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Reason 127 - Why medicine costs many times more in the U.S.


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Investigation into generic "cartel" expands to 300 drugs

Christopher Rowland, The Washington Post  /  December 9, 2018

Executives at more than a dozen generic-drug companies had a form of shorthand to describe how they conducted business, insider lingo worked out over steak dinners, cocktail receptions and rounds of golf.

The “sandbox,” according to investigators, was the market for generic prescription drugs, where everyone was expected to play nice.

“Fair share” described dividing up the sales pie to ensure that each company reaped continued profits. “Trashing the market” was used when a competitor ignored these unwritten rules and sold drugs for less than agreed-upon prices.

The terminology reflected more than just the clubbiness of a powerful industry, according to authorities and several lawsuits. Officials from multiple states say these practices were central to illegal price-fixing schemes of massive proportion.

The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.

What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said in an interview. His comments in an interview with The Washington Post represent the first public disclosure of the dramatically expanded scale of the investigation.

The unfolding case is rattling an industry that is portrayed in Washington as the white knight of American health care.

“This is most likely the largest cartel in the history of the United States,” Nielsen said. He cited the volume of drugs in the schemes, that they took place on American soil and the “total number of companies involved, and individuals.”

The victims were American health-care consumers and taxpayers, who foot the bills for overcharges on common antibiotics, blood-pressure medications, arthritis treatments, anxiety pills and more, authorities say. The costs flowed throughout the system, hitting hospitals, pharmacists and health insurance companies. They hit consumers who lack prescription drug coverage and even those with insurance, because many plans have high deductibles and gaps on prescription drug benefits.

In just one instance of extraordinary cost spikes, the price of a decades-old drug to ease asthma symptoms, albuterol, sold by generic manufacturers Mylan and Sun, jumped more than 3,400 percent, from 13 cents a tablet to more than $4.70. The example is documented in a lawsuit brought against the generic industry by grocery chains including Kroger.

“Everyone is paying the price,” Nielsen said. He offered a single word to explain the behavior: “Greed.”

While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.

Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.

Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy’s. Mylan denied wrongdoing in an emailed statement. Sun, Teva and Dr. Reddy’s did not respond to requests for comment. In a court filing, Teva said allegations of a price-fixing conspiracy “are entirely conclusory and devoid of any facts.”

But investigators say voluminous documentation they have collected, much of it under seal and not available to the public, shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.

Two former executives of one company, Heritage Pharmaceuticals, have pleaded guilty to federal criminal charges and are cooperating with the Justice Department in a parallel criminal case. A Justice Department spokesman declined to comment.

The alleged collusion transformed a cutthroat, highly competitive business into one where sudden, coordinated price spikes on identical generic drugs became almost routine. Competing executives were so chummy they had an alphabetical rotation for who picked up the tab at their regular dinners, according to a person familiar with the investigation who spoke on the condition of anonymity because the case remains under investigation.

Annual trade conferences and “Girls Night Out” cocktail meetings were other prime opportunities to swap sensitive information about markets and prices, according to court documents.

“It’s particularly ironic since the whole idea of generic drugs was we would get a lower price,” said Henry Waxman, the Democratic former California congressman who co-wrote the 1984 law establishing the Food and Drug Administration’s rules for generics. “If generic versions are higher than need be through rigged systems, that undercuts the whole idea.”

Generics account for 90 percent of the prescriptions written in the United States but just 23 percent of costs, according to the industry trade group, the Association for Accessible Medicines.

And generic drugs do act as a check on soaring drug bills fueled by brand-name manufacturers. In the Medicare prescription-drug program, according to a government study, prices on a benchmark set of older generic drugs dropped 14 percent between 2010 to 2015.

But for some generic manufacturers, the anti-competitive agreements drove up prices on most, if not all, of the products they sold, according to the states.

Officials say they have documented price increases of up to 2,000 percent. Throughout 2013 and 2014, soaring generic prices sparked consternation at drugstores and among state and federal lawmakers. Independent pharmacists said they were dismayed to learn of the price-fixing allegations.

“There’s old, old drugs that have been around a long time, and all of a sudden their price has increased by hundreds of percent and we don’t know why,” said J.D. Fain, owner of Pieratt’s Pharmacy in Giddings, Tex., a small town an hour drive east of Austin.

Unlike the brand-name drug industry, which gets years of patent exclusivity for novel drugs, generic companies operate in a market that was designed to save consumers and taxpayers large sums through aggressive competition. When the FDA grants approval for a generic product, the first company in the door gets six months of exclusive rights to market the drug. The price discount from the brand-name product is relatively small, say 10 percent.

Prices plunge as much as 50 percent once a second generic enters the market, the FDA has estimated. And by the time six or seven generic companies are competing on a particular drug, the price has declined 75 percent.

Rigging the market has turned that model upside down for some drugs, state officials say.

“It makes me angry,” said Eric Belldina, an operator of pharmacies in Masontown and Morgantown in West Virginia. “Most people think when their prices go up it’s because of a raw-ingredient shortage, not thinking the companies are sitting down, saying, ‘Hey, let’s do this.’ ”

The states’ lawsuit contains particularly pointed allegations against Mylan and its president, Rajiv Malik, who is personally named as a defendant. Mylan faced public scrutiny in 2016 for raising the price of its EpiPen, to treat allergic reactions, by about 500 percent.

Although the EpiPen was not a generic product at the time, the outcry from physicians, patient groups and members of Congress drew negative attention to the second-largest generic manufacturer.

While traveling in the United Kingdom in 2013, Malik took a phone call from an executive of a competing firm, Heritage, the states say in their lawsuit. Heritage had won FDA approval to market a version of the antibiotic doxycycline called Doxy DR, which is used to treat acne and a long list of infections.

That would put it in direct competition with Mylan for sales of the drug.

During the transatlantic phone call, Malik and the Heritage executive, Jeff Glazer, agreed to divide up the sandbox, the U.S. market for sales of Doxy DR, according to the lawsuit by states and similar complaints by independent pharmacies and grocery-store chains.

During subsequent conversations, according to the complaints, Mylan agreed not to sell Doxy DR to CVS and the wholesaler McKesson — sales volume worth about 30 percent of the U.S. market for the drug. As part of the alleged deal, Heritage agreed not to set a low price.

Without a reduction in price, U.S. consumers ended up the biggest losers in the deal.

Mylan said it has no evidence its executives did anything wrong. “We have been investigating these allegations thoroughly and have found no evidence of price fixing on the part of Mylan or its employees,” the company said in a statement. “Mylan has deep faith in the integrity of its president, Rajiv Malik, and stands behind him fully.”

Heritage did not return repeated phone messages. Glazer and another Heritage executive, Jason Malek, pleaded guilty in 2017 to federal charges of conspiring to rig prices and stifle competition. The terms of their plea agreements said they are cooperating with a Justice Department criminal probe.

A drug to treat bone issues related to cancer, zoledronic acid, was the subject of another alleged price-fixing scheme, this time between Heritage and Dr. Reddy’s. Heritage became the first generic manufacturer of the drug in the spring of 2013, but Dr. Reddy’s was close behind. Executives at the companies cut deals so each got a “fair share” of the market, while also conspiring to fix an inflated price, the complaints said.

Dr. Reddy’s, which did not respond to requests for comment, wound up with about 60 percent of the market and Heritage claimed 40 percent, according to the states’ lawsuit.

Investigators cited evidence that executives knew they were acting illegally. As the discussions with Dr. Reddy’s took place, according to the complaints, a Heritage executive “sent a text message to his entire sales team reminding them not to put their pricing discussions with competitors in writing.”

Mysterious price spikes continue to roil pharmacies and patient groups occasionally, though widespread price collusion was curtailed after authorities issued subpoenas in recent years, said Michael Cole, a Connecticut assistant attorney general actively involved in the case. But many drugs remain at artificially inflated prices.

“There have not been rollbacks in the price increases,” he said. “We’re still paying.”

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Facing crackdown in Canada, drugmakers offered billions in price cuts

Reuters  /  February 6, 2019

TORONTO - Canadian pharmaceutical industry lobby groups, in an effort to head off a planned crackdown on prescription drug prices, offered to give up C$8.6 billion (US$6.6 billion) in revenue over 10 years, freeze prices or reduce the cost of treating rare diseases, according to interviews and documents seen by Reuters.

Those industry offers did not impress federal officials, coming last year as Canada prepared to expand the powers of a little-known federal watchdog called the Patented Medicine Prices Review Board (PMPRB) to reduce the cost of prescription drugs.

The government proposals would change the countries Canada compares its prices to, dropping the United States where they are highest, and set a formula to assess cost-effectiveness of medicines.

Announced in 2017, the new rules were scheduled to come into effect last month but have been delayed as the government reviews feedback, which has some wondering if they will ever be implemented.

The delay is a setback for supporters of the changes. But documents detailing counter offers from lobby groups Innovative Medicines Canada and BIOTECanada show an industry struggling to win over federal officials.

Unlike other countries with universal healthcare, Canada’s government-funded healthcare system does not cover prescription drugs. Most Canadians rely on an expensive patchwork of public and private insurance plans for that. Among industrialized nations, only the United States and Switzerland spend more on prescriptions per capita.

Declan Hamill, a vice president at Innovative Medicines Canada, said the proposed regulations go too far and could hurt patient access to new drugs in Canada. But his group recognizes that the Canadian government wants to make drugs more affordable, he said.

“We’d like to help the government out with that, and we’ve been trying to have discussions with them,” Hamill said.

Lower prices in Canada could eventually hit drugmakers in the most lucrative U.S. market, as Washington evaluates a proposal to base drug prices paid under the government’s Medicare program on the cost of medicines in other developed nations, including Canada.

Global drugmakers, including Johnson & Johnson, Merck & Co, Amgen Inc and others, have argued against the Canadian proposal. They referred questions back to Innovative Medicines Canada.

With major drugmakers united in their condemnation of proposed regulations to rein in prices, Health Canada hired former Bank of Canada governor David Dodge and health economist Åke Blomqvist to assess the government proposal. Their review, completed in August 2018, broadly endorsed the government’s plan, documents seen by Reuters showed.

Prime Minister Justin Trudeau’s senior ministers will eventually decide how to proceed. PMPRB Executive Director Douglas Clark told Reuters the new regime could be running by early 2020.

“People have a tendency to presume that the sky is falling,” Clark said. “I think it’s a little early for people to panic and lament the demise of this policy initiative.”

Health Canada said the industry’s offers do not address drug price problems created by outdated rules.

“The non-regulatory counter-proposals that Innovative Medicines Canada and BIOTECanada jointly submitted to the government would not achieve the goal of ensuring appropriate consumer protection in these circumstances,” the ministry said in an emailed statement.

One offer was to “secure a price reduction target of C$8.6 billion” in net present value terms, according to a letter from officials seen by Reuters.

Hamill said the C$8.6 billion figure was borrowed from a government estimate of how much the PMPRB reforms would reduce revenue and would have been spread over 10 years. He did not say exactly how it would have worked. Total patented medicine sales were C$16.8 billion ($12.8 billion) in 2017, according to the PMPRB.

Health Canada also rejected an offer to freeze prescription drug prices, saying it would not meet its objective of lowering prices.

Health Canada said the industry had also committed to improving access for patients with rare diseases, but that proposal would not help those who have drug plans.

Meanwhile, ahead of a fall election, Trudeau’s government is preparing to announce a limited expansion of the nation’s universal healthcare system to cover part of the cost of prescription medicines, as drug plans grapple with the extremely high cost of newer specialty drugs.

The PMPRB caps prices of drugs still under patent protection. If new regulations are adopted, it would change the list of countries whose drug pricing it uses to decide whether costs are excessive, dropping the United States and adding countries with lower prices.

The regulator would also consider for the first time a type of value-based pricing, measuring how cost-effective drugs are in terms of quality-adjusted life years, and force drug companies to privately disclose some confidential discounts.

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