Pharmaceutical companies charge Americans two-to-three times more for the most popular brand-name prescription drugs than they charge in other countries. But that’s not the only way they gouge Americans. Some brand-name drug makers also arrange payments to makers of generic drugs to delay their introduction of new generic versions of popular drugs. A group of House lawmakers who want the health care reform bill to ban such deals says they cost American patients billions of dollars a year in higher prices, and amount to collusion to prop up monopoly pricing. They’re right on all points.
The Federal Trade Commission has been tracking what critics call “pay for delay” deals the past five years. In that period, such deals jumped from three in 2005, to 14 in 2006-07, to 16 in 2008, and to 19 in 2009. The FTC says such deals now cost Americans $3.5 billion a year in higher prices for drugs over what those drugs likely would cost in generic form.
Drug companies of both stripes — brand-name and generic drug makers — argue it’s more complicated than that. They contend that payments from brand-name drug makers to generic drug makers generally come in the form of settlements and manufacturing agreements that center around generic-makers’ challenges to patents before — often years before — the patent of a particular drug expires.
Early challenges to drug patents are encouraged under the Hatch-Waxman Act of 1984, a law passed to promote greater use of generics to help reduce health care spending on expensive patented drugs. The act provides a successful generic challenger the exclusive right to produce a generic version of the contested drug for six months before other generic drug companies may start their own versions.
Drug companies on both sides say the settlements, which may involve ingredient supply deals or co-production, typically represent a compromise by both. In some cases, patents are particularly strong, such as patents based on the creation of the active ingredient. In other cases, such as those that involve a formula for ingredients, patents may be weaker and highly contestable.