May 22, 2019

Media scrutiny of the generic pharmaceutical industry erupted following the May 10, 2019 public release of a 44-state lawsuit led by the state of Connecticut. Context for the suit was characterized by a 60 Minutes segment as the “biggest price fixing scheme in the history of the United States.” The story was also picked up by the Washington Post, NPR, New York Times, and Reuters, among others. 

The lawsuit accuses 20 corporations and 15 executives of participating in a conspiracy to fix prices for more than 100 generics, turning market forces on their head and causing prices to jump by as much as 2,000 percent. The suit goes on to note that prices for more 1,200 generic medications increased by an average of 448% between July 2013 and July 2014. In short, the allegations are straight-forward and accuse the companies of:

• 1 | Divvying up the market: When a new generic entered the market to compete with an existing generic drug, the companies allegedly divided up the customers and agreed to sell only to their slice of the clientele.
• 2 | Fixing prices: Generic competitors selling different versions of the same drug allegedly coordinated to either collectively maintain or even raise the prices of their medications.

Long considered one of the few “bargains” in the health care system, current events may have the impact of eroding trust in an industry historically viewed as one of the last strongholds against rapidly escalating costs – not only on the prescription drug side of the equation, but also relative to health care services more broadly. 

In a PBS retort to the earlier 60 Minutes segment, the generic industry’s chief lobbyist responded to the allegations to say that prices have actually declined three straight years since 2016.  Sifting through evidence and defenses will likely take years but if the accusations are upheld it could trigger sweeping regulatory response by way of fines for the companies and executives involved. 

Why Your CEO May Care

Your CEO may want to know how these actions impacted your plan and member spend on generic medicines and what recourse is available to recoup overpayment if the court finds in favor of the states. 

• The suit contends that the illegal actions by the companies in question resulted in “many billions of dollars of harm to the national economy over a period of several years.”
• If the findings are upheld, third-party payors, health and welfare funds, employer sponsored plans, and consumers have overpaid for prescription generic drugs as a result.
• The budgetary impact of this could be vast and difficult to quantify, but the Association for Accessible Medicines (AAM) touts that 90% of prescription drugs filled are generic, accounting for only 23% of total drug costs – given the proportion of generic fills, there could be substantial financial waste for large employers attributable to these actions.
• The civil suit is asking for a finding that the defendants’ actions violated federal and state antitrust and consumer protection laws and is seeking a permanent injunction preventing the companies from continuing the conduct.
• The suit also seeks reimbursement of profits from the actions and damages to be paid to the state agencies and consumers who were harmed by the drug company practices.

What Employers Can Do

• It is hard to estimate the immediate fallout and the suit could take years to resolve but, most immediately, large employers should analyze past and present spikes in generic prices and talk with their pharmacy benefit manager about how they are responding to the allegations and whether there will be an effort to work with plan sponsors to quantify possible overpayments. 
• Should the multistate suit be successful, it is unlikely that employer-sponsored plans or their members will collect any overpayments without a separate lawsuit asserting the rights of the plans; thus, a risk analysis of litigation should be performed and the effort would likely need to be pursued by a collective of plans.
• Monitor Congressional activity and the promise by Sen. Bernie Sanders (I-Vt.) and Rep. Elijah Cummings (D-Md.) to revive a 2014 investigation into generic makers’ pricing practices after learning about the “unprecedented cover-up.”

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Articles & Guides Pharmacy/Prescription Drugs