Even as the COVID-19 (coronavirus) pandemic shutters parts of the economy and challenges the public health system across the country, there are still efforts to pass harmful and counterproductive legislation. One such effort is in Minnesota. Their “pay-for-delay” legislation, HF3744 and SF3097, has gained some momentum in the state legislature. However well-intentioned, these bills would take a sledgehammer to biopharmaceutical innovation around the country in order to treat a “pay-for-delay” problem that is limited in size and scope. While Minnesota’s legislation does not overreach as much as efforts we have seen in other states like Connecticut, we still believe that HF3744 and SF3097 are far too broad and should not be advanced in either chamber.
NTU’s Stake in Prescription Drug Policy
NTU’s advocates and experts have been stakeholders in prescription drug policy for decades. Policymakers in Washington, D.C. and in the states exercise significant leverage over whether a drug is approved or not, how it may be marketed, and (in the case of Medicare and Medicaid) how that approved and marketed drug is priced. While we seek limited government interference in the development, approval, marketing, and pricing of prescription drugs, NTU works actively with Congress, federal agencies, and state capitals to craft pro-taxpayer, pro-consumer, and market-oriented prescription drug policy.
Unfortunately, we find HF3744 and SF3097 troubling, based on our long-standing concerns with government over-regulation in the prescription drug space.
The Shortcomings of “Pay-for-Delay” Legislation
We are aware that several states around the country are actively considering legislation to tackle so-called “pay-for-delay” agreements between brand and generic drug manufacturers. There are also several proposed bills addressing this issue in Congress. NTU believes that these bills suffer from a few common flaws.
First, it is critical for federal and state lawmakers to acknowledge the existing roles the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) play in reviewing all pay-for-delay agreements. As the FTC reported in 2019, all “brand-name drug manufacturers, generic drug applicants, and biosimilar biological product applicants [must] file certain agreements with the Federal Trade Commission and the Department of Justice (the Agencies) within 10 business days of execution of the agreement.” This requirement includes generic-brand agreements, biological product agreements, generic-generic agreements, and biosimilar-biosimilar agreements. FTC has sued a number of times to stop agreements it sees as anticompetitive. Any federal legislation further regulating “pay-for-delay” risks duplicating and overlapping the existing work happening at FTC and DOJ, and any state legislation risks circumventing federal efforts.
More importantly, policymakers should understand the truly limited scope of manufacturer agreements that are actually a “pay-for-delay.” In a report the FTC released last year on its most recent review of manufacturer agreements (fiscal year 2016), the agency found that only 30 of 232 agreements (13 percent) included both “explicit compensation from a brand manufacturer to a generic manufacturer and a restriction on the generic manufacturer’s ability to market its product in competition with the branded product.” In 29 of these 30 agreements, payment to the generic manufacturer came “in the form of litigation fees.” Only 76 of the 232 agreements (33 percent) involved the first generic manufacturer to challenge a brand-name drug.”
So, if “pay-for-delay” is not a representative term for these brand-generic agreements, what do these agreements consist of? Fortunately, the FTC has answers. More than 90 percent of the agreements (215 of 232) “involve the generic manufacturer receiving rights to patents that were not the subject of any litigation between the brand manufacturer and that generic manufacturer.” This type of private-sector agreement could have benefits for the consumer, taxpayer, brand manufacturer, and generic manufacturer, if other types of generic drugs make it to market faster. And more than 80 percent of the agreements (187 of 232) include provisions allowing the generic manufacturer “to begin selling the generic product prior to the expiration of the relevant patent(s),” if certain conditions are met. When policymakers paint these agreements between drug manufacturers with one, inaccurate brush (“pay-for-delay”), they risk interfering with America’s robust prescription drug market and causing more harm to consumers and taxpayers than intended.
The Shortcomings of Minnesota’s “Pay-for-Delay” Legislation
In addition to our overarching concerns with most “pay-for-delay” legislation at the federal and state levels, we find some particular aspects of HF3744 troubling:
- Presuming agreements that include “anything of value” are anticompetitive: Subd. 2(a)(1)(i) presumes an agreement where a generic manufacturer “receives anything of value from another company asserting patent infringement” is anticompetitive. Notwithstanding the exceptions outlined in Subd. 2(a)(2), “anything of value” is an extraordinarily broad term that could capture many agreements between manufacturers around the country.
- Presuming that agreements that forego research and development, manufacturing, marketing, or sales “for any period of time” are anticompetitive: Subd. 2(a)(1)(ii) presumes that a generic manufacturer “limit[ing] or forego[ing] research, development, manufacturing, marketing, or sales” of the product “for any period of time” are anticompetitive. The legislation does not qualify “any period of time,” meaning delays that last just months would also be presumed anticompetitive by HF3744.
- Instructing factfinders to not presume an agreement that allows for early generic entry is procompetitive: Subd. 2(b) includes several provisions that seek to control what factfinders investigating manufacturer agreements determine is procompetitive and what is anticompetitive. Unfortunately, it bars these factfinders from considering agreements procompetitive if they allow for generic entry before a brand patent’s expiration. As noted above, this would cover the vast majority of agreements reviewed by the FTC (around 80 percent).
- Levying severe penalties on “pay-for-delay” agreements that Minnesota considers anticompetitive: Any agreements that violate Minnesota’s broad and far-reaching definition of “anticompetitive” would be subject to a minimum penalty of $20 million, based on the bill’s current writing. This is an extraordinary penalty for a state to levy on manufacturers, many of which operate outside Minnesota.
We believe the Minnesota legislature should stop consideration of the legislation and start from scratch. Fortunately, NTU has robust policy menus for federal and state lawmakers to reduce prescription drug costs without restoring to overregulation or harmful government price controls
Pro-Taxpayer and Pro-Consumer Ideas to Reduce Prescription Drug Costs
Even though many of NTU’s ideas for reducing prescription drug costs are directed at federal policymakers, we believe several of our recommendations may apply to state lawmakers in Minnesota and beyond:
- Increase Practitioner and Patient Knowledge of Biosimilars: According to health care experts, several of the major barriers to increased uptake of biosimilars have to do with a lack of certainty and knowledge about these products. Fortunately, existing proposed federal legislation would help tackle the knowledge gap on biosimilars. The Advancing Education on Biosimilars Act of 2019 (S. 1681), sponsored by Sen. Michael Enzi (R-WY) and cosponsored by Sen. Maggie Hassan (D-NH), would require HHS to establish, maintain, and operate a website with educational materials on the use of biosimilars. Similar requirements could apply to state-level agencies in a state-sponsored bill.
- Enhance Oversight Measures of Government Health Care Programs: NTU has urged Congress to work on achieving real solutions to not only recover misspent money on prescriptions after the fact, but also to detect and prevent such problems before they happen. The state of Minnesota should consider implementing similar programs to tackle waste and abuse in state-sponsored programs as well.
- Give Plans Enhanced Flexibility to Substitute Generics for Brands and Biosimilars for Biologics, When Clinically Appropriate: The best way for policymakers to lower costs for Minnesota patients (and for the taxpayers who support state health programs) is to boost the introduction and utilization of lower-cost generics and biosimilars. While heavy-handed measures aimed at “pay-for-delay” agreements may actually backfire on lawmakers, they should consider legislation that enhances insurer and PBM flexibility to make formulary substitutions when they involve generics. While the federal government has preemptive authority over self-funded employer plans, Minnesota lawmakers can write bills impacting individual, fully-insured group, or state-sponsored health plans.
We believe that all of the above recommendations will do far less harm to innovators than so-called “pay-for-delay” legislation, which would just take a sledgehammer to biopharmaceutical development - all at a time when the nation most needs those companies to innovate. Minnesota can reject HF3744 and SF3097 before it’s too late, and take their policymaking in a better direction.