PD Editorial: Local lawmaker takes on big drug makers

During the legislative session, Santa Rosa Assemblyman Jim Wood pushed through a bill to help ensure that people have access to affordable pharmaceutical drugs. It passed, the governor has signed it, and once again California is taking the lead on an important national public policy issue that Washington has proved incapable of handling.

Wood, a Democrat, sponsored Assembly Bill 824, which forbids 'pay for delay' among drugmakers. Never heard of it? We're not surprised. It's the sort of arcane legal chicanery that policy experts and lawmakers deal with so that everyone else doesn't have to get bogged down by the minutiae.

This particular minutiae is important, though, because it demonstrates just how far the pharmaceutical industry will go to squeeze cash out of patients. Pay-for-delay prevents competition in the market that would lead to lower prices.

It works like this:

A pharmaceutical company invents a new drug that treats a medical condition. It applies for and receives a patent so that it can sell the drug. As with most new drugs, it sets the price pretty high so that it can recoup its research costs and turn some profit. That's fair and how patent protections are supposed to work. The patent expires eventually, and generic drug makers introduce cheaper versions of the same medication.

When there's pay-for-delay, however, that doesn't happen as quickly as it should. Instead, the pharmaceutical company cuts a deal with generic manufacturers to postpone release of the cheaper version of the drug. The pharmaceutical company maintains its monopoly and can continue charging high prices for its name-brand drug. The generic makers get a cut of the action for staying out of the way.

'Who loses?' Wood asked rhetorically. 'The patients who deserve access to less expensive drugs and all of us who end up paying more for health care and, in turn, health care premiums. Affordability is a huge issue in health care, and we should be doing everything possible to contain costs. This calculating practice makes it worse, and this new law will help stop it.'

In 2003, the federal government required drugmakers to start reporting pay-for-delay deals to the Federal Trade Commission. By 2010, the FTC estimated that consumers were paying $3.5 billion more annually for drugs because of the deals.

Yet Congress has not acted to curb this anti-competitive practice that harms consumers. So California has intervened instead with Wood's sensible bill, which empowers the state attorney general to go after pharmaceutical companies. If it is successful here, this new law can serve as a model for the nation.

This summer, California was able to win $70 million in settlements from drug companies over pay-for-delay deals. Wood's bill will make it easier to pursue action against any drug company in the future that tries to collude to keep prices high.

Ending pay-for-delay won't fix all of the price-inflating problems of the pharmaceutical industry and national health care policy, but it carefully targets one abuse, putting consumers first. Generic manufacturers don't have to go to market, but they no longer can accept payments not to so that big pharmaceutical companies can price-gouge people who need medicine.

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