California Bars ‘Pay-for-Delay’ Pharmaceutical Industry Practice

California Governor Gavin Newsom signed a first-in-the-nation bill to ban a common pharmaceutical industry practice known as “pay-for-delay.” (AP Photo/Elise Amendola)

SACRAMENTO, Calif. (CN) – Drug companies will no longer be allowed to pay competitors to keep generic drugs off the market under a pharmaceutical industry reform bill signed Monday by California Governor Gavin Newsom.

The first-in-the-nation bill outlaws a common industry practice known as “pay-for-delay” where large pharmaceutical companies pay or incentivize a competing company to keep cheaper generic drugs off the market. Critics say the backroom deals choke competition and force Americans to pay more for prescription drugs.

Newsom says increased competition between drug companies will benefit Californians in the long run.

“California will use our market power and our moral power to take on big drug companies and prevent them from keeping affordable generic drugs out of the hands of people who need them,” Newsom said in a statement.

Pay-for-delay agreements are a staple of the pharmaceutical industry and were largely exposed by a 2003 federal law which requires companies to file the agreements with federal regulators.

According to the Federal Trade Commission, the deals cost consumers $3.5 billion in drug costs annually. 

A 2013 study by a California watchdog found that the deals delayed the public release of generic options by an average of five years and forced consumers to pay up to 33 times more for the brand-name options. 

California will become the first state to bar the deals under Assembly Bill 824, by Assemblyman Jim Wood, D-Santa Rosa.

“This self-interested practice of pay-for-delay results in a loss for patients who deserve access to less expensive drugs and for all of us who end up paying more for health care and, in turn, health care premiums,” Wood said in a statement.

The measure cleared both houses with bipartisan support from the California Medical Association, NextGen California, a host of labor unions, California Attorney General Xavier Becerra and others.

“Intentionally restraining competition to inflate drug profits is illegal. Doing so when the life or well-being of our loved ones may lie in the balance is immoral,” Becerra said. “The enactment of AB 824 signals progress for Californians who have been at the mercy of drug companies and their sky-high pricing for prescription medicines.”

The measure, set to go into effect in January, allows the attorney general’s office to sue companies within four years of the alleged violations. 

Newsom also signed another first-in-the-nation bill that will allow pharmacists to sell common HIV prevention drugs without a prescription. The measure also bars insurance companies from requiring patients to gain permission prior to buying pre-exposure prophylaxis (PrEP) and post-exposure prophylaxis (PEP).

“Recent breakthroughs in the prevention and treatment of HIV can save lives,” Newsom said. “All Californians deserve access to PrEP and PEP, two treatments that have transformed our fight against HIV and AIDS.”

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