A surprising decision in the Second Circuit has breathed new life into legal efforts to prevent drug makers from paying to keep generics off the market.

Since 2005, the drug industry has increasingly used multi-million dollar ‘pay-for-delay’ settlements to prevent generic drugs from coming to the market. The PAL coalition has opposed this industry collusion with lawsuits on Provigil, Tamoxifen, and Cipro, and through our support for legislation (introduced by Rep. Rush and Sen. Kohl). The FTC has also been a steadfast opponent of these anti-competitive agreements and their negative impacts on consumers. Unfortunately, the ability of FTC or PAL members to challenge these settlements in the courts has been hampered by a number of unfavorable legal decisions.

The Second Circuit’s Cipro Decision

The Second Circuit’s April 29th ruling did dismiss the challenge to the ‘pay-for-delay’ settlements totaling $398 million that have prevented a generic version of Cipro from coming to the market. But the Court did so begrudgingly, and then invited the folks bringing the lawsuit to ask the Second Circuit to revisit the question of whether these settlements are legal under anti-trust protections. Even more surprising, the Court then spelled out why. 

In their decision, the three judge panel stated that a review of the binding precedent established under Tamoxifen by the full nine-judge panel for the Second Circuit (called an ‘en banc review’) may be appropriate for four reasons: First, the Court said that United States Department of Justice has urged a review of this decision saying that “Tamoxifen adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny.” Second, the Court found that “there is evidence that the practice of entering into reverse exclusionary payment settlements has increased since we decided Tamoxifen.” Third, the panel stated that “after Tamoxifenwas decided, a principal drafter of the Hatch-Waxman Act criticized the settlement practice at issue.” Finally, the Court noted that the Tamoxifen decision was based in no small part on the now erroneous understanding that a pay-for-delay settlement with the first generic competitor would not prevent other generic competitors from attempting to followand file suit.

The 2005 Tamoxifen decision by the Second Circuit Court of Appeals (which covers New York, Vermont, Connecticut) dismissed an FTC order challenging a pay-for-delay settlement. The Tamoxifen Court ruled the practice legal under anti-trust law, because the settlement provided drug maker AstraZeneca with no more protection from generic competition than their patent already did.

This Tamoxifen decision, along with the Eleventh Circuit’s Schering-Plough decision in 2005, and Federal Circuit’s 2008 Cipro decision, have been mounting obstacles to consumer and FTC efforts to oppose these settlements. Only the Sixth Circuit, in its 2002 Cardizem decision, has held that such agreements to “eliminate competition” are a “per se illegal restraint on trade.”

When the Appeals Courts from different US Circuits arrive at differing legal standards, the US Supreme Court should resolve this inconsistency, or ‘split’ between the Courts. Indeed, the PAL-member lawsuits concerning Cipro and Tamoxifen asked the Supreme Court to do just that, as has the FTC. So far, all of these requests have been denied. But a possible reversal in the Second Circuit might change things.

Consumers, legal and medical experts, and the Administration all file briefs in opposition to continued legality of pay-for-delay settlements

Amicus briefs in support of the request for a reconsideration of the Tamoxifen standard were filed by PAL and PAL coalition member AFSCME DC37; AARP, AMA, and the Public Patent Foundation; Consumers Union, US Pirg, Consumer Federation of America, and the National Legislative Associaton on Prescription Drug Prices. Also filing briefs were the American Antitrust Institute, the FTC, and the Department of Justice’s Anti-Trust division.

The amicus brief for the Department of Justice argues that ”by shielding most private reverse settlement agreements from antitrust liability, the Tamoxifen standard improperly undermines the balance Congress struck in the Patent Act between the public interest in encouraging innovation and the public interest in competition.”

The amicus brief from the Federal Trade Commission (FTC) added three additional reasons to those stated by the Second Circuit panel. FTC argued that the Tamoxifen standard gives drug companies an improper incentive to pay off generic drug manufacturers and protect even the weakest patents.

Next, FTC noted that the number of pay-for-delay settlements had grown since 2005, to now insulate “at least $20 billion in sales of branded drugs from generic competition.”

The FTC estimates (very conservatively in our opinion) that these settlements will continue to cost $3.5 billion a year by delaying competition from lower-priced generics, but warned that these costs may grow.

 The amicus brief submitted by PAL and PAL member AFSCME District Council 37pointed out that these settlements have cost consumers and health plans $12 billion or more each year in lost savings on generic drugs, and the costs are likely to increase as brand-name drug prices go up (as they did by 9.2 % in the year ending on March 31, 2010) while generic drug prices decline (as they did by 9.7 % during this time period.) Aside from the effect that higher costs have on reducing access to needed medicines, PAL pointed out how these settlements threaten to reduce the quality of care for consumers by limiting the drug options available to them. PAL pointed out that consumers of the drug Provigil, which is protected from generic competition by a pay-for-delay settlement, end up entering the donut hole faster and paying huge sums out of pocket when their health plans refuse to cover the drug due to its high cost.

AARP, the AMA, and the Public Patent Foundation filed a brief arguing that these settlements threaten our health care system because they undermine consumer access to generic drugs, which have, on the whole, “saved consumers over $734 billion in the last 10 years.” AARP noted that “[e]ven 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 health care treatment and not having any treatment option at all.”

AARP’s brief warned that the Tamoxifen precedent will have long-term negative consequences on the well being of consumers because “when a generic pharmaceutical’s entry into the market is delayed, it limits treatment access to vulnerable patient populations and prolongs the difficulty that physicians have in prescribing affordable treatment options.”

An amicus brief filed by Consumers Union, Consumer Federation of America, U.S. PIRG and National Legislative Association of Prescription Drug Prices pointed out that the Tamoxifen decision allows the pay-for-delay settlements that “prevents patent challenges” which is contrary to the purpose of the Hatch-Waxman Act to “encourage[] patent challenges…..”

The American Antitrust Institute filed an amicus brief highlighting the anticompetitive nature of these settlements, and the Attorney Generals from 34 States filed an amicus noting that “the Cipro case is also of exceptional importance because the United States Supreme Court has refused to review the split between the Sixth and Eleventh Circuits.”

Industry use of these pay-for-delay settlements has driven up costs and prevented access to needed medicines for millions of consumers. This industry practice has prevented or delayed generic versions of the drugs Cipro, Provigil, Androgel, and many other drugs that amount to $20 billion of our nation’s current $278 billion in drug spending, according to the FTC.

PAL, Community Catalyst, and dozens of PAL coalition members have opposed these settlements through lawsuits and legislative advocacy. Please contact us if you would like to join in our work to oppose these anti-competitive settlements.

 — by Emily Cutrell and Wells Wilkinson

The White House, in its efforts to line up industry support for health reform, announced an agreement this spring with the Pharmaceutical Researchers and Manufacturers of America (PhRMA) to discount senior drug costs and save $80 billion over the next decade.  PhRMA has announced that it will finance new ads in support of health reform—it has helped advocates like Families USA with previous ad campaigns.  However, with House leaders now proposing to go further in reining in excessive drug costs, there is speculation that PhRMA might pull its support if the House drives too hard a bargain.  But PhRMA should be supporting health reform—it’s not only good for the country, but good for the industry when more patients are insured and become new customers for their products. 

While details are scant, a recently leaked memo describes the deal as including: $25 billion in savings through a half-price discount for seniors buying brand name drugs in the ‘donut hole’ under Medicare Part-D; $34 billion in increased rebates under Medicaid; $12 billion through an industry fee or tax, and some $9 billion in savings on biologics.  Any mechanisms to ensure oversight and reliable pre-discount drug pricing are not clear.  

Controversy has now erupted, however, over drug pricing issues that affect the cost of health reform.  House Speaker Nancy Pelosi has said that “the House was not bound by any industry deals with the Senate or the White House.”   House Energy and Commerce Committee Chairman Henry Waxman (D-CA) also said that the House would not be obligated to abide by the agreement.  On July 31^st House democrats added new drug provisions in the House Committee on Energy and Commerce mark-up of its bill,  America’s Affordable Health Choices Act of 2009, H.R. 3200.  

H.R. 3200 includes an amendment introduced by Representative Schakowsky (D-IL) which allows the federal government to negotiate lower drug prices on behalf of senior citizens and persons with disabilities covered under Medicare Part D.  PhRMA quickly cried ‘foul’ and claimed that part of their deal was the administration’s promise to not pursue any other cost-cutting proposals.  They claimed that Schakowsky’s amendment would be a ‘deal breaker.’  But proponents are quick to point out that the potential savings for consumers and government payors are significant, and could easily exceed the PhRMA deal’s $80 billion over-ten-years.  

In the days following the release of H.R. 3200, the White House seems to have pulled back on its previous description of the agreement with PhaRMA. Huffington Post   $8 million in annual savings on a yearly drug tab in excess of over $200 billion nationwide seems to leave a lot on the table that we hope will be up for negotiation over the course of hammering out a final health care agreement.  

Another important provision in the House health care reform bill was a successful amendment by Rep. Rush (D-IL) would prohibit the ‘pay-for-delay’ settlements that drug manufacturers have used to keep generic competitors off the market.  (See more info here). Thees anti-competitive agreements, also called reverse payment settlements, have kept generic versions of several drugs off the market since 2005. The FTC conservatively estimates that banning such ‘pay-for-delay’ or ‘reverse-payment’ settlements would save $35 billion dollars over the next decade.

In addition Rep. Baldwin (D-WI) successfully introduced an amendment that wouldrequire the disclosure of financial relationships between pharmacy benefit managers (PBMs) and drug manufacturers.  PBMs manage insurers’ prescription drug benefits, including creating formularies of preferred medicines, negotiating discounts with drug manufacturers, and negotiating reimbursement rates with retail pharmacies that fill prescriptions.  Under Rep. Baldwin’s amendment, all PBMs must provide, to both their client health plans and to the federal government, a confidential annual accounting of all payments and rebates they receive from drug manufacturers in relation to the prescriptions filled.  In addition, the PBM must report, in aggregate, how much they paid pharmacists to fill all prescriptions. 

These two classes of information are essential for health plans to ensure that their formularies are designed to lower costs and not to maximize rebates often alleged to be retained by the PBM.  It would help ensure that the conflict of interest that PBMs face is not working against the fundamental purpose of PBMs to manage formularies that reduce costs.  Similar disclosure provisions have been enacted under state law in Maine and the District of Columbia even withstanding legal challenges.  Maryland, Iowa, South Dakota, and Vermont have also enacted state PBM reform measures.  In South Dakota, the state saved more than $800,000 on health insurance costs in one year after enacting its law.  Kansas, Mississippi, North Dakota, Rhode Island, Tennessee, Connecticut, Georgia, Louisiana, and Arkansas have also taken steps towards PBM transparency.  For example, through an audit of the PBM which manages the state employee health program, Arkansas discovered that in a three-month period, the state was overcharged by nearly $500,000.  The experience of these states demonstrates that increased PBM transparency has the potential to yield significant savings for public and private insurers.  

It’s open enrollment season for seniors joining or changing their prescription drug coverage, so advice abounds on how to choose a Part D plan, how to comparison shop, etc. But what about once you’re on a plan? Merrill Goozner, of Gooznews, wrote a post last week about why the government isn’t tracking how many seniors are falling into the infamous donut hole, the gap in coverage during which your Part D pays nothing towards your drug costs:

Beyond the Donut Hole: Who’s Watching?

The famous donut hole in the Medicare prescription drug benefit — where seniors have to pick up 100 percent of costs once total expenses go beyond $2,400 a year until it hits $3,850 — was a major bone of contention when the bill passed in 2003. So you’d think the Center for Medicare and Medicaid Services would keep a close eye on how many seniors are falling into the donut hole so they can make sure they get picked up once their drug costs go above the $3,850 mark.

As they like to say in New York: fuhgeddaboudit. A new report from Health and Human Services department Inspector General Daniel Levinson shows that nearly a third of insurance companies selling drug benefit plans to seniors have not bothered to report to CMS how many seniors have fallen into the donut hole. The law required the reports.

And what is CMS doing aobut it? The agency said it had received “few complaints” from beneficiaries about companies failing to accurately calculate their out-of-pocket costs, but it would work to improve its reporting system for drug companies.

Bottom line: Seniors should closely track of their own bills to make sure their insurance companies start paying the catastrophic benefit when they reach $3,850. It’s either that or rely on your insurance company, since this government isn’t paying attention.

So, seniors with Part D plans, caveat emptor!