(480) 923-0802

Our Take: States accuse Teva, other drugmakers, of price fixing

May 20, 2019
Led by Connecticut Attorney General William Tong, a coalition of 44 states alleges that generic drugmakers have schemed for years to increase drug prices. The states filed a lawsuit on May 10 in the U.S. District Court for the District of Connecticut.

In a statement released by Tong’s office, the suit alleges that Teva Pharmaceuticals and 19 other generic drug manufacturers engaged in “a broad conspiracy to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different generic drugs.”

In addition to the manufacturers, 15 current or former company executives are named in the suit.

“Rather than enter a particular generic drug market by competing on price in order to gain market share, competitors in the generic drug industry would systematically and routinely communicate with one another directly, divvy up customers to create an artificial equilibrium in the market, and then maintain anticompetitively high prices,” court documents state.

“This ‘fair share’ understanding was not the result of independent decision making by individual companies to avoid competing with one another. Rather, it was a direct result of specific discussion, negotiation and collusion among industry participants over the course of many years.”

Teva, Novartis and Pfizer all issued statements that deny wrongdoing.

Our Take: This is big. This is bad. But it was only a matter of time before Congress and the states began looking at generic drug price inflation.

To be clear, this case is different from the high-profile examples Congress examined a few years ago. Those cases involved sleeper generic drugs without competition being sold to buyers who increased the price of the drugs exponentially. Former Turing Pharmaceuticals CEO and “Pharma Bro” Martin Shkreli became the poster boy for this strategy when he had the price of Daraprim (pyrimethamine) raised from $13.50 to $750 per dose immediately after his company acquired the drug from Impax Laboratories.

(Shkreli was later found guilty of securities fraud and is sitting in a Brooklyn jail awaiting transfer to a federal penitentiary in Allenwood, Penn. He had been serving out his sentence in a minimum-security facility in New Jersey but was caught running his business from a secreted-away cell phone. That’s frowned upon in most prisons.)

In the current case, we’re talking about hundreds of common generic drugs, such as doxycycline, that have had substantial price increases over the last decade.

And, this suit is about more than high drug prices. It’s also about collusion and price fixing — and violating the Hatch Act. Although Teva is named as a leader in the conspiracy, the complaint describes the conduct as “pervasive and industry-wide.”

If you’re bored on a flight or otherwise have an hour to kill, read the summary of the case starting on page two of the court filing. It reads like a movie script and, frankly, the alleged behavior is damning.

Apparently, the alleged collusive activity had been going on for many years when Teva and its co-conspirators kicked things up a notch in 2012 and “embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States,” the complaint states. Not content with the existing “fair share” arrangement, the companies decided to “significantly raise prices on as many drugs as possible.”

According to the complaint, Teva selected a core group of competitors that it referred to as “High Quality” competitors and targeted drugs where they overlapped. From 2013 to 2015, Teva raised prices on approximately 112 drugs and, the suit alleges, colluded with competitors in the group on at least 86 of those drugs. (Teva had market exclusivity for most of the remaining drugs.) Some of the price increases exceeded 1,000%.

In a free market — which is what the generics market should be — when a drug loses patent exclusivity, generics move in and prices fall as more competitors enter the market. Typically, prices drop by about 50% for the first market entrant. By the time four or five companies are making essentially the same generic, the price can be as little as 10% of the original branded drug.

At least that’s how the economics used to work.

Here, you have a handful of companies agreeing on who is going to make what drug, how much market share each is going to take, and how much to charge. Then one company raises price and the others follow.

That’s un-American behavior, counter to our free-enterprise way of life.

Consider this: 90% of prescriptions filled are for generic drugs. If what has been alleged here proves to be true, consumers and payers have overpaid billions of dollars for drugs that were once called “the best bargain in health care.”

What else you need to know
A bipartisan House bill was introduced Tuesday to ban surprise medical billing. The bill also would set minimum payment standards for out-of-network services at the median rate for in-network services in the region where services are performed. On Thursday, a bipartisan Senate working group released its version of the bill, which is similar to the House bill. At issue is whether to include an arbitration clause; the House legislation does not include such a clause, whereas the Senate version does. In a Health Affairs blog post, policy analysts with the Brookings Institution wrote that the House bill is “the strongest proposal to date on the dual fronts of protecting consumers and reducing health care costs.”

Later in the week, the House passed omnibus legislation to strengthen the Affordable Care Act (ACA) and lower prescription drug prices. The Strengthening Health Care and Lowering Prescription Drugs Act passed on a near party line vote of 234-183. The Act combines seven individual bills related to prescription drugs and the ACA. Among other provisions, the Act restores funding for marketing outreach and ACA navigators, provides funding for states to set up their own exchanges, and prohibit’s the Trump administration’s recent rule on short-term health plans. The bill is unlikely to be taken up by the Republican-controlled Senate.

CMS issued a guidance designed to eliminate spread pricing for Medicaid and CHIP managed care plans. Spread pricing refers to when health plans contract with pharmacy benefit managers (PBMs) to manage the prescription drug benefit, and PBMs retain some of the amount the health plan pays them for prescription drugs instead of passing the full reimbursement on to the pharmacy. Regulations require managed care plans to use a medical loss ratio target of 85% when developing their rates, which means that administrative costs and profits are not to exceed 15%. The guidance clarifies that plans must include any PBM rebates when calculating their medical loss ratio.

Global private equity firm Advent International signed a definitive agreement to acquire Dallas-based AccentCare, a diversified provider of personal care and post-acute services, from Oak Hill Capital Partners. AccentCare is one of the largest home health and in-home personal care services in the U.S., with service in 16 states. “We are thrilled to partner with Advent and continue AccentCare’s journey to create the most capable home-based care provider platform in the country,” said Stephan Rodgers, Chief Executive Officer at AccentCare. Terms were not disclosed.

Civica Rx’s first two generic drugs will be available soon. The company announced that it had signed a product supply agreement with Xellia Pharmaceuticals, noting that Xellia would manufacture essential antibiotics for Civica, including vancomycin and daptomycin, under Xellia’s Abbreviated New Drug Application and Civica labeling and New Drug Code. Civica, the nonprofit startup formed by many of the nation’s leading health systems, said it would partner with suppliers to deliver 14 essential generic medications this year.

A hearing has been set regarding CVS Health Corp.’s merger with Aetna, Reuters reported. Judge Richard Leon of the U.S. District Court for the District of Columbia set the hearing to begin on June 3; it could last up to three days. Although the merger closed in November, a consent decree issued by the Department of Justice that allowed the merger to proceed still requires Judge Leon’s final approval, and he has previously expressed concerns about the deal.

What we’re reading

Contact Darwin Research Group and we will get right back to you.