Second Circuit takes a pass on reviewing the legality of pay-for-delay settlements
A negative court decision before the Second Circuit this week underscores the importance of passing federal legislation to ban ‘pay-for-delay’ settlements in order to preserve access to affordable, quality prescription drug benefits. At issue is the drug industry practice of paying off generic competitors of expensive brand-name drugs to delay access to low-cost generics. See our earlier blogs here and here.
On Tuesday, the Second Circuit issued a decision on the legality of pay-for-delay settlements concerning the drug Cipro that dealt a blow to consumer advocates and consumer protection attorneys challenging these collusive agreements in court. The decision rebuffed the Federal Trade Commission, the Department of Justice, and a group of State Attorneys-General, all of whom asked the Court to re-evaluate an earlier precedent from 2005 that allowed such ‘pay-for-delay’ settlements.
While the attorneys ponder whether to appeal the case to the Supreme Court, the importance of a legislative solution to this problem becomes even more clear.
Current legislation before the U.S. Senate proposed by Senators Herb Kohl (D-WI) and Richard Durbin (D-IL) would create a presumption that any drug patent settlement that exchanges a payment in return for an agreement to delay bringing a generic to the market is a violation of anti-trust law. The bill gives the FTC the tools to challenge such settlements. However, it still allows the drug companies to prove that a settlement is not a collusive agreement, but a legitimate effort to avoid the time and costs of litigation.
Why is a ban on pay-for-delay settlements important? Since 2005, Congress has responded to concerns about potential collusion by requiring the drug industry to file any settlement of patent litigation concerning a generic drug under seal with the FTC. Since 2004, the FTC has reviewed these settlements, and found that an increasing number of ‘pay-for-delay’ sweetheart deals have been made since the courts started to allow them in 2005. Last fiscal year, a record 19 such pay-for-delay deals were made. By the nine month mark of this fiscal year on June 30, the record was broken, with 21 new pay-for-delay settlements.
These settlements have prevented billions of dollars in possible savings, by preventing generic drugs from being available. At a time when consumer advocacy groups like AARP are documenting exhorbitant price increases for brand-name drugs, generic drugs are the best solution. Another recent report found that every 2% increase in generic use saves Medicaid $1 billion a year.
The FTC, which reviews these agreements, reported in January 2010 that $20 billion dollars in annual brand-name drug spending was being insulated from generic competition by pay-for-delay sweetheart deals. Then, in July, the FTC reported that new pay-for-delay deals were shielding another $9 billion in drug spending from market competition.
How does this impact consumers? The FTC reports that pay-for-delay settlements keep a generic drug off the market for an average of 17 months. The FTC estimates that being forced to take a brand-name drug costing $300 per month, instead of a generic costing $30, would increase a consumer’s health cost by $4,590 over that 17-month period. Drugs that cost more, or that have longer delays, will cost even more.
If a robust, competitive market is to play a role in our new health care system, shielding nearly ten percent of all annual brand-name drug sales from market competition will only allow drug company price increases to continue depleting more and more of our health care resources, while putting more patient care at risk.
In a brief filed with the court, the AMA and AARP described having access to a generic drug improves the quality of patient care:
The price of a brand drug can be prohibitive for uninsured patients who do not have help covering the cost of their prescription drugs. Even for those patients who are insured but who are on fixed or limited incomes, having a generic option is often the difference between having access to a health care treatment and not having any treatment option at all.
And the lawsuit filed by PAL member AFSCME District Council 37in 2006 is challenging the pay-for-delay settlements concerning the drug Provigil, used to treat narcolepsy. This lawsuit has revealed how the lack of competition reduces patients’ quality of life or quality of care when an insurance company refuses to pay for a high-cost brand-name drug. A pastor from Ohio reports that after
paying almost $17,000 in annual premiums for my family [health insurance plan, l] ast year, I was paying around $650/month [for Provigil. I]t now costs me $852/month. That is out of pocket money I have to come up with until later in the year when I reach my deductable and I can enjoy a few months of only paying $60/month. I cannot describe to you how much stress and difficulty this has caused for me and my family the last several years. As you can imagine, with my income, I often cannot afford to refill my prescription. I often take 1/2 or 3/4 of my dosage on days I know I won’t be driving much so I can delay getting a refill. But I do a lot of driving for my work, so I am forced to spend lots of money I don’t have just so I can be safe driving.
To find out how you can support legislation to prevent these pay-for-delay settlements, please contact us!
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.
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.
PAL’s most important lawsuit and settlement to date wins final approval!
Yesterday, the Massachusetts federal District Court approved class action settlements with publishers First Databank and MediSpan that will require the roll back the illegally inflated prices of over 400 drugs!
PAL coalition members AFSCME District Council 37 Health and Security Plan in New York, and New England Carpenters Health Benefit Fund here in Boston brought the lawsuit against these two publishers, and the pharmaceutical wholesaler McKesson, for their role in unilaterally raising the prices of over 400 drugs through their alleged manipulation of the published “average wholesale price” or AWP. Though the system of pharmaceutical pricing and reimbursement is complex, the AWP is a benchmark that is used by insurers and government programs to reimburse pharmacies. It also effects the cost to cash-paying customers. It is alleged that defendants First Databank, Medispan, and McKesson raised the AWP, while keeping the actual cost (called a ‘wholesale acquisition cost’) the same. This done to give the large chain and other pharmacies, many of which are McKesson’s customers, an increased return on each of these drugs.
It has been estimated that this 5% increase in the cost of hundreds of drugs by the defendants may have cost consumers, insurers, and government programs over $2 billion in additional drug expenses.
It is estimated that the “rollback” of the price of these 400 drugs could yield between $1.5 Billion or more in future savings on drug costs. Perhaps of even greater importance, this lawsuit, along with other litigation (AWP, Remicade, Lupron) by PAL members, has exposed the weaknesses of the pharmaceutical pricing system that have allowed drug makers and wholesalers to manipulate or “game” the benchmark prices that government programs and insurers use for reimbursement.
The Judge in the case did allow a six month delay before the rollback of the drug prices, ” to alleviate the impact on independent and rural pharmacies.” This addressed the concern raised that small ‘mom and pop’ pharmacies may be forced to bear the full cost of the price rollback if they were unable to renegotiate their supply contracts for drugs with manufacturers and wholesalers.
The settlement also provides $2.7 million to be distributed along with the $350 Million in the preliminary McKesson settlement.
Thanks to PAL members New England Carpenters Health Benefit Fund, and AFSCME District Council 37 Health and Security Plan in New York for their work in bringing this important lawsuit.
President Bush’s veto of a bill to expand SCHIP, the State Children’s Health Insurance Program, has been all over the news recently. The bill would have expanded health coverage to 3.8 million children who don’t already have it.
A number of organizations in the PAL coalition, AFL-CIO, USAction, AFSCME (the American Federation of State, County and Municipal Employees, and SEIU (Service Employees International Union) have joined the “Campaign to Save Children’s Healthcare.” The campaigns aims to get at least 15 of the 45 Republicans who voted against the bill to change their minds and vote for it on Oct. 18, in order to override the President’s veto.
The campaign is running an ads on television and radio, organizing call-ins, and other activities. Here’s the great ad put together by the Campaign:
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