Posted by Bill Sandweg on 12 December 2018.
“Generic” is the name given to drugs that are not protected by patents. Anyone can make a generic drug. Because they are not protected by patents, it is anticipated that competition will drive down the prices of generic drugs to the benefit of all consumers. Anyone who has been paying attention to drug prices in this country knows that the opposite has been happening; prices of generic drugs have been skyrocketing. Turns out the big generic drug manufacturers have been fixing prices. Take a look at this story from the Washington Post.
It is against the law in the United States for companies to get together and fix prices or divide markets or engage in any other type of anti-competitive behavior. Of course, a lot of things are against the law but people do them anyway because it is a way to make money. That seems to be what is happening here. According to the prosecutors, there has been corruption on a massive scale among the manufacturers of generic drugs. Since generic drug sales in 2017 were $104 billion, there is a lot of money to be made in keeping prices up.
There was a time when the generic drug market operated as intended due to principles of supply and demand. Competition was described as cutthroat and it kept prices low. But then a change took place. Prices for generic drugs began to climb and climb quickly for no apparent reason. Furthermore, it was not just the generic drugs of one manufacturer that were increasing in price, the competing drugs of other manufacturers were going up as well, seemingly in lock step. Clearly, something was happening.
In the absence of collusion, when one manufacturer raised its prices, the other manufacturers should have seen an increase in demand for their competing drugs. This would have forced the manufacturer who raised prices to either back down or be driven out of the market. Law enforcement, consumer advocates and health insurers noticed and began to investigate.
In late 2016, the attorneys general of a number of states got together and filed an anti-trust suit alleging price fixing for two generic drugs. As the result of information learned during the discovery process, that suit has gained the participation of more states and has grown to include over 300 generic drugs and 16 manufacturers. Based on comments from those in a position to know, it would appear that the evidence against the manufacturers is strong. In a parallel federal criminal case, two former executives of Heritage Pharmaceuticals have pleaded guilty and are cooperating the Justice Department prosecutors.
While the manufacturers deny any collusion, they offer no explanation for the sudden and dramatic increases in generic drug prices among companies that should be strong competitors of each other.
The whole thing stinks. I have written about the lobbying power of the drug companies and the influence it has bought in Washington, D.C. Your representatives in Washington don’t want to offend their campaign contributors by reining in prices. It is instructive that the efforts to hold the drug companies accountable are being led by the states, despite this being a national problem that calls out for a national solution. The states are stepping in because Congress won’t act.
There is so much money changing hands in health care that it is inevitable greedy people will look for ways to game the system and take money out of our pockets. We have to be constantly vigilant to uncover their schemes. Looks like these legal actions are a good start. Watch this space. I predict the generic drug manufacturers are going to have to settle.