President Obama’s plan for lowering the cost of healthcare relies partly on ensuring that affordable generic drugs are available to patients. This strategy is not likely to be palatable to innovator companies, who have tried various ways of delaying generic drugs’ introduction to the market.

In testimony before the US House of Representatives’s Subcommittee on Courts and Competition Policy last week, Richard A. Feinstein, director of the Federal Trade Commission’s (FTC) Bureau of Competition, identified pay-for-delay patent settlements as an obstacle to generic competition and to efforts to contain rising healthcare costs. Under pay-for-delay settlements, makers of generic drugs agree to delay the introduction of their products in return for a cash payment. The European Commission called these settlements anticompetitive in a report issued in November 2008.

In his testimony, Feinstein supported H.R. 1706, the Protecting Consumer Access to Generic Drugs Act of 2009, which would prohibit such settlements. A similar bill was introduced in the Senate in February. FTC has attempted to use its antitrust enforcement powers to stop pay-for-delay agreements, but courts have tended to be lenient on them, Feinstein said. Pay-for-delay settlements have thus become a viable strategy for innovators, and antitrust enforcement has gotten difficult as a consequence.

The Pharmaceutical Care Management Association argues that generic drugs could save consumers billions of dollars, but patients cannot buy drugs that are not yet marketed. The courts’ tendency to accept pay-for-delay settlements seems to indicate that legislative action is necessary. Explicitly prohibiting these settlements would likely foster competition, a goal that free-marketeers should certainly get behind. And if the House and Senate bills reduced patients’ expenses (as well as those of government and private healthcare payors), they would represent a step toward achieving Obama’s goal of healthcare reform.