COLIN MCENROE
Looking for a remedy for high drug prices
Last week we learned that Attorney General William Tong has rosacea. I’m sorry to learn that. Some members of the McEnroe clan have it so bad we dare not wave our faces near bulls.
In one year, the drug Tong takes to control said rosacea jumped, in average market price, from $20 (for a bottle of 500 tablets) to $1,849. It was part of an industry-wide trend. Prices for 1,200 generic drugs increased an average of 448 percent in a year.
Tong was a state legislator when all this was happening, but two antitrust lawyers working in the Connecticut attorney general’s office back in 2014 already had a clue about what was going on.
It was, according to a 35-count lawsuit filed by Tong and his counterparts in 43 states earlier this month, something the pharmaceutical industry called “playing nice in the sandbox.”
Playing nice, in the early stages, meant this: Imagine that you, an executive at a drug company called AvariceTek, decide to begin manufacturing hoxamoxtrinilopezamone, a sleep drug. Two other companies already make the drug. You approach them, ideally at one of the conferences, dinners or golf outings that dot the calendar of Big Pharma. You come to an agreement about what your “fair share” of the market would be.
The idea is to avoid competing. AvariceTek gets to “corner” 30 percent of the market for hoxamoxtrinilopezamone, and nobody else tries to sell to those people. Once that happens, a generic drug that might sell for five cents a pill elsewhere in the world (and make a profit) can be sold for $100 a pill to you or me.
But that wasn’t enough for these insanely greedy people. They, according to the Tong complaint, decided to take it “to the next level” and actually begin fixing prices through collusion. Once again, they mostly did this over martinis, Wagyu steaks or Callaway five irons.
But occasionally certain idiots would use text messages or emails. Many of these have been collected by the attorneys general and would doubtless make for entertaining reading, but every last one is redacted in the public version of the 510-page complaining filing. Drat!
Tong and Company’s lawsuit is essentially a new and improved (“Now with more defendants and plaintiffs and counts than ever!”) version of a lawsuit filed in 2016 by Tong’s predecessor, George Jepsen, and 19 other AGs. But the real heroes are two legal nerds you never heard of, Joe Nielsen and Mike Cole, the Connecticut antitrust guys who figured out the case and began recruiting other states at a top secret meeting in the Kabuki Hotel in San Francisco in 2016.
While this is happening, there are similar federal lawsuits. It’s all good news, and the greedy fiends who milked the public for billions of dollars in unwarranted price hikes ought to be punished for it.
The question is: will they? Our national system of civil penalties often seems more impressive than it really is. You may recall that in 2013 JP Morgan Chase settled with the Justice Department on a record $13 billion fine for its misdeeds involving mortgage-backed securities connected to the 2008 financial crisis.
Holy Restitution, Batman! $13 billion! Those guys will never be the same. Actually, as you probably know, the bank is doing just fine, even though the total tab for those misdeeds ran closer to $20 billion when you add up the fees and settlements.
JP Morgan Chase is currently, by assets, the largest U.S. bank. It has the same CEO as it did when the poop hit the fan. Its stock price boomed up nearly 15 percent last month. And, as to whether it learned its lesson, consider that it was recently fined a quarter of a billion dollars by the European Union for currency collusion.
Even when they look big, civil penalties are often not big enough. In the case of Morgan Chase, more than half of the $13 billion was tax deductible. And even though the fine still looks massive, consider that Morgan Chase’s profit for its most recent quarter was $7.7 billion. Large government fines are sometimes paid in installments, or the company finances the fine so it can string the payments out into the misty future.
But we’re just getting started. Let’s go back to our fictional company, AvariceTek. Let’s say they get caught up in the Tong suit which seeks, among other things, “disgorgement of the Defendants’ ill-gotten gains.” (I love the wording!) The claw-backs, the damages, the fines, could add up to a lot, but they could just as easily fall far short of the loot AvariceTek has piled up while It’s quite possible a company like that could get hit with a fine that would look to them like a painful but acceptable cost of doing business. We got to cheat for years! You can’t put a price on that! running wild and unchecked in the drug market.
And, while that was happening, if AvariceTek was showing huge profits, their market valuation would be going crazy. Their stock would be worth more. And more and more. So maybe over 15 booming quarters, the market rewards AvariceTek with a tenfold increase in value.
It’s quite possible that a company like that could get hit with a fine that, while enormous to us, would look to them like a painful but acceptable cost of doing business. We got to cheat for years! You can’t put a price on that!
That’s not a reason not to pursue these actions. I love these actions. I would love it even more if the bad actors faced jail sentences.
But it probably won’t totally fix our dysfunctional drug pricing system. For that, you need leadership in the area of drug price controls. It now appears that we have some. President Donald Trump seems serious about getting a grip on drug prices.
That’s right. President Trump may actually fix a dire problem. I’m getting dizzy. Somebody go get my Lisinopril.