WASHINGTON – Today the U.S. Senate Judiciary Committee approved a bipartisan bill introduced by Senators Herb Kohl and Chuck Grassley to limit pay-for-delay settlements that keep lower-cost generic drugs off the market. 

The Preserve Access to Affordable Generic Drugs Act would deter the brand name drug company practice of settling patent disputes by paying generic drug manufacturers in exchange for the promise that its generic version of the drug will be kept off the market.  Under the bill, these anti-consumer pay-off agreements would be presumed illegal and the Federal Trade Commission would be given the authority to stop the agreements.

“Generic drugs save billions of dollars and keeping them off the market only hurts consumers and taxpayers,” Kohl said.  “This is an important step in making sure that there’s no room in a competitive marketplace for these kinds of backroom deals.”

“The wheeling and dealing between brand name and generic drug manufacturers simply lines the pockets of the manufacturers and costs taxpayers and consumers billions of dollars,” Grassley said.  “Our bill would end this practice of pay-for-delay and ensure that cheaper medicines can be made available sooner rather than later.”  

The Congressional Budget Office estimated that the bill will save the federal government – which pays approximately one-third of all prescription costs – $2.68 billion over ten years.  The President included a provision to end pay-for-delay settlements in his fiscal 2012 budget, estimated to save the federal government $8 billion over 10 years.  The Federal Trade Commission estimates that ending these settlements would save consumers who pay for prescription drugs through private insurance or on their own $3.5 billion per year. 

According to a study by the Pharmaceutical Care Management Association, health plans and consumers could save $26.4 billion over the next five years by using the generic versions of 14 popular drugs scheduled to lose their patent protections. 

Brand name drug companies and generic manufacturers routinely enter into settlement agreements to end drug patent litigation, but until 2005, none of them included pay-for-delay provisions. From 2000 to 2004, companies assumed such agreements violated antitrust law.  But in 2005, following three courts of appeals decisions that prevented the Federal Trade Commission from taking action on behalf of consumers, pay-for-delay settlements became commonplace. In the four years after these court decisions, 63 out of 194 patent settlements had provisions in which the brand name drug company made payments to the generic manufacturer in exchange for the generic manufacturer agreeing to delay entry of generic competition. 

For example, Cephalon Corporation was able to keep competition to their narcolepsy drug Provigil at bay for six years by paying $136 million to four different competitors.  Provigil sales in the U.S. at that time were more than $3.1 billion.   In another case, Bayer kept generic competition to its antibiotic Cipro off the market by paying $400 million to three potential competitors, depriving consumers of a generic version for more than six years.

In fiscal 2010, there were a record 31 pay-for-delay settlement agreements that kept generics off the market, a 63 percent increase from 2009.  This legislation passed the Judiciary Committee in late 2009 and was included in the Financial Services and General Government Appropriations bill reported out of the Senate Appropriations Committee last year. Final passage of the bill stalled when the House and Senate failed to agree on an Omnibus Appropriations package at the end of the last Congress.

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WASHINGTON – The Judiciary Committee today approved Sen. Chuck Grassley’s amendment seeking accountability from non-profit groups that would receive federal grants under an expanded prison rehabilitation program.  The Grassley amendment is meant to prevent situations like that of the Boys and Girls Clubs of America, which closed clubs nationwide as it accepted millions of dollars in federal grants while making extensive offshore investments to avoid U.S. taxes and paying millions of dollars in executive compensation.  

“The country faces a multi-trillion-dollar debt,” Grassley said.  “The government has to be more selective than ever about the criteria for the organizations that receive tax dollars through federal grants.  If organizations are holding money off-shore to avoid paying taxes, they shouldn’t be getting federal grants.  If they accept federal grants, they should have to be transparent about executive compensation and fringe benefits.  These are common-sense principles.”  

Grassley, ranking member of the Judiciary Committee, offered the amendment to legislation before the committee that would reauthorize grant programs to help prisoners re-enter society.   The legislation reauthorizes the Second Chance Act, authorizing increased funding from $160 million for two years to $650 million over five years.  The proposal expands the pool of applicants eligible for grants by opening eligibility to non-profit groups.  The committee approved the legislation, along with Grassley’s amendment.  

Grassley’s amendment added a number of good government provisions to the bill that would apply to all non-profit organizations receiving federal grants through this program, including:  

 (1)   A requirement that non-profits be defined as those recognized as tax-exempt charities by the Internal Revenue Service.

(2)   A requirement that 10 percent of grant recipients be audited for compliance with grant requirements.  Any grant recipient found to have violated a grant program would be excluded for two years. 

(3)   A prohibition to the Attorney General from providing any taxpayer dollars, in the form of grants, to any non-profit that holds money in off-shore accounts for the purpose of avoiding paying unrelated business income tax. 

(4)   Increased transparency for grant recipients and the American taxpayers, by requiring that non-profits receiving grants under this program disclose studies used to determine executive compensation for their organization. 

In audit after audit, the Inspector General has found unallowable costs and unauthorized expenditures of taxpayer grant dollars handed out to grantees across all Department of Justice programs, Grassley said.  In some instances, these audits have questioned salaries and other fringe benefits paid to staff of grant recipients. 

As part of an inquiry conducted last year, Grassley and his colleagues discovered that the Boys and Girls Clubs of America held more $50 million in off-shore equity and partnerships, including hedge funds and limited partnerships.  This included funds held in the Cayman Islands, British Virgin Islands, and Bermuda.  When asked why the money was held off-shore, the organization said the answer was to avoid paying unrelated business income tax under the Internal Revenue Code. 

“While this practice isn’t illegal, it’s a loophole that I saw exploited in the many investigations and hearings I conducted as the chairman and ranking member of the Finance Committee,” Grassley said.  “As a senior member of that committee, I’ll continue to work to close that loophole for all charities. For now, it makes sense to question why the federal government should award taxpayer dollars, in the form of grants, to non-profits that are holding millions of dollars in off-shore bank accounts for the purpose of evading the tax code.” 

Grassley added, “This amendment also will help to bring transparency to the determination of executive compensation at non-profits that receive federal grants.  I’ve said repeatedly that the compensation studies used by charities to justify executive compensation have resulted in a race to the top. Making these studies available to the public for review would bring more accountability to the compensation-setting practices of nonprofits receiving grants under this program.”  

Last year, Grassley, along with three fellow senators including Sen. Tom Coburn, started asking questions of the Boys and Girls Clubs of America when a Judiciary Committee-approved bill would have recast a federal grant program established in 1998 from its original purpose of providing seed money to start boys and girls clubs in needy neighborhoods to providing a steady stream of funding for the national organization. The legislation also sought to remove the original congressional requirement that the national organization extend services and open clubs for young people in public housing projects and distressed areas.

The organization responded in full to the senators’ questions and made the information publicly available.

The senators learned the president of the national organization received more than $900,000 in compensation in 2008, even while local boys and girls clubs nationwide close their doors due to budget shortfalls.  They also gathered information about the offshore filings. 

As chairman, ranking member and now a senior member of the Finance Committee, with jurisdiction over tax policy, Grassley has long conducted oversight of the tax-exempt sector, including charities’ offshore investments and compensation practices.

The Finance Committee held a hearing in September 2007 exploring offshore activities by tax-exempt organizations. 

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