Earlier this year, Valeant Pharmaceuticals purchased Nitropress and Isuprel, a pair of life-saving heart drugs. The same day Valeant purchased both drugs, their list prices went up by 525% and 212%, respectively. Neither of the drugs were improved as a result of costly investment in lab work and human testing, nor was the manufacturing of the drug shifted to a more expensive plant. The only thing that changed was the drugs’ ownership. Since shortly after their purchase of the two heart drugs and the immediate price hikes, Valeant has been under investigation for the way they have raised those drug prices.
After purchasing the two aforementioned drugs in early January 2015, Valeant hired a consultant to look at their prices. The consultant found that some of Valeant’s prices did not reflect the benefits of the drugs to patients and the costs that hospitals save by using the medicines; therefore, Valeant decided to raise the prices to place them more in line with what the consultant thought was reasonable.
Valeant recently stated that they are “shifting away from transactions that are depending on price increases in order to meet our internal target returns,” and that they do not boost prices on the “vast majority” of the thousands of company products.
It was recently disclosed by Valeant, however, that their troubles are not over and that federal prosecutors in New York and Boston are eyeing Valeant’s patient assistant programs. This new disclosure by Valeant is a sign that has investors worried that the company’s fast-growth business model is set to face significant unexpected pressure.
Wednesday, October 14, Valeant received subpoenas from federal prosecutors, seeking information related to how Valeant prices drugs, distributes drugs, and helps patients afford the medicines. Prosecutors are asking for details about “financial support” that Valeant provides for patients, distribution of its medicines, and information given to the Centers for Medicare & Medicaid Services. Federal law prohibits drug makers from directly providing assistance to Medicare-insured patients because it is considered a kickback. In an attempt to legally circumvent that federal regulation, Valeant (along with many other drug companies) uses a foundation to funnel patient help. Last year, the inspector general issued a guidance bulletin saying a drug maker could be violating the federal law against kickbacks if it made donations to induct a charity to steer patients toward their company’s drugs.
Earlier this summer, following a hearing on the drug price increases outlined above, Senator Claire McCaskill wrote a letter to Valeant asking them to explain their price increases. Valeant responded, stating part of the reason for the price increase was they spent $544 million on patient assistance last year and plan to spend $630 million this year. Valeant also defended their price increase by claiming a consultant determined that hospitals believed that the heart drugs they raised prices on remained valuable after earlier price hikes. The consultant found that “there was considerable room to increase the price of both drugs without unduly depleting the funds available to the hospitals from payers,” and that raising the price would not “reduce patient access,” even after previous owners also raised the prices.
While it is not yet clear what specific information federal prosecutors are seeking about Valeant’s pricing, past probes can highlight some ways that drug makers run afoul of the law, in particular in the way they charge Medicare and Medicaid. Generally, the legal issue revolves around whether or not the drug companies are giving the best price to Medicaid. Federal law requires drug companies to give Medicaid the best price for a drug offered to any customers, with the exception of charitable organizations.
Several securities analysts are in agreement that “this is not going to be the last time you see subpoenas for documents” on drug pricing. The changes that the healthcare insurance landscape has undergone over the last several years has been forcing people into high-deductible insurance plans, and those with traditional plans are being saddled with a higher percentage of costs. Analysts believe that those factors are some of the leading causes behind the higher rate of pharmaceutical company subpoenas, and expect Congress to become focused in on drug companies and their practices more than before.