Obama Seeks More Generic Prescription Drugs

By Nikki Schwab, Washington Whispers

While drugmakers were on team Obama yesterday, agreeing to shrink the "doughnut hole" in Medicare prescription drug coverage by reducing costs by $80 billion over the next decade, they're definitely not gung-ho about all the administration's steps to save dough. Here's another battle to watch within the broader healthcare overhaul: The administration wants to ban makers of brand-name drugs from shelling out "pay-for-delay" settlements to generic drugmakers, a practice that creates a financial incentive for generic drug companies to keep their much cheaper drugs off the market.

"If it's legal for a brand to pay a generic to sit out, why wouldn't it?" Federal Trade Commission Chairman Jon Leibowitz explained today at a Center for American Progress event. "And if a generic drug company is allowed to make more money by not competing than by going to market, isn't that a good business deal for the company and its shareholders? The answer is, of course it is."

Brand-name drugmakers have exclusive rights to their drugs only for a limited time. Generic drug companies can enter the market once the original patent is expired, "invented around," or invalidated. This is when the elbows come out, as brand-name drug companies in recent years have spent millions paying their generic rivals to drop patent challenges. It's often better business for the generic drug company to take the money than to continue the challenge and then put the drug out there. "Clearly these are win-win deals for the companies, but they leave consumers footing the bill," says Leibowitz.

The administration is solidly behind stopping this, and there are bills making their way through the House and Senate that would do just that. If the practice ends, American consumers could save $35 billion over a 10-year period, according to Leibowitz. The government's savings could be $12 billion over 10 years since it pays such a hefty chunk of the nation's prescription drug bill. "And these assumptions are quite conservative," adds Leibowitz.

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