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 alleged 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 seeking comment. 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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