Federal Lawsuit: Generic Drug Price Fixing!
In May of this year, I was shocked to hear of an ensuing Department of Justice lawsuit against generic drug companies and executives. I first learned of the details of this drug price fixing investigation on CBS’s “60 Minutes” News Magazine.
The investigation originated in 2011 in Connecticut with a small team of anti-trust attorneys under then Attorney General, George Jepsen. They were the first to notice extreme generic drug price increases and they issued 3 subpoenas to launch their investigation. It quickly grew to include 300 subpoenas which allowed them to pore over millions of documents, creating a database with 11 million phone records covering over 600 individuals. This work took 5 years to complete.
These drug price increases were especially obvious because a steep “patent cliff” had occurred around 2009 within the pharmaceutical industry and many brand name drugs were reaching the end of their patents. But instead of price decreases, overall American per person costs for pharmaceuticals rose by 14.4% from 2010-2014 (according to National Health Expenditure data www.cms.gov/Research-Statistics-Data-and-Systems), well above the 8.9% rise in the preceding four years 2006-2010.
The initial lawsuit was started in 2016 by the Connecticut Attorney General (and expanded to include 20 state AGs including PA) against Heritage Pharmaceuticals along with 17 other corporate defendants and two individual defendants. The suit alleged that a broad industry acted to conspire to restrain competition and raise prices on 15 generic drugs. Two other executives pled guilty to price fixing in January 2017 and later agreed to settle with the states.
On May 10, 2019 this federal lawsuit was expanded to 44 states uniting in this fight against generic drug price fixing. The number of generic drug companies charged also increased and involved the over-pricing of 300 drugs. This amended lawsuit quotes generic industry officials as arguing the “significant price increases were due to benign factors, such as industry consolidations, (federally) mandated plant closures or elimination of unprofitable generic drug product lines”. (Policy & Medicine: A Rockpointe Publication – 2/11/19)
Investigative evidence shows otherwise. Initially phone logs and text messages were matched up between Heritage Pharmaceuticals and two other companies: Aurobindo and Teva, the world’s largest generic drug maker (based here in Pennsylvania). These electronic corporation communications turned into a giant networking puzzle that the investigators had to solve. The defendants coordinated with their competitors at industry trade shows, customer conferences, industry dinners and golf outings to perpetrate their scheme. Employees were told to not put any of these conversations in writing.
The initial lead investigator in Connecticut, Joseph Nielson, assistant attorney general and antitrust investigator said, “This is most likely the largest cartel in the history of the United States.” (Policy & Medicine: A Rockpointe Publication – 2/11/19).
On June 24 Connecticut Attorney General William Tong released the full, unredacted complaint against Teva Pharmaceuticals and 19 of the nation’s largest generic drug manufacturers after the court granted the states’ motion to unseal the complaint. Among the evidence now public are emails between generic drug makers coordinating their response to a Congressional inquiry, emails enforcing “fair share” and “playing nice in the sandbox” market allocation, “fluff price” strategy and other brazen coordination to artificially inflate prices, hinder competition and unreasonably restrain trade across the industry. AG Tong said “The evidence is undeniable and the conspiracy is unconscionable. Our lawsuit alleges that generic drug manufacturers engaged in a brazen, industrywide conspiracy to fix prices and allocate market share for drugs that we rely on every day. The evidence demonstrates that they knew what they were doing was illegal, and that’s why they sought to mislead Congress, destroyed evidence, and cautioned each other to keep their collusive conversations offline. Our investigation is ongoing and expanding and the evidence released today reinforces the allegations in the complaint.”
The Philadelphia Inquirer included an article 5/13/19 that quoted Pennsylvania’s Attorney General Josh Shapiro as saying “Top executives of the nation’s largest generic drug manufacturers conspired to inflate prices at the expense of Pennsylvanians and the American people – in some cases by more than 1000 percent. So we filed this lawsuit to hold them accountable.” The article continues on to state that 3 of the companies named in the lawsuit – Teva, Mylan and Lannett – have their U.S. headquarters in our Keystone State. At least 41 generic drug manufacturers are concentrated in the corridor between Philadelphia and New York City.
AG Tong stated during the May “60 Minutes” interview that after the first lawsuit was filed he noticed “There has been some leveling off. But I don’t think that means that the conspiracy has ended. They’re still unnaturally high (generic prices). What we haven’t seen is if they stopped colluding you would expect prices to go down dramatically. You would expect competition to ensue and one competitor would go after another. And they’d start undercutting each other on price. That hasn’t happened.”
There are many long-term effects of this scandal: One community healthcare clinic doctor in southern rural Illinois was interviewed on “60 Minutes”. Dr. Thomas Pliura stated that he has experienced difficulty “keeping the clinic doors open”. Three quarters of his patients are on Medicare or Medicaid and both government programs set limits on reimbursements for drugs. The rising generic prices have created a medical emergency for his clinic.
Many families’ standards of living and levels of overall health have been lowered because of this extreme drug pricing. Families and individuals sometimes have to choose between necessary drugs and other everyday living costs. I have an acquaintance who has chosen to buy his expensive, life-saving drugs by using up his life savings that had previously been earmarked for his retirement and his grandkids’ future.
Sandy Busche is a member of the Gettysburg Democracy for America.