CBO Says Pay To Delay Bill Can Save $4.8 Billion
4 CommentsBy Ed Silverman // November 9th, 2011 // 7:58 am
A bipartisan bill that would limit pay-to-delay settlements, which are designed to keep lower-cost generic drugs off the market for extended periods, would save taxpayers an estimated $4.8 billion over the next decade, according to a new report from the Congressional Budget Office.
Specifically, the Preserve Access to Affordable Generic Drugs Act, which was passed by the Senate Judiciary Committee last July, would reduce direct spending by government healthcare programs by $4 billion; increase federal revenue by $800 million and reduce spending subject to appropriation by $400 million between 2012 and 2021, the CBO report says (read the report here).
Under the bill, brand-name drugmakers would be deterred from settling patent disputes by paying generic rivals in exchange for promises that a copycat version of its drug will be kept off the market. The deals would be considered illegal and the FTC would be given the authority to stop the agreements (here is the legislation).
“As CBO’s new cost estimate shows, backroom pay-for-delay deals are keeping generic drugs off the shelves at a great cost to consumers and taxpayers. Congress and the Joint Select Committee on Deficit Reduction should take this opportunity to fix this problem,” says Herb Kohl, a Wisconsin Democrat who co-sponsored the bill and chairs the Senate Special Committee on the Aging.
Last month, he wrote the Super Committee to urge them to restrict the deals in order to save money (see here). And President Obama included a provision to end the deals in his fiscal year 2012 budget in hopes of saving the federal government $8 billion over 10 years.
Two weeks ago, the US Federal Trade Commission, which calls the deals anti-competitive, issued a report that found of 156 patent settlements, drugmakers made 28 pay-to-delay deals in fiscal year 2011, which ran from October 1, 2010 through September 30, 2011. Of those 28 deals, 18 involved generics that were first filers, which means they were first to seek FDA approval to market a generic and eligible for market exclusivity (read here).
For its part, the Generic Pharmaceutical Association, which represents generic drugmakers, has consistently argued that the deals lower costs to consumers because patent settlements make it possible for cheaper generics to reach the market than they might otherwise.
[UPDATE: We received this statement later in the day: “The CBO’s revised score is just the latest in a long line of faulty savings estimates on this legislation,” GPHA ceo Ralph Neas says in a statement. “The bottom line is that settlements have never delayed generic market entry beyond the date of the patent expiration, and instead have proven to be pro-competitive and pro-consumer by making lower-cost generics available months and even years before patents have expired.”]
benjamins pic thx to amagill on flickr
john
It appears that the truth lay half way between the Administration’s claims and those of the Generic Pharmaceutical Associations. There are savings to be had, but at $480M per year, this is hardly a line item in the federal budget. Works out to 26 hours of 2008 expenditures on the Iraq war, 8 hours spending on social security, or 5 hours spending on medicare and medicaid.
This is something that should definitely be fixed. Nonetheless, one can’t help but wonder if all the attention on this area derives from the fact that it allows politicians to create the impression they are doing something about the deficit without asking voters to make any of the very real sacrifices that will be needed to balance the budget.
Now that we’ve fixed the chip in the car’s paint, can we shift the discussion back to its broken axle and failed transmission?
Pamela
This bill isn’t a large line item in the budget for the Federal government, but it will save a substantial amount of money. It will also greatly help those people without insurance who have to pay for their own prescriptions and people with high deductible health plans. It’s long overdue.
Girish Malhotra
Reverse payment is just a drop in the bucket when it comes to savings. If pharmaceuticals optimized their processes, savings are HUGH. Please lee the linkhttp://pharmachemicalscoatings.blogspot.com/2010/07/pharmaceutical-reverse-payments-and.html
Thanks.
Girish MALHOTRA
yo
Ok. The CBO is not really being transparant or truthful. The way the CBO works is that they do their analysis based on what they are given by congress. Outcomes vary based on these inputs. They are not allowed by law to questions the inputs nor can they change them or use their own assumptions … only what they’re given. Therefore, many of their so-called independent analysises are inherently skewed or biased. This is true here. Pay-to-delay settlements arise out of patent lawsuits brought by generic pharma companies. Most suits are lost by the generic firms. Thus, the patent(s) is inforce and the innovator co. continues to reap profits over the life of the patent. If the generic co. wins, a generic usually comes to market quickly. In pay-to-delay situations it is very dificult to predict who the winner of the lawsuit will be at trial in the patent dispute. Therefore, the parties settle with the generic co. receiving a payment for not pursuing the patent challenge and the innovator is able to prolong the time to generic competion thus reaping more profit. However, included in these settlements is a timeline for when the generic can be sold by the generic co.; it is always way before the actual patent expiry. Therefore, we get access to to generic sooner than if the generic co. lost the lawsuit. What is not being properly analysized by the CBO is the probability of winning the lawsuit. If you use the correct probabilities the result comes out in favor of “pay-to-delay.” This is key. This has been analysized by health care economists many, many times and “pay-to-delay” is the better way to go. If the generic co. looses we all pay much, much more for the drug. The FCC (the agency that is so hot in pushing this issue), certain Congressmen, and the CBO are not telling us the whole truth, they are withholding key information; and the CBO is, by law, only using what they’re given. This Pfizer situation is the “classic” example and will be used by business schools for years to come. Remeber, the generic company usually looses these lawsuits. We usually only hear about the ones they win because they affect us. The FCC is wrong. This is political.