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Senate Judiciary Committee Approves Kohl's Bill to Stop Rx Drug 'Payoff' Settlements

WASHINGTON Today, the Senate Judiciary Committee passed U.S. Senator Herb Kohl's (DWI) bill, the "Preserve Access to Affordable Generics Act" (S.316), paving the way for its consideration by the full Senate. The bill, which explicitly prohibits brandname drug manufacturers from using payoff agreements to keep cheaper generic equivalents off the market, was passed by unanimous consent and not amended during today's meeting.

"I believe today's vote shows that many of my colleagues agree that these settlements are anticompetitive and that brand and generic drug companies are abusing this practice," Kohl said. "Our solution is very simple: make these anticonsumer patent settlements illegal. It will end this practice that is seriously impeding generic drug competition competition that could save consumers, literally, billions of dollars in health care costs."

Senator Charles Schumer (DNY), a cosponsor of the measure said, "We must put an end to back room deals between generic and brandname drug producers that do nothing but enrich the drug makers and keep prices high for consumers. Passage of this bill out of committee is a first step toward making sure that brandname producers can't pay off generic producers to keep generics off the shelves of local pharmacies to the detriment of consumers."

In 2005, two appellate court decisions overturned Federal Trade Commission's (FTC) longstanding position against this practice and upheld settlements that include such payoffs. Last year's Supreme Court dismissal of the FTC's latest appeal prompted lawmakers to introduce this important bill.

A FTC report found that in the six months following the 2005 court decisions, there were three settlement agreements in which the generic company received compensation and agreed to a restriction on its ability to market the product. Additionally, the FTC found that at least seven settlement agreements made in 2006 included a payoff from the brand manufacturer in exchange for a promise by the generic company to delay entry into the market.

Prescription drugs make up 11% of national health care spending but are one of the largest and fastest growing health care expenditures. The U.S. spent over $250 billion dollars on prescription drugs in 2005, with generics accounting for 56% of the prescriptions but less than 13% of the costs. Generics, on average, cost 63 percent less than their brandname counterparts.

Senators Patrick Leahy (DVT), Chuck Grassley (RIA), Russ Feingold (DWI), and Edward Kennedy (DMA) have also cosponsored S. 316.