The IAA One Minute Blog

The U.S. Supreme Court heard arguments on Monday, March 25, 2013, in a case worth billions of dollars to pharmaceutical companies and American consumers alike.

The Issue at Hand

The issue before the Supreme Court is whether brand-name drug manufacturers may pay generic drug manufacturers to keep generics off the market. Consumer advocates, healthcare organizations and retail outlets call the payments "pay-to-delay." Drug makers dislike the term and call it by a different name, "reverse settlements."

The drug companies explain that these deals arise when a generic company files a challenge at the Food and Drug Administration, to the patent that gives a brand-name drug a 20 year monopoly. The generic drug makers aim to prove the patent is flawed or otherwise invalid, so they can launch a generic version well before the patent ends. Brand-name drug makers then usually sue the generic companies, which sets up years of what could be expensive litigation.

When the two sides aren't certain who will win, they often reach a compromise that allows the generic company to sell its cheaper version in a few years--but years before the drug's patent will expire. Often this settlement comes with a sizable payment from the brand-name company to the generic company. Drug makers say the settlements protect their interests, but also benefit consumers by bringing generic medicines to the market earlier than they would arrive in any case generic drug makers took to trial and lost.

The Federal Trade Commission

Challenging these payments is the Federal Trade Commission. The FTC sees these monetary arrangements as a way to stop competition in the marketplace and a violation of the nation's antitrust laws. For over 100 years the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keeping prices down and quality up.

The FTC is claiming that once a generic hits the market and competes with a brand-name drug, prices drop 85%. In light of this information, the FTC says the brand-name producer is paying for valuable time. The brand-name company makes huge profit margins when it has no competition. So it is in its interests to pay potential competitors to keep generics out of the market longer.  The potential competition gets enriched by simply delaying their entry.

The Obama administration wants the Supreme Court to stop the deals because it says they profit the drug companies, but harm consumers by adding 3.5 billion annually to their drug bills. The administration argues that the agreements are illegal if they're based solely on keeping generics off the market.

Generics saved American patients, taxpayers and the healthcare system an estimated $193 billion in 2011 alone, according to the health data firm, IMS Health.

The Drug Companies

In response to these arguments, drug makers say that a patent is in essence a license given by the federal government, to have a monopoly for a limited period of time. They argue that if Congress wanted to bar these reverse settlement payments, they can do so  through legislation.

Pharmaceutical companies argue that the billions of dollars in revenue from their patented products are necessary in order to recover the billions they spend developing new drugs.

These companies also point out that generic drug makers tend to challenge patents of every successful drug. This means that the FTC's position would impose onerous legal costs on brand-name drug makers and limit their ability to fund expensive research to create new drugs.

What IAA has to Say

The question before the justices pits a company's constitutional right to protect its intellectual property through reliance on a patent that excludes competitors, against antitrust law, which holds that a company cannot unfairly exclude others from legitimately entering a business with a rival product. The Supreme Court will make a ruling later this year.

Insurance Administrator of America will keep you informed of the Supreme Court's decision. IAA knows it is important for our clients to be informed about the world of healthcare. Remember, with IAA one call does it all.

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