Generic drugmakers’ cartels cost U.S. consumers billions
Drug dealers aren’t playing nice in the sandbox, and they’re bullying everyone else in the playground.
It’s been a wild ride, watching the prices for some generic drugs swing faster and higher. Remember how they were supposed to slide down and provide lower-cost alternatives to brand-name drugs whose patents had expired?
The generic version of a drug was supposed to cost less because, after a drug’s patent expired, the brand-name maker no longer had an exclusive monopoly on making that drug and, therefore, setting its (invariably higher) price. Generic drug companies would sweep in and manufacture that drug, competing against one another in the free market to drive down the cost.
But suppose instead that those generic drug manufacturers started meeting in private sandboxes to scheme about strategies to raise prices for their products? If they played well together and agreed not to compete, they could simultaneously raise the price of a drug. Each of them would profit as long as no one competitively backed down on the agreedupon price. They could build grander, more expansive sandcastles for themselves.
Well, suppose no more. As The Washington Post recently reported, at least 16 generic drug companies are under investigation and face litigation from 47 states for alleged pricefixing conspiracies that have driven up prices for 300 generic drugs by upwards of hundreds, even thousands, of percent. An antitrust investigator designated it as “most likely the largest cartel in the history of the United States.”
Reporters described the code language that drug company executives used to communicate among themselves: for example, “sandbox” referred to the generic drug market, and “fair share” meant a division of the market so that every company made a profit. If drugmakers didn’t abide by playground rules and instead sold products below the agreed-upon prices, they were “trashing the market.”
In other words, the generic drugmakers drew a line in the sand that kept price competition at bay. Those of us on the outside — patients, health insurance companies, pharmacies, hospitals and taxpayers — were not only kept out of the sandbox, we were also made to pay a hefty price.
It’s doubtful that anyone who has studied the pharmaceutical industry — whether brandname or generic — is surprised by the recent allegations. Still, it’s amazing that those allegations are being dug up from so deep and dragged en masse out of the sandbox for everyone to see in the broad light of day.
And in that better light, we might finally begin to make some sense of a sudden and baffling spike in the cost for a generic drug that we can no longer afford. We can understand why our pharmacy no longer carries the pill we’ve been taking for years to control our hypertension or anxiety. Or why an old-time antibiotic we need is no longer available in the hospital.
When prices of generic drugs are raised by coordinated price- fixing schemes, the cost to consumers — and profits to drugmakers — can be enormous. That’s because generic drugs account for about 90 percent of the prescriptions written in this country, and roughly $100 billion in annual sales. So, raising the price of even a small proportion of generic drugs for a few years can generate billions in profits.
Overall, the generic market has performed admirably. It has succeeded in saving us health care dollars by curbing the rise in drug prices. But big holes exist within its system that allow sandbox cartels to exist and proliferate.
And now those holes are increasingly visible to those of us who have been kept out of the sandbox by market bullies. It’s ironic to witness an industry — so vaunted for its potential to lower drug costs through freemarket competition — subvert free-market principles through anti- competitive price-fixing. More importantly, it’s disheartening to see how such an unethical practice has been tolerated, harming consumers on so many levels.
The current antitrust lawsuit backed by the 47 states gives us reason to hope that some fair order of business will be restored in the sandbox. Kate Scannell is a Bay Area doctor and the author, most recently, of the mystery “Immortal Wounds.”