A Preliminary Economic Analysis of the Budgetary Effects of Proposed Restrictions on “Reverse Payment” Settlements

Recently, Congress has considered a measure that would make so-called “reverse payment” patent settlements between branded and generic pharmaceutical companies presumptively unlawful. The measure is modeled closely on S. 369, the Preserve Access to Affordable Generics Act, an earlier bill sponsored by Senator Kohl. Earlier this year, the Congressional Budget Office (CBO) estimated that S. 369 would save the Federal government, on net, $0.9 billion during the 2010-2015 period and $2.7 billion during the 2010-2020 period by reducing the Federal government’s cost for prescription drugs. In this short paper, Bret Dickey, Jonathan Orszag, and Robert Willig demonstrate that CBO’s analysis of S. 369, which relies heavily on an earlier study by the Federal Trade Commission, is seriously flawed and likely substantially overestimates the budgetary savings, if any, that would result from additional restrictions on “reverse payment” settlements.