Fact Check: Klobuchar Wants to Stop ‘Pay-for-Delay’ Deals That Keep Drug Prices High

May 3, 2019by Emmarie Huetteman
Sen. Amy Klobuchar, D-Minn., questions Attorney General William Barr as he testifies before the Senate Judiciary Committee about special counsel Robert Mueller's Russia report, on Capitol Hill in Washington, Wednesday, May 1, 2019.

Washington’s recent fixation with lowering drug costs has introduced Americans to once-insider terms like “pharmacy benefit managers” and “list prices.”

During an April 22 CNN town hall event for Democratic candidates, Sen. Amy Klobuchar, D-Minn., described a drugmaker practice that sounds a lot like bribery — drawing attention to yet another secretive process that lawmakers and experts say prevents patients from obtaining affordable prescription drugs.

America, meet “pay-for-delay.”

“We can stop this horrible practice where big pharmaceuticals pay off, they literally pay off generics to keep the prices and the competition off the market,” Klobuchar said. “That’s bad, and we can fix it.”

Klobuchar’s comment was one of the fundamental changes she said she would make to the health care system if elected president.

She said ending the practice of pay-for-delay, as well as allowing Medicare to negotiate drug prices and importing less expensive drugs from countries like Canada, could help bring down pharmaceutical costs.

Nearly 8 in 10 Americans believe drug prices are unreasonable, according to a recent poll from the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.) So it is little surprise that not only Klobuchar but also many presidential candidates are talking about drug costs.

This practice of pay-for-delay sounds almost too shady to be real, so we decided to see if her claim checks out: Are pharmaceutical companies paying generic drugmakers to delay marketing their drugs, keeping prices high? Is that legal? And can it be stopped?

The back story on ‘pay-for-delay’ deals

Yes, it is true that pharmaceutical companies compensate generic competitors to hold off on marketing their versions of brand-name drugs. It is also true that this practice results in delays before cheaper, generic drugs become available, leaving patients no choice but to pay for the pricier, brand-name drugs they have been prescribed.

Take Humira, a blockbuster anti-inflammatory medication that treats diseases such as rheumatoid arthritis and Crohn’s disease. AbbVie, the maker of Humira, has aggressively defended its claim on the top-selling drug, filing many patents and striking deals with would-be competitors to retain its exclusivity.

To be sure, the competitors’ versions of Humira are technically “biosimilars,” not generics. But as far as pay-for-delay deals go, they play the same role in this system.

As a result, cheaper versions of Humira will not be available in the United States until 2023 — despite already being on the market in Europe.

To understand this issue, it may help to know pay-for-delay deals by their wonkier name: “reverse payment agreements.”

Like many products, drugs are protected by patents. Before companies can sell a generic drug, they must certify they will not market it until any related patents have expired, or they can challenge the existing patents.

Faced with a challenge to its patent, a brand-name manufacturer may, in turn, choose to sue the generic for patent infringement. Often the companies decide to settle, with the generic manufacturer agreeing to hold off on marketing its drug until a certain date in exchange for some form of compensation from the brand-name company — a “reverse payment agreement” — because rather than seeking damages, they agree to compensate the company they sued.

The terms of these agreements, including the amount of money changing hands, are secret. Only the Federal Trade Commission knows how much they are worth — and the FTC says these deals result in Americans paying $3.5 billion in higher drug costs every year.

While drugmakers could argue the settlements help save on costly litigation, they effectively function as a payment to stay out of the marketplace, protecting the exclusivity and the bottom line of the brand-name drug and its manufacturer.

In the past, that compensation usually came in the form of cash, said Dr. Aaron Kesselheim, an associate professor at Harvard Medical School who researches the effects of intellectual property laws on drug development.

But cash payments are no longer as common.

In 2013, the Supreme Court ruled that the FTC could scrutinize pay-for-delay agreements under antitrust laws as part of its mission to promote a competitive marketplace.

Since then, the FTC has made opposing what it calls these “anti-competitive deals” one of its top priorities, taking dozens of companies to court.

Thus, many drugmakers have changed strategies. Kesselheim said these deals have “evolved” since the Supreme Court’s decision, with fewer involving the transfer of cash.

With the FTC considering cash payments a red flag for anti-competitive behavior, drugmakers may offer compensation in other forms — say, by sharing knowledge or agreeing to market one another’s drugs to doctors.

That doesn’t help patients, Kesselheim said, as these agreements still delay lower-cost drugs from making their way to the pharmacy counter. “From a patient’s point of view, they’re both kind of not good,” he said.

Both brand-name and generic drug manufacturers have long opposed a ban on pay-for-delay deals. But it looks as if their days are numbered, said Rodney Whitlock, a consultant and former Republican congressional staffer who was deeply involved in health policy.

A handful of bills have been introduced in Congress to halt the practice, including one co-sponsored by Klobuchar and Sen. Chuck Grassley, an Iowa Republican who is chairman of the Senate Finance Committee.

But while it looks likely that Congress will pass a law to stop pay-for-delay, that does not necessarily mean the problem will go away.

Passing legislation seems more likely than not, Whitlock said. But “after that, it will be implementation, and will manufacturers find new ways of attaining the same end that we haven’t contemplated yet?”

Our ruling

Klobuchar said, “We can stop this horrible practice where big pharmaceuticals pay off — they literally pay off — generics to keep the prices and the competition off the market.”

“Pay-for-delay” is a pharmaceutical industry practice that involves brand-name drugmakers compensating their generic counterparts for holding off on marketing their versions of brand-name drugs, causing longer delays in getting cheaper, generic drugs to the pharmacy counter. There are currently no federal laws explicitly barring these sorts of deals.

Brand-name manufacturers do not in all cases “literally pay off” generic drugmakers. Since the Supreme Court ruled the FTC could challenge these agreements in court in 2013, cash payments have become less common, sometimes replaced by other forms of compensation.

Klobuchar is clearly aware of this distinction. The legislation she introduced with Grassley notes that an agreement violates their proposed ban if a drugmaker “receives anything of value,” not just cash.

We rate this statement True.


Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation. This fact check was produced in partnership with PolitiFact.


©2019 Kaiser Health News

Visit Kaiser Health News at www.khn.org

Distributed by Tribune Content Agency, LLC.


As Congress Works to Curb Surprise Medical Bills, New York’s Fix Gets Examined Health
As Congress Works to Curb Surprise Medical Bills, New York’s Fix Gets Examined

Lobbying campaigns and legislative battles have been underway for months as Congress tries to solve the problem of surprise billing, when patients face often exorbitant costs after they unknowingly receive care from an out-of-network doctor or hospital. As Congress considers various plans and negotiates behind the... Read More

For Young People With Psychosis, Early Intervention Is Crucial Mental Health
For Young People With Psychosis, Early Intervention Is Crucial

Andrew Echeguren, 26, had his first psychotic episode when he was 15. He was working as an assistant coach at a summer soccer camp for kids when the lyrics coming out of his iPod suddenly morphed into racist and homophobic slurs, telling him to harm others... Read More

VA Unveils Video Series to Help Vets File Disability Claims Online Veterans
VA Unveils Video Series to Help Vets File Disability Claims Online
November 7, 2019
by Dan McCue

WASHINGTON - The U.S. Department of Veterans Affairs has rolled out a new video tutorial aimed at helping veterans file disability compensation benefits claims online. The tutorial tells veterans how they can learn about and apply for benefits earned using the online claims tool the department... Read More

Supreme Court Leans Toward Expanding Clean Water Act Supreme Court
Supreme Court Leans Toward Expanding Clean Water Act

WASHINGTON — Supreme Court justices, both conservative and liberal, appeared skeptical Wednesday of a Trump administration argument that the federal Clean Water Act should not apply to sewage plant wastewater that flows into the ground and eventually seeps into federally protected waters, such as rivers or... Read More

Rural and Safety Net Hospitals Prepare for Cut in Federal Support Health
Rural and Safety Net Hospitals Prepare for Cut in Federal Support

WASHINGTON — Absent action by Congress in the next three weeks, Dr. Michael Waldrum, CEO of Vidant Health, is going to have to figure out what medical services to deny hard-pressed communities in rural eastern North Carolina. “It runs the gamut,” Waldrum said in an interview... Read More

She Moved Overseas for School, and Stayed for Insulin Health
She Moved Overseas for School, and Stayed for Insulin

HAMBURG, Germany — Every now and then, Katie West considers returning to the United States. She moved to Germany for graduate school three years ago and now works as a health systems researcher in Hamburg. Her family is an ocean away. Then she remembers why she... Read More

Straight From The Well
scroll top