The U.S. Supreme Court & the High Cost of Rx Drugs

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Everyone knows prescription drugs cost much more than they should.

But many people are surprised to learn about one of the key ways drug companies keep prices high: Paying off competitors to keep generics off the market.

On Monday, the Supreme Court heard arguments in a case about this very practice.

The Federal Trade Commission has long argued that these “pay for delay” deals are anti-competitive, hurt consumers, and should be considered illegal. In our joint amicus brief filed with the court, U.S. PIRG, AARP and the American Medical Association agreed.

Competition from generic drugs is a critical way to reduce drug prices with generics typically costing 85 to 90 percent less than its brand-name equivalent. But consumers wait years longer than they should to see those savings when drug companies pay to delay competition.

Here’s an example of how this works:

Brand name Plavix costs about $205 for a 30-day supply. The generic, now that it’s available, costs about $13. But consumers were stuck paying the higher price for far longer than they otherwise might have.

That’s because in 2006, Bristol-Myers Squibb paid the generic drug maker Apotex to delay bringing the generic to market for five years. Without competition, Bristol-Myers Squibb was able to keep making $3.4 billion a year in sales on the brand name drug.

This practice is widespread across the industry, and it’s consumers who end up paying the price. The Federal Trade Commission conservatively estimates that pay for delay deals cost consumers and taxpayers at least $3.5 billion every year.

The irony of this case is that this practice is an unintended outgrowth of the law intended to increase the availability of generic drugs, the 1984 Hatch-Waxman Act. The law gives drug companies exclusive rights to sell a drug for a period of time, then allows generic manufacturers to challenge the patents on the drug. With generic companies winning these challenges about 73 percent of the time, brand-name drug companies have responded by simply paying off generic challengers, delaying the release of generic drugs for years.

The Supreme Court decision will come out by the end of June. Given the justices’ comments yesterday during oral arguments, and the fact that Justice Alito’s recusal from the case makes a 4-4 split a possibility, a clear decision seems unlikely. We are of course hoping the court decides that these deals should be considered illegal. But even in that best case scenario it will take vigilance to make sure the law is enforced, and it is likely Congress will need to take action if we’re to fully end this practice.