Wednesday, September 5, 2012

Rx Pay for Delay

The AARP folks have long opposed what they call "pay-for-delay" drug deals. In simple terms, the pharmaceutical companies will pay competing companies to delay production of generic drugs when a brand name goes off patent.

Proposals to prohibit pay-for-delay agreements will help get less expensive generic drugs to the market more quickly. The U.S. Federal Trade Commission (FTC)—the government agency charged with protecting consumers from anticompetitive business practices—reports that patent settlement agreements between brand-name and generic manufacturers that involve some sort of compensation prohibit generic entry for nearly 17 months longer (on average) than agreements without such payments.  
Eliminating pay-for-delay agreements would also result in substantial savings for consumers and government programs like Medicare and Medicaid, as generic drugs can cost up to 90 percent less than their brand-name counterparts. The FTC estimates that ending pay-for-delay agreements would save $3.5 billion each year for patients, insurers, and government programs.  
Prohibiting pay-for-delay agreements could also improve patient health. Access to generic drugs has been shown to increase medication adherence, which is particularly important for individuals with chronic health problems who rely on multiple medications to help stabilize and manage their conditions. Medicare beneficiaries who fail to take their medications as prescribed are more likely to have costly health complications, creating additional costs for the beneficiaries and the Medicare program.

AARP Public Policy Institute

That's the argument.

Eliminate pay for delay and save billions.

Maybe it will. Maybe it won't.

When laws are changed the assumption is human behavior, or in this case, corporate behavior, will not change.

In the early 90's Congress decided a good way to raise revenue was to impose a luxury tax on yachts and private airplanes. This "tax the rich" approach was a form of class warfare that was supposed to generate millions in new taxes.

The only thing it did was almost wipe out the yacht and private airplane business when the wealthy stopped buying luxury items.

The tax was repealed retroactively but by that time the damage had already been done.

Fast forward to the present, and assume Congress, or the courts, decide the payments to competing drug companies will henceforth be banned.

Do you suppose the drug companies will respond by raising price on brand name drugs in order to maximize profits before the patents expire?

Possibly . . .

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