consumers tens of billions of dollars in the next decade. According to the Times, Mr. Leibowitz cautioned that

“Drug companies are lobbying furiously against the legislation because they want to preserve their monopoly profits at the expense of consumers.”

The Times article also made clear that Pharma has launched their own dis-information campaign on the bills. Pharma made the outrageous claims that these anti-competitive agreements benefitted consumers because they “avoided litigation and allowed generic drugs to enter the market before drug patents expired.”

However, in case after case (K-Dur, Tamoxifen, Cipro) these settlements have prevented generic versions of brand name drugs from becoming available to consumers. How?

These settlements, often for many millions of dollars, allow brand name companies to ‘buy-off’ their generic competitors with multi-million dollar payments that are far in excess of the profit margin on a new generic drug. This lets the brand name drug continue its exclusive sales, guaranteeing them hundreds of millions, if not billions of dollars free from competition.

These “pay-for-delay” settlements are likely to arise in current litigation on the validity of patents for the drugs OxyContin, Protonix. and Wellbutrin.

You can help. Please contact your Congressperson or Senator, and urge them to support HR. 1706/S. 369. If you are part of an organization, please contact us to sign on to a letter of support of these bills.

The New Jersey Star Ledger reports today, “FDA steps up generic drug program“.

The FDA said it will step up a program giving priority and expedited review for drugs that currently have no generic alternative, and hopes to add new generic drug reviewers to the 215 staff members now working on generic drug applications.

In addition, the FDA said it will focus on enhancing use of electronic programs for handling generic drug submissions and internal documents, and seek help and resources from other FDA departments when needed.

The backlog of generic drug applications has been growing:

The agency said it approved 682 generic drugs in fiscal 2007, 30 percent more than in the previous year. But the backlog is now more than 1,300 drugs, up from 780 at the end of 2005. The FDA said approval times average between 16 and 17 months, even though the law requires generic drug applications to be processed within six months.

Each of these delayed applications represents money that consumers and the health care system are forced to overpay every day — as long as there is no generic equivalent on the market, there is no competition and the brand-name manufacturer can charge whatever the market will bear.

The backlog at the FDA is just one of many factors that are depriving consumers of access to cheaper, safe and equally effective generic drugs. The brand-name drug industry seems to have devoted more of its creative energy to erecting ever greater barriers to generic drugs than to researching genuinely helpful new drugs. These barriers include:

• Frivolous Citizen Petitions: Brand-name drug companies routinely file FDA “citizen petitions” raising alleged problems with generic drug approval applications. These petitions force the FDA to put the application on hold while they review the allegations. It is a very effective way for a brand-name company to delay the approval of a generic. Fortunately, the recently enacted FDA Amendments Act of 2007 attempts to address this, by prohibiting the FDA from delaying the approval of a generic drug when a citizen petition has been filed unless it is determined that “a delay is necessary to protect the public health.” It remains to be seen whether the FDA will routinely find that such petitions raise such public health concerns or not. No doubt brand-name drug companies will argue strenuously in every petition that the sky will fall if the generic is approved.
• Patent infringement lawsuits: When a generic drug company seeks approval of a generic on the grounds that the brand-name company’s patent is invalid, the brand-name company gets an amazingly generous gift under current law: The right to sue the generic company for patent infringement before a single pill is ever produced. And there’s a bonus: They get an added 30 months on their patent monopoly. This provides an incentive to file a patent lawsuit that is near-irresistible, even if the lawsuit is frivolous, as such lawsuits too often are.
• Authorized Generics: The first generic drug company that sticks its neck out and undergoes the time and expense of being the first to request FDA approval for a generic version gets 6 months to be the only generic version of a brand-name drug on the market. This “180 day exclusivity period” allows them to recoup the costs of defending against a patent infringement lawsuit, waiting (and wading) through the delayed FDA approval process, etc. But brand-name drug companies have exploited a loophole — when the first generic drug comes on the market, the brand-name company introduces a fake generic — what they call an “authorized generic” — which is the brand-name maker’s own pill, sold through another drug company. This deprives the generic drug company that went through the time and expense of being first from fully recouping their costs and enjoying the 6 months of exclusivity they are entitled to under the law.
• Reverse payment settlements: These are settlements of the patent infringement lawsuits described above, in which the brand-name company pays off the generic company not to introduce a generic for some period of years. These collusive agreements have amazingly been found by various courts not to be illegal antitrust violations, on the notion that the law favors settlements of lawsuits, and that these settlements often result in the generic being available sooner than if the generic just waited for the patent to expire — an observation that ignores the fact that the generic would be available much sooner if it is in fact determined that the patent was invalid all along. PAL and 20 of our coalition organizations have gone on record supporting the Protecting Consumer Access to Generic Drugs Act of 2007, which would ban these collusive anti-consumer agreements.

This is just a partial list of the tactics that brand-name drug companies use to keep cheaper generics out of consumers’ hands and maintain high drug prices. The FDA’s moves to increase the staff who review generic drug applications will hopefully help ease the backlog and thus get more generic drugs on pharmacy shelves quicker. But as long as these other obstacles remain, we’re just tinkering at the edges of the problem.