It’s called “pay for delay” and the federal government estimates it costs citizens more than $35 billion each year.
The practice, which centers on pharmaceutical drug company patents and generic drug manufacturers, has caught the attention of 39 other states that have enacted more than 60 laws to address the problem, and Rep. Katie Sullivan, D-Missoula, wants to make Montana the 40th state to adopt consumer protection.
“Pay for delay” is the term given to the practice of large pharmaceutical companies paying smaller, generic manufacturers to withhold producing generic equivalents of brand-name drugs. This allows large pharmaceutical companies to have a monopoly on certain drugs, keeping the price high for years.
Large pharmaceutical companies argue it’s necessary to keep drug prices high — sometimes more than $100,000 per year for certain medications — to recoup the cost of research and development. But opponents of the practice, including Montana’s largest insurers, say the practice continues to drive up medication costs often beyond the reach of average residents.
The Federal Trade Commission already cracks down on some of these agreements, but an underfunded enforcement division and the complexity of litigating several patents on the same medication mean that drug prices, especially for new prescriptions, continues to rise. Supporters of House Bill 345, which was heard on Tuesday, say empowering states to investigate these arrangements between large pharmaceutical companies and generic manufacturers help speed up the entry of generic, lower-cost, identical drugs.
“The FTC resources are limited, and they cannot do it alone,” Sullivan said.
In that hearing, every person testifying on the bill supported it, with the exception of a representative of big pharmaceutical companies.
“This creates additional bureaucracy when there is already a system in place,” said Shane Scanlon, representing pharmaceutical research groups.
The three largest health insurance carriers in Montana testified in support of the bill, including Montana Blue Cross/Blue Shield.
“The more generics, the lower the cost to consumers,” said John Doran, the vice president of external affairs for Blue Cross/Blue Shield.
He gave the example of drug manufacturer Teva, which paid $300 million to four generic companies to keep a drug off the market for six years.
“Make no mistake: This is not a free-market decision, and this is not fair market competition,” Doran said. “It’s stacking the deck in their favor.”
He said 30 percent of their premium dollars go toward pharmacy. To be more specific, Doran said less than one percent of people need “high-end speciality” drugs that make up more than 50 percent of that cost.
Bruce Spencer, a lobbyist for Mountain Health Cooperative and Express Scripts, said that once a generic drug company enters the market, drug prices lower by 30 percent for that prescription. When a second generic enters, the price can be reduced by as much as 90 percent.
“This is an elegant solution because it asks for a bit more information about the drugs that keep our friends and neighbors alive,” said Jennifer Hensley of Pacific Source insurance. “This gives the power to our Montana attorney general who represents all of us. It bends the cost curve.”
The bill has a fiscal note of $250,000 per year attached to it, which the governor’s budget director estimates will fund staff in the attorney general’s office to review these agreements that pharmaceutical companies would be required to disclose if the law passes.
Sullivan said the money for the support of the law should come from the consumer protection fund the state has created as the result of many settlements with big tobacco and big pharmaceutical companies.
“We are sending a signal that we want competitive pricing for drug deals,” Sullivan said.