Says there's a setback, by the way (6)
I believe the answer is:
states
'says' is the definition.
('state' can be a synonym of 'say')
'a setback by the way' is the wordplay.
'setback' becomes 'tes' (I've seen this in other clues).
'by' is a charade indicator (letters next to each other).
'the way' becomes 'st'.
'a'+'tes'='ates'
'ates' after 'st' is 'STATES'.
'there's' acts as a link.
(Other definitions for states that I've seen before include "Conditions or circumstances" , "America; says" , "Conditions of American administrative units" , "Expresses in words" , "Utters in the American Union" .)