The Hatch-Waxman FDCA Amendments vs. The False Claims Act: Where the Right to Innovate Meets Antitrust

In yesterday’s post, we introduced the idea of a ‘reverse payment settlement’ agreement as it relates to the delayed introduction of less-expensive, equally-effective generic medications into the American market. In sum, these agreements are entered into between branded pharmaceutical companies and generic drug makers in order to delay the competition expected by the generic dilution of the drug trade for a particular medication.

Reiterating the claims of those in the antitrust and anti-competition realms, a False Claims Act relator has entered the ring with a novel shift in the paradigm, suggesting that the effect of these arrangements is to keep drug costs artificially inflated to the detriment of taxpayers supporting programs like Medicare and Medicaid.

Details of U.S. ex rel. Radice v. Astellas Pharma, Inc., et al.

In a recently unsealed False Claims Act lawsuit, a relator has sued the drug maker Astellas Pharma, Inc. on behalf of federal taxpayers and 27 states. At the crux of the relator’s complaint is the current reverse payment settlement agreement between Astellas and generic drug manufacturer Ranbaxy, Inc., which had plans to market and sell a generic version of the immensely popular prostate medication Flomax. Asetallas, facing a patent expiration in 2004, offered a sum of money to Ranbaxy in exchange for its agreement to forgo selling generic Flomax until 2010. A subsequent agreement was later reached between Astellas and Impax Laboratories, Inc.

An arrangement like this artificially keeps drug costs at a maximum when less expensive, generic options should be available for purchase upon the expiration of the brand patent. Accordingly, the False Claims Act lawsuit asserts that government healthcare programs including Medicare and Medicaid have been unlawfully harmed by this extended period of Flomax market monopolization. In other words, but for the alleged reverse payment settlement between Astellas and other drug companies, the costs to cover Flomax for patients would be much lower.

According to the complaint, which sets forth several reasons why these arrangements should be illegal with regard to Medicare and Medicaid patients, the inflated Flomax rates are:

“substantially greater than the prices they would have [been] absent the Defendants’ illegal conduct because: (1) the price of brand-name Flomax (and later, and for some time, generic Flomax) was artificially inflated by Defendants’ illegal conduct; and (2) the government payors were deprived of the opportunity to purchase lower-priced generic versions of Flomax sooner.” As a result, “government health care payors paid claims . . . at fraudulently inflated high prices resulting from Defendants’ conspiracy and fraud.”

When calculating Medicare Part D reimbursement rates, for example, the reimbursable amount is calculated at 150 percent of the least costly therapeutic option available on the market today. In most states, patients are not necessarily required to select the generic drug for treatment, but their co-pay would be significantly higher upon choosing the brand name if a generic equivalent were available.

The government has declined to intervene in the matter and the case was unsealed on May 7, 2015.

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