Feds are Investigating a Massive Price-Fixing, Generic Drug ‘Cartel’
“This is most likely the largest cartel in the history of the United States.”
The Connecticut Attorney General’s office is heading an explosive investigation into coordinated drug price-fixing among at least 16 generic drug manufacturers and involving over 300 drugs. The investigation stemmed from an anti-trust lawsuit brought by states against two drugs but evolved into an investigation of the massive drug price-fixing operation.
“This is most likely the largest cartel in the history of the United States,” said Joseph Nielsen, an assistant attorney general and antitrust investigator, to the Washington Post. He cited to the Post the volume of drugs in the schemes, that it all took place on American soil and the “total number of companies involved, and individuals.”
Multiple lawsuits have been filed against the involved companies over the price-fixing, according to Connecticut Attorney General George Jepsen’s office, the leader of the investigation. Last month, a federal judge ruled that more than one million texts, emails and other documents could be shared among plaintiffs as evidence.
Jaclyn M. Severance, a spokesperson for Jepsen, said, “As Attorney General Jepsen has stated in the past, the current litigation is just the tip of the iceberg in terms of the scope of this industry-wide investigation. While we anticipate further action in the future, we are focused on our investigation and the pending litigation at this time, and are unable to comment further.”
FDA and Generic Drugs
When the FDA approves a generic drug, the company that first has that drug available has the rights to exclusively market it for six months. At this point, the price break is only about 10 percent from the brand-name drug. By the time a second generic drug is on the market, the price is lowered by about 50 percent. And when several generic companies, maybe six or seven, have released the same drug, the price is discounted approximately 75 percent.
The purpose of generic drug companies is to save consumers money through heavy competition. Major brand-name companies, however, get years of exclusivity for a particular patent. Recently, anti-competitive agreements among generic drug manufacturers have driven up the prices of many products sold by some generic drug companies. According to officials, price increases of up to 2,000 percent have been documented.
Generic drugs account for 90 percent of prescriptions written in the U.S. but only 23 percent of costs, according to the Association for Accessible Medicines.
J.D. Fain, owner of Pieratt’s Pharmacy in Giddings, Tex., told The Washington Post: “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.”
Eric Belldina, an operator of pharmacies in Masontown and Morgantown, West Virginia, said, “It makes me angry. 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.’”
Ultimately, the victims of the alleged price-fixing are American taxpayers and consumers. Those without health insurance feel the effects, along with those whose insurance policies have high deductibles or no prescription drug benefits.
An example of one of the many cases of cost spikes is seen in albuterol, a common drug that helps ease symptoms in asthma sufferers. Sold by generic drug manufacturers Mylan and Sun, albuterol’s price has risen from 13 cents a tablet to more than $4.70, a whopping 3,400 percent increase.
Mylan released a statement saying, “We have been investigating these allegations thoroughly and have found no evidence of price fixing on the part of Mylan or its employees. Mylan has deep faith in the integrity of its president, Rajiv Malik, and stands behind him fully.”
Teva, another generic drug manufacturer, said in a court filing that allegations of price-fixing “are entirely conclusory and devoid of any facts.”
Drug Price-Fixing Over ‘Chummy’ Dinners
Investigators, however, paint a different picture, alleging that executives at competing generic drug manufacturing companies had routine dinners and even had an alphabetical rotation for who picked up the dinner tab.
The executives also developed a code language for the price-fixing arrangements, calling the market for generic drugs where the companies were expected to play nice the “sandbox.” They also used the term “fair share” to describe divvying up the drug sales and “trashing the market” when a company ignored the unwritten rules and undersold the agreed-upon prices.
In a related case, two former executives at Heritage Pharmaceuticals have already pleaded guilty to federal criminal charges and are cooperating with the Justice Department.