Will US Senate Address Pay-for-Delay Agreements?

A controversial aspect of the operation of pharmaceutical manufacturing firms that continues to be an issue is the use of “pay-for-delay” contracts.¹ “Pay-for-delay” refers to a system in which a brand name drug manufacturer engages in a contract with a generic drug manufacturer. In such a contract, the generic drug manufacturer agrees to delay marketing its drug product in exchange for some benefit, most often a monetary payment.²

Brand name drug manufacturers have adopted this approach in order to manage competition, violating the basic principles that govern the pharmaceutical patent system. When a brand name drug patent expires, prices should decrease as generic manufacturers enter the market, decreasing costs to patients and health insurance companies.³ The purpose of the patent system is to motivate companies to perform costly research and development by allowing them market exclusivity to facilitate regaining the funds they have invested.

Manufacturers can use pay-for-delay arrangements to take advantage of the monopoly created by the patent system. With pay-for-delay contracts, manufacturers are essentially extending the market monopoly conferred by the federal patent laws.

The Preserve Access to Affordable Care Act (S. 2019) is a bill that has been introduced in the Senate with the goal of prohibiting brand name drug manufacturers from compensating generic manufacturers in order to delay entry of generics into the marketplace. The bill is an amendment to the Federal Trade Commission (FTC) Act (15 U.S.C. §44 et seq.) and was introduced in the US Senate by Senator Amy Klobuchar of Minnesota on September 9, 2015. Upon review, it was referred to the Committee on the Judiciary. If enacted, this bill will make pay-for-delay contracts illegal, including monetary payments and any form of benefit to generic manufacturers.⁴

The FTC has very actively voiced its rejection of the legality of pay-for-delay policies. The agency’s disapproval of these contracts stems from the legal basis of the antitrust statutes.² Antitrust laws work to protect competition by inhibiting business behaviors that can set prices irrationally high, and well above the market equilibrium. Because brand name and generic manufacturers essentially agree to mutually benefit while inflating prices, pay-for-delay contracts appear to directly breach these laws.

There is a clear call for legislation banning these contracts. Numerous cases involving the contracts have been brought before federal courts over the past few decades. Individual court rulings have been plagued with variances and differential outcomes, frequently depending on the specific facts of the arrangement in question.² This proposed legislation would provide a much more expedient and comprehensive method for dealing with pay-for-delay contracts as they arise.

The incidence of pay-for-delay contracts continues to increase as manufacturers on both sides of these deals get more creative. The results of an FTC study concluded that these contracts led to $3.5 billion in additional costs for pharmaceuticals annually.⁵ This monetary burden is directly passed on to consumers, health insurance firms, and government. In 2008, $235 billion was spent on prescription drugs in the United States, and the government funded 31% of that value. It is anticipated that the percentage will rise to 40% over the next 2 years.² This increase, which is partly fueled by pay-for-delay contracts, represents a large amount of unnecessary government spending.

In July 2013, US PIRG, a public interest research group, compiled a list including the top 20 brand name drugs known to be affected by pay-for-delay contracts. It is estimated that over 140 generic products have been delayed as a result of such contracts since 2005. Examination of these 20 pharmaceuticals showed that pay-for-delay agreements led to an average of 5-year delays in generic entry to the market. Combined, these 20 drugs have given rise to an estimated $98 billion in additional revenue due to the delay of generics. On average, they are priced at a rate 10 times higher than the generic; some costs are 33 times that of the generic.⁶

A key appeal of pay-for-delay is increased benefit without increased effort. Both brand name and generic manufacturers are making increased profits for putting forth minimal effort. The frequency of these contracts will only increase due to mutual financial benefits for both parties in these deals, with no substantial increase in workload.² The Preserve Access to Affordable Care Act is necessary to ensure that manufacturers comply with the competitive goals of the marketplace and provide their products at fair prices.

Caroline H. Cecka, is a native of Camp Hill, Pennsylvania, and a second-year PharmD student at the University of Kentucky (UK) College of Pharmacy and a student in the MBA degree program at the UK Gatton College of Business and Economics. Joseph L. Fink III, BSPharm, JD, is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Professor of Leadership at the UK College of Pharmacy, Lexington.

References

• Fink JL, III. “Pay-for-delay” agreement reviewed by federal appeals court. Pharmacy Times. 2016;82(8):62.
• Rosch T; Federal Trade Commission. How pay-for-delay settlements make consumers and the federal government pay more for much needed drugs. Washington, DC; 2009. FTC website. http://www.ftc.gov/sites/default/files/documents/one-stops/pay-delay/p859910payfordelay-1.pdf. Accessed January 17, 2017.
• Management Sciences for Health. MDS-3: Managing Access to Medicines and Health Technologies. Arlington, VA; 2012.
• United States Senate. S.2019 — preserve access to affordable generics act. Washington, DC; 2015. https://www.congress.gov/bill/114th-congress/senate-bill/2019/text. Accessed January 18, 2017.
• Feinstein R; Federal Trade Commission. Antitrust enforcement in the health care industry. Washington, DC. FTC website. http://www.ftc.gov/sites/default/files/documents/public_statements/prepared-statement-federal-trade-commission-antitrust-enforcement-health-care-industry/101201antitrusthealthcare.pdf. Accessed January 17, 2017.
• US PIRG. Top twenty pay-for-delay drugs: how drug industry payoffs delay generics, inflate prices and hurt consumers. Boston, MA; 2013. Community Catalyst website. www.communitycatalyst.org/doc-store/publications/top-20-pay-for-delay-drugs.pdf. Accessed January 17, 2017.