Pay-For-Delay: Patients Win in Supreme Court’s Resolution

Did you know that some brand name drug companies pay generic manufacturers to keep cheaper, generic medications off the market?  This practice known as “pay-for-delay” obviously prompts controversy.  Do brand name drug companies have the right to profit at the expense of patients forced to pay higher prices for medications when generic alternatives exist?  Recently, the Supreme Court has taken note of the issue and federal lawmakers are becoming involved in the controversy.  Melanie Chen, resident ThriveAP pharmacy expert, is here to tell us more about the problem.

Consumers Win in Supreme Court’s Pay-For-Delay Resolution, Antitrust Laws Beat Patent Laws

By ThriveAP Intern Melanie Chen

Pharmaceutical companies that engage in pay-for-delay, a practice in which brand-name drug manufacturers pay generic drug companies to keep their cheaper generic drug versions off the market, can expect stricter federal scrutiny for being potential law-breakers.  In a Supreme Court ruling on June 17th, 2013, the justices declared in a 5-3 vote that the Federal Trade Commission can sue pharmaceutical companies for pay-for-delay collaborations on the grounds of violating antitrust laws designed to protect free trade.

The facts of the case are these.  Solvay Pharmaceuticals is the brand-name manufacturer of the drug AndroGel, a gel that raises low testosterone levels.  In 2000, Actavis Inc. filed an application with the FDA (Food and Drug Administration) to make a generic version of AndroGel.  Two other generic drugmakers, Par Pharmaceutical and Paddock Laboratories, also applied shortly afterwards.  Solvay responded by filing suit against Actavis and the other two drugmakers claiming patent infringement.  To settle the suit, Actavis agreed to withhold its generic version from the market until 2015 and to promote AndroGel to certain doctors.  In return, Solvay will pay Actavis a sum estimated to fall between $19 million and $30 million each year for nine years.  Solvay made similar deals with the other two companies.  Such “pay-for-delay” agreements, also called reverse-payment settlements, are a way for drug companies to dissolve patent litigations that arise when a generic drugmaker challenges the validity of a brand-name maker’s drug patent.

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The Federal Trade Commission, charged with the mission of protecting consumers against monopolistic business operations, has long viewed these arguments as anticompetitive because they deny consumers access to less-expensive generic drugs.  The Supreme Court took the side of consumers in a case that ultimately sought to find balance between intellectual property rights and antitrust behavior, putting the FTC in a stronger position to investigate potentially anticompetitive pay-for-delay court settlements.

However, the Court did not definitively say that these kinds of agreements were presumptively illegal, a stance that the FTC was hoping the Court would lean towards.  Instead, the Court has stated that the legality of each agreement will be determined by a “rule of reason”, a fact-based evaluation commonly used to assess antitrust claims. This means that lower courts must analyze every pay-for-delay compensation for latent anticompetitive whiffs on a case-by-case basis.

“No other decision this term will have as much impact on consumer’s pocketbooks”, said David A. Balto, an antitrust lawyer and former FTC policy director who applauds the Court’s decision.  Americans spent $320 billion on drugs in 2011 according to IMS Health, a healthcare research company.  The FTC maintains that reverse payment deals cost US consumers about $3.5 billion annually.  Generic drugs can be as much as 90% cheaper than their brand-name counterparts, and since 70% of all prescriptions are filled with generics, the Court’s decision in Federal Trade Commission vs. Actavis, Inc., could lend a hand in increasing generic drug availability and lowering healthcare costs.

The upcoming consequences of the ruling are difficult to pinpoint.  Generic drugmakers are likely to benefit from a crucial shift in power, which may lead to more aggressive patent confrontations now that brand-name companies have to think hard about their options before buying out their competitors.  On the other hand, some generics may be discouraged from challenging brand-name drug patents and entering the market, since the extra scrutiny will likely mean lengthier and costlier FTC examinations.

One troubling aspect is how little guidance the Supreme Court has given lower courts with regards to exercising “rule of reason”.  Though a large payment generally suggests anticompetitive conduct, there is bound to be confusion amidst lower court circuits over how to spot anticompetitive intentions within the context of each particular pay-for-delay case.

For medication prescribers, which include not only physicians but also physician’s assistants and nurse practitioners, drug availability and prices may be fated to change as a direct result of the resolution.

One consequence will surely arise in the aftermath, though: pharmaceutical companies can definitely expect the FTC to be kicking pharma-butt and taking down names for any especially lucrative, and therefore suspicious, pay-for-delay packages.

Key Takeaways:

  • Pay-for-delay agreements are not presumptively illegal, but parties seeking to resolve patent conflicts using pay-for-delay will be subject to increased risk of antitrust violation
  • The FTC will continue to rigorously inspect pay-for-delay deals
  • Court ruling provides little guidance on how to evaluate competitive effects using “rule of reason”
  • Prescription medication availability and prices may be severely affected

Were you aware of pay-for-delay practices?  How do you think the Supreme Court’s ruling will affect the price of medications for you and your patients?

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