An article by reporters at Bloomberg recently highlighted the way United States prosecutors are beginning to crack down on generic drug companies, conducting a “sweeping criminal investigation into suspected price collusion,” which adds a new challenge to an industry that has been the focus of public outrage for quite some time now.
The antitrust investigation, which began roughly two years ago at the Department of Justice, now spans more than a dozen companies and two dozen drugs. The grand jury probe is examining whether some executives worked together to raise prices, and the first charges could potentially be made by the end of the year. Piggybacking off of recent moves by the federal government, individuals who are responsible stand the possibility of being charged.
The Washington Post delved a bit deeper into the issue, going back to 1998 when Amgen launched Enbrel, its “transformative arthritis treatment.” In 2002, federal regulators approved a similar drug, Humira. The drugs work very much the same way and are approved for many of the same ailments. While they have been immensely valuable to patients, they have also been large profit drivers for the two pharmaceutical companies that make them, naturally making the companies targets.
A review of price increases for both drugs shows that they have undergone “closely timed list price increases, nearly identical in magnitude, for more than a decade.” While there is nothing illegal about competing drug prices rising around the same time as each other, some legislators are starting to raise questions about whether a similar pattern of price hikes on other sets of drugs could be a sign of an antitrust violation.
Now Congress is Involved
Senator Bernie Sanders and Representative Elijah Cummings have now requested a federal investigation into whether closely timed price hikes on competing insulins could represent “possible collusion.” According to the lawmakers, “We are concerned that the potential coordination by these drug makers may not simply be a case of ‘shadow pricing’ but may indicate possible collusion.”
Over the course of roughly three years, they believe that three diabetes drug makers (Sanofi, Novo Nordisk, and Eli Lillly) have mirrored each other’s price increases precisely. They note, “In May 2014, Sanofi and Novo Nordisk each raised their prices for a vial of diabetes medication by 16.1 percent within a day of each other. Six months later, the companies both raised the medication price by 11.9 percent. There have been 13 reported instances of such tandem price increases between those two companies since 2009.” Eli Lilly comes into the picture when the lawmakers state that “Eli Lilly has also on several occasions matched price increases of its insulin products with Novo Nordisk.”
Company Responses
The three companies that the lawmakers refer to strongly deny that they have colluded and stress that they set their prices independently of one another. Ashleigh Koss, spokeswoman for Sanofi, emailed a statement, saying, “Sanofi sets the prices of our treatments independently,” while Novo Nordisk echoed that sentiment, saying it sets prices “independently” and that it stands by business practices.
What Does Collusion Require?
Collusion is a serious allegation, but it also requires a lot of evidence to prove one guilty, including direct evidence (i.e., emails, meetings, or phone calls between executives showing they’ve agreed with one another to fix prices). Drug price hikes in sync are not evidence of collusion, but instead may reveal something fundamental about how competition works within the drug industry.
Pharmacy benefit managers (PBMs) tend to play competing drug companies off each other to win bigger rebates. When there are two drugs that are similar, the PBMs have greater leverage because they can threaten to reduce their coverage so patients have to pay a higher co-pay, or even remove them entirely from their list of covered drugs.
The pattern of one company raising a price and another shortly following suit is known as “price leadership.” John Baker, a law professor at American University, states, “Mere price leadership is not a violation, even if it leads to higher-than-competitive prices. That, alone, isn’t enough to infer an agreement” to fix prices.
According to Diana Moss, president of the American Antitrust Institute, “An oligopoly forms and they’re not colluding, but they’re very interdependent on one another. So the decisions that one company makes about pricing will incorporate what other firms are going to do. That level of interdependence often results in prices that are higher than competitive levels but don’t constitute collusion.”