IS BIG PHARMA TOO BIG? GENERIC DRUGS AND INSULIN.

Swanson was the first Attorney General in the country to take the three manufacturers of insulin to court with a price gouging lawsuit, filed against Sanofi-Aventis U.S. LLC, Novo Nordisk, Inc., and Eli Lilly and Co.

Swanson noted that the original patent for insulin was sold for $1 in 1922 because the inventors wanted the drug to be widely available. In contrast to this humanitarian effort, the current manufacturers of insulin show no mercy in raising the price of insulin.

The list price of some insulin products more than doubled between 2011 and 2018 and more than tripled from 2002 to 2018. For example, the cost of Levemir increased from $120.64 for 100 units/ml vial in 2012 to $293.75 in 2018; HumaLog increased from $122.60 for 100 units/ml vial in 2011 to $274.70 in 2017; and Lantus increased from $99.35 in 2010 when it first entered the market to $269.54 in 2018.

The lawsuit alleged that the drug companies fraudulently set an artificially high “list” price for their insulin products but then negotiated a lower actual price by paying rebates to pharmacy benefit managers (PBMs). A PBM is a company retained by a health plan to negotiate prices with drug companies and develop “formularies” of approved drugs that policyholders may take. Drug companies want their drugs to be on the formulary because, if a drug is not on the formulary, it is not covered by the health plan or costs more. Pharmaceutical companies obtain favorable placement of their products on PBM formularies by artificially raising their list prices and then offering rebates to the PBM in exchange for favorable formulary placements.

PBMs normally get paid in part based on the “spread” between the list price of a drug and the net price paid by the health plan after the rebates (i.e. the greater the “spread,” the higher the compensation.) Because drug companies want their drugs to be on the formulary, they raise list prices so they can offer higher “rebates” or “spreads” to PBMs than their competitors. This causes the “list price” of the drugs to spiral upward. Health insurers receive a portion of the rebates from the PBM and do not pay the list price. Patients who are in high deductible health plans, who are uninsured, or who are on Medicare, however, may end up paying the artificial list price because they do not get the rebates.

Thus, the drug companies establish two prices for their insulin products: a higher artificial list price and the much lower, secret net price that insurance companies pay, which is confidential. PBMs and manufacturers do not disclose the rebates paid for favorable formulary placement, claiming this information is a “trade secret.” In most industries, competitors normally compete with one another to offer lower prices but here, the drug companies compete by raising their prices so they can give larger rebates to the PBMs who are responsible for the placement of their products.

The “spread” between the list and net prices paid by PBMs has increased dramatically in recent years. For example, Lantus’s spread increased seven-fold between 2009 and 2015; HumaLog’s spread nearly tripled between 2009 and 2015; and Levemir’s spread nearly doubled between 2011 and 2014.

The lawsuit alleged that the list prices the drug companies set are so far from their net prices that they are not an accurate approximation of the true cost of insulin and are deceptive and misleading. The lawsuit was still pending when Swanson left office.

GENERIC DRUGS

Generic drugs save consumers and the health care industry tens of billions of dollars annually. In 2015, generic drug sales in the United States were estimated at $74.5 billion, and the generic pharmaceutical industry accounted for approximately 88 percent of all prescriptions written in the United States. For drugs that attract a large number of generic manufacturers, competition between them decreased the average price by 80 percent or more, compared to brand-name alternatives.

Generic pharmaceutical manufacturers undertook a variety of steps to avoid competition with the brand name companies and with each other. The defendants coordinated their anti-competitive strategy through schemes involving direct interaction with competitors at industry trade shows, customer conferences and other events, as well as through direct email, phone and text message communications. The anticompetitive conduct – including efforts to fix and maintain prices, allocate markets and otherwise thwart competition – resulted in artificially increased prices for generic drugs reimbursed by federal and state healthcare programs, such as Medicaid, and raised the coverage costs for employer-sponsored health plans and out-of-pocket costs for consumers.

In December of 2016, one day after criminal charges were filed against Heritage Pharmaceuticals and two of its executives, Swanson joined with 20 other states and filed a civil suit against six pharmaceutical companies alleging collusion to increase the prices of doxycycline and glyburide. The suit named generic drug manufacturers as defendants: Heritage Pharmaceuticals, Inc.; Aurobindo Pharma USA, Inc.; Citron Pharma, LLC; Mayne Pharma (USA), Inc.; Mylan Pharmaceuticals, Inc.; and Teva Pharmaceuticals USA, Inc.

One year later, in November 2017, Swanson joined with forty-five other state attorneys general (and the Commonwealth of Puerto Rico) to file an amended complaint. The civil complaint named 12 additional drug companies as defendants: Actavis Holdco U.S., Inc.; Actavis Pharma, Inc.; Ascend Laboratories, LLC; Apotex Corp.; Dr. Reddy's Laboratories, Inc.; Emcure Pharmaceuticals, Ltd.; Glenmark Pharmaceuticals, Inc.; Lannett Company, Inc.; Par Pharmaceutical Companies, Inc.; Sandoz, Inc.; Sun Pharmaceutical Industries,Inc.; and Zydus Pharmacuticuals (USA), Inc.

The states alleged the companies violated antitrust laws to artificially inflate the prices of the drugs, and agreed to divvy up the market for the drugs to reduce competition. Some of the drugs increased in price by more than 1,000 percent.

In addition, Minnesota added several counts relating to the Uniform Deceptive Trade Practices Act part of the lawsuit, alleging that the drug companies failed to disclose: (1) generic drug price competition was restrained; (2) generic drug prices were fixed and maintained at artificially-high levels throughout Minnesota; (3) the state and its consumers were deprived of free and open markets; and paid artificially inflated prices for the numerous generic pharmaceutical drugs, including the following:

Doxycycline monohydrate, an antibiotic;
Fosinopril-hydrochlorothiazide, used to treat high blood pressure;
Glipizide-metformin, a diabetes medication;
Glyburide-metformin, a diabetes medication;
Leflunomide, used to treat rheumatoid arthritis;
Meprobamate, an anxiety medication;
Nimodipine, a calcium channel blocking agent used to reduce problems caused by a bleeding blood vessel in the brain;
Nystatin, an antifungal medication;
Paromomycin, an antibiotic used to treat certain parasite infections;
Theophylline, used to treat asthma and other lung problems;
Verapamil, used to treat hypertension; and
Zoledronic acid, used to treat hypercalcemia.
Acetazolamide, used to treat glaucoma and epilepsy.

In October of 2021 three generic manufacturers paid over $447 million for violations of the federal False Claims Act, where the federal government alleged that they violated the Anti-kickback statute through arrangements on price, supply, and market allocation with each other. Since that time several other settlements have occurred. As of 2022 the case was still pending in Pennsylvania federal court. Unfortunately, the Judge curbed the reach of the case by ruling that the states were barred from pursuing disgorgement as a penalty.

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