Legislation to Deter ‘Pay for Delay’ Agreements Passes Key Judiciary Committee

A first-of-its-kind state legislation to prevent “pay-for-delay” pharmaceutical company pricing practices passed the Assembly Judiciary Committee today with bipartisan support. The California bill seeks to prevent brand name drug manufacturers offering patent settlements to pay generic companies to delay the introduction of lower-price medication to the market. The bill, AB 824 authored by Assemblymember Jim Wood and sponsored by Attorney General Xavier Becerra, curbs this practice that reduces competition and arbitrarily keeps life-saving medications more expensive.

These collusive agreements harm consumers. A 2010 study by the Federal Trade Commissioner concluded that these collusive pay-for-delay agreements cost consumers $3.5 billion each year in higher costs for prescription drugs. This means Californians would save hundreds of millions of dollars a year if these practices were prevented.

Assembly Bill 824 by Assemblymember Wood would curb pay-for-delay and hold drug corporations accountable for their pricing tactics. When drug companies pay to prevent a lower-price medication from entering the market, consumers pay more: at the pharmacy and in our premiums. What’s the point of life-saving medications if people can’t afford to use them? With this bill, California can take the lead in addressing this problematic, price-gouging practice of pay-for-delay by prescription drug companies.

The bill had previously passed the California Assembly Health Committee, and now proceeds to the Assembly Appropriations Committee. Federal legislation on “pay for delay” practices was passed last week out of the U.S. House Energy and Commerce Committee.

AB 824 is the major prescription drug price bill this year in the legislature in California, which has been a national leader is confronting the issue of prescription drug prices.

In 2017, SB 17 (Hernandez)was signed into law to require all drug price hikes over 16% over a two-year span to be subject to transparency requirements, which discourages double-digit price increases and encourages better negotiations between drug companies and purchasers. This advance notice is given to public purchasers like Medi-Cal and CalPERS and private purchasers including health plans and insurers. It also enhances public disclosure of information about drug pricing by requiring drug manufacturers to file information about the rationale for pricing increase, marketing costs, and other specifics with the Office of Statewide Health Planning and Development. The law also requires health plans and insurers to disclose information about drug pricing through existing rate review processes at the Department of Managed Health Care and Department of Insurance. Co-sponsored by Health Access California, SB 17 was strongly backed by a broad coalition of consumer, labor, business, insurer, and other health organizations, but opposed by the pharmaceutical industry.

Other recent legislation around prescription drug have included AB 315 (Wood) to regulate pharmacy benefit managers and SB 1021 (Wiener) to maintain co-pay caps to keep life-saving drugs affordable. Earlier this year, Governor Newsom proposed a statewide prescription drug purchasing pool, to consolidate the purchasing power of various state agencies, and ultimately other payers, to negotiate the best possible deal on pharmaceutical prices for Californians.