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Where Does It Say the Supreme Court Has the Constitutional Power to Hike Medicine Prices to 5x Their Cost?

How the industry uses the high court to allow bribery and evade the FDA.

The Supreme Court oral arguments on marriage equality deserved all the attention they received — but it’s another case heard this week that will affect even more people over the course of their lifetimes. And it could cost Americans millions in prescription drug bills.

The case falls within a sadly predictable continuum for the Roberts Court, which virtually always sides with the corporate litigant over the government or individual. This time, the arguments in FTC v. Actavis revolve around an insidious tactic common to the nation’s largest drug companies, and known as “pay for delay.” As a result of the likely ruling in this case , drug companies will be able to charge consumers as much as five times the potential cost of their products. And both government regulators and consumers will watch helplessly as pharmaceutical companies bribe generic drug makers to retain their exclusive holds on the lifesaving medicines we all inevitably require.

The first thing to know here is that U.S. pharmaceuticals get a very good deal from the federal government. For every new drug they produce, they get rewarded with long-term patents that grant them exclusive rights to market and sell the product for as much as 20 years – which guarantees them billions in profits and no competitors in the marketplace. Drug companies claim that they must be allowed to profit off of products they nurtured with expensive research and development. In reality, taxpayer-funded research from academia or the National Institutes of Health account for the vast majority of vital drugs brought to market every year, and R&D is a small fraction of the overall drug company budget. What’s more, drug companies routinely use their monopoly power to jack up pharmaceutical prices, which cost far more in the U.S. than anywhere in the world.

Congress tried to deal with this problem as far back as 1984. The Hatch-Waxman Act accelerated the FDA approval process for generic drugs, essentially copies of the brand-name products. Typically, generics sell at a much lower price – in most cases by 80-90 percent, which obviously makes them quite popular. So the introduction of a generic drug basically ends the profitability for the brand-name manufacturer, while delivering big benefits to the consumer. Under Hatch-Waxman, companies can sell generics before the expiration of the exclusive patent by successfully challenging the patents’ validity (and there are often grounds for such a challenge, as drug company lawyers often find every loophole imaginable to extend their patent life or acquire new patents for slightly different versions of the same drug).

So, imagine you’re a big-time drug company. You want to keep competitors off the market as long as possible. Your move is to basically sue the pants off the generic drugmaker for copyright infringement, setting in motion a long and tortuous legal process. And these usually end with “pay-for-delay” deals. The brand-name drug company pays the generic manufacturer a cash settlement, and the generic manufacturer agrees to delay entry into the market for a number of years. In the case before the Supreme Court, the drug company paid $30 million a year to protect its $125 million annual profit in AndroGel, a testosterone supplement.

It’s hard to see this as anything but bribery, designed to preserve a lucrative monopoly for the brand-name drug maker. In fact, this is what the Federal Trade Commission has argued for over a decade. They consider it a violation of antitrust law, arguing that the exchange of cash gives the generic manufacturer a share of future profits in the drug, specifically to prolong the monopoly. As SCOTUSBlog summarizes from the FTC’s court brief, in the regulator’s view, “Nothing in patent law … validates a system in which brand-name companies could buy off their would-be competitors.” Indeed, everyone wins with pay-for-delay but the consumer: the FTC estimates that the two dozen deals inked in 2012 alone cost drug patients $3.5 billion annually, with the brand-name and generic manufacturers splitting the ill-gotten profits.