Health-care reform should put an end to pay-for-delay by drug companies

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Friday, January 15, 2010

A LOOPHOLE in existing law allows manufacturers of brand-name drugs to pay competitors to keep cheaper, generic versions off the market. If there's to be health-care reform this year, it ought to close that loophole.

Such "pay-for-delay" schemes cost consumers an average of $3.5 billion a year in potential savings, according to a recent report by the Federal Trade Commission. The federal government also loses by being forced to pay billions for higher-priced medications needed by patients covered under government health insurance programs.

Pharmaceutical companies spend enormous sums for research and development. Such investments and innovations deserve to be legally protected -- and they are. Would-be copycats can't enter the marketplace until the drug patent expires. Patent law is so strong, in fact, that it discouraged companies from marketing even drugs that did not infringe on patents but came close enough to risk expensive lawsuits.

To ease that problem, Congress in 1984 passed the Hatch-Waxman Act. It allows a company to market a generic "bio-equivalent" version of a brand-name drug if it does not infringe on the patent or if that patent is deemed invalid. The idea was to promote competition that could reduce drug prices. But it hasn't worked that way -- because brand-name manufacturers have been paying generic drug makers to keep their products off the market.

Everyone benefits from this -- except consumers and taxpayers. The brand-name manufacturer keeps its monopoly. The generic manufacturer gets paid for doing nothing. And the rest of us pay too much for our medicine. It is difficult to see how this practice is anything but a sham and anticompetitive.

The House and Senate offer different approaches in their respective health-care bills for eradicating pay-for-delay deals. The House version is better: It simply bans the practice.


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