Regulatory Focus™ > News Articles > Administration Budget Forcefully Against 'Pay-For-Delay,' Industry

Administration Budget Forcefully Against 'Pay-For-Delay,' Industry

Posted 15 February 2012 | By Alexander Gaffney, RAC 

The Fiscal 2013 federal budget released on 13 February by the Obama administration laid out more than just the proposed spending levels for dozens of federal agencies, including the US Food and Drug Administration (FDA). Buried in the several-hundred page budget document are indications that the Obama administration intends to forcefully move against 'pay-for-delay' settlements that the Federal Trade Commission (FTC) considers to be "anticompetitive," biologic exclusivity and drug reimbursement rates.

Proposals to End Pay-for-Delay

In the Office of Management and Budget's (OMB) summary, the administration indicates that it is proposing to "increase the availability of generic drugs and biologics by authorizing the [FTC] to stop companies from entering into anti-competitive deals, known also as 'pay for delay' agreements, intended to block consumer access to safe and effective generics."

FTC Chairman Jon Leibowitz has been calling for an end to the practice, which allows a proprietary manufacturer with a product that is going off-patent to pay companies not to market generic versions of the brand-name product. In June 2011, Leibowitz called the deals "collusive" and said the "sweetheart deals" cost consumers $3.5 billion per year. Leibowitz's efforts earned him the ire of the group Americans for Limited Government, which accused him of violating the Anti-Lobbying Act for his support of anti-pay-for-delay legislation.

Now Leibowitz has found a strong ally in the Obama administration, which said in the budget that such deals "reduce competition and raise the cost of care for patients both directly, through higher drug and biologic prices, and indirectly through higher health care premiums."

The administration said the proposal would save Medicare and Medicaid $11 billion over the next decade.

In a call to discuss FDA's budget, FDA Assistant Commissioner for Budget Pat McGarey also supported the administration's proposal.

Asked by Regulatory Focus about FDA's support for banning pay-for-delay settlements and the funding situation for its White Oak campus consolidation plan, McGarey said that "both of those [proposals] are administration proposals that are in our budget, and they were in similar identical form in the previous year's budget, and certainly FDA supports them."

McGarey added that "It's important to understand that the savings associated with those [pay-for-delay agreements] do not accrue to FDA's budget," but instead accrue to Medicaid and Medicare.

While FDA's budget does not specifically mention the pay-for-delay settlements, it does include very similar language under its explanation of the Generic Drug User Fee Act (GDUFA), in which it claims, "delays in the availability of less-expensive generic drugs will result in higher costs for patients-some of whom may forego critical medicines if their drugs are unaffordable-leading to poorer health outcomes."

The FTC budget request spends considerable time on the pay-for-delay settlements, noting that the agency "engaged in vigorous enforcement" by challenging pay-for-delay agreements between pharmaceutical manufacturers Cephalon and Solvay Pharmaceuticals and their generic rivals during Fiscal 2011.

FTC also noted that it filed an amicus brief with the Third Circuit US Court of Appeals in support of plaintiffs challenging the agreements and issued comments to state legislators on pharmaceutical distribution arrangements.

Biologic Exclusivity and Reimbursement Rates

The administration also sought to speed up the development of generic biologics-commonly referred to as biosimilars and follow-on biologics-by proposing that the exclusivity period for innovative biologics be cut from 12 years to seven.

"Beginning in 2013, this proposal would award brand biologic manufacturers seven years of exclusivity rather than 12 years under current law and prohibit additional periods of exclusivity for brand biologics due to minor changes in product formulations, a practice often referred to as 'evergreening,'" wrote the Obama administration. "Reducing the exclusivity period increases the availability of generic biologics by encouraging faster development of generic biologics while retaining appropriate incentives for research and development for the innovation of breakthrough products."

The administration estimated that the proposal would save Medicare and Medicaid approximately $4 billion over the next decade.

The proposals-paired with a proposal to increase Medicare Part D rebates to Medicaid levels-place the pharmaceutical industry in an odd position.

In 2010, Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade association, then led by Billy Tauzin, broke ranks early in the negotiations over the Patient Protection and Affordable Care Act (PPACA). The group reportedly pledged to support the PPACA in return for an administration pledge to limit any required savings to $80 billion over the coming decade and the continued prohibition of re-importation of drugs from Canada.

The new proposal-with estimated savings of $156 billion over the next 10 years-surpasses even the administration's original goal of extracting $120 billion from the industry during the PPACA debate, notes John McDonough in his book Inside National Health Reform.

PhRMA immediately came out against both new proposals, calling them "short-sighted proposition[s] that could destabilize the [Medicare] program and threaten hundreds of thousands of American jobs."

While the budget is unlikely to pass in its current form-especially given the current political climate in Washington-the document could provide key insights into the administration's regulatory aspirations, notes former Senate republican health staffer Alec Vachon, PhD.

"Any proposed regulatory changes are of potentially more market interest than legislative changes because the Obama administration can execute [those changes] without Congress," said Vachon.

For the pharmaceutical manufacturers, this could mean their industry will be the target of an administration that is currently looking toward the 2012 campaign. "[T]he White House budget is likely to serve as a political tool in the president's re-election bid" rather than a realistic policy tool," notes National Public Radio.


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