It's hardly breaking news that the pricing practices of pharmaceutical companies contribute to the high cost of health care and, by extension, health insurance in America.
But consumer groups posted a major victory last week in the war on gouging when the U.S. Supreme Court gave the Federal Trade Commission the green light to sue pharmaceutical makers who pay competitors to keep cheap generic equivalents of brand name drugs off the market.
In Federal Trade Commission v. Actavis, the feds claimed that such an agreement between Solvay Pharmaceuticals, which holds the patent on the testosterone supplement AndroGel, and rival drug maker Actavis violated federal antitrust laws.
Justices side with regulators
While the Supreme Court stopped short of ruling whether such "pay-for-delay" agreements themselves were illegal, the 5-to-3 decision for the FTC cleared the way for consumer advocates, drug makers and insurance companies to combat the practice through antitrust and patent suits.
That's a significant blow to big pharma, and here's why: When a generic drug enters the market, its price is typically about 15 percent below that of its brand-name competitor. As a result, the brand-name drug can lose up to 90 percent of its market share once a generic hits store shelves.
American pharmaceutical sales totaled about $320 billion in 2011, with brand-name drugs accounting for three-quarters of that volume, according to the research firm IMS Health. The FTC estimates that pay-for-delay agreements alone cost consumers and taxpayers $3.5 billion every year.
Advocates cheer the ruling
AARP Senior Vice President Joyce Rogers applauded the court's decision. "This practice not only denies consumers access to lower-cost treatment options as soon as possible, but also prevents competition," she said. "The delay and lack of low-cost options reverberates throughout the health care system -- including Medicare and Medicaid -- and is especially burdensome for consumers."
Former FTC policy director and antitrust lawyer David A. Balto agreed. "No other decision this term will have as much impact on consumers' pocketbooks," he said.
But Actavis president and CEO Paul Bisaro was undeterred. "The FTC did not win anything with this decision," he said. "We think these settlements will continue, and we will continue to enter into these kinds of settlements. We believe all of our agreements were pro-competitive."
Question is, will the feds continue to allow pay-for-delay arrangements that are clearly working against the affordability goals of health care reform?
Follow me on Twitter: @omnisaurus
Subscribe to Bankrate newsletters today!
Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.