Big Pharma’s Big Secret: Illegal Price Fixing

It’s fairly well known that most of the profits from the healthcare industry go straight into the pockets of major pharmaceutical companies. Recent news indicates that the billions of dollars raked in by big pharma apparently isn’t enough. Six major companies have been accused of a conspiracy to artificially inflate the prices of several key medicines. Those companies are currently being sued by twenty states.

Expanding Investigation

In response to evidence and claims against the generic drug manufacturers, the Justice department launched a federal investigation. The initial inquiry began about two years ago, but recently expanded to include additional companies and about two dozen different drugs.

The expanded investigation has put a shadow over the pharmaceutical industry. Stocks for all of the companies involved in the investigation immediately tumbled, some falling as far as 9 percent.

One analyst pointed out that the investigation is likely to bring with it substantial fines and penalties in addition to the financial hits to stock price. However, the analyst indicated that the companies could be more concerned with the long-term implications rather than the immediate financial impact. Historically, even fines in the tens of millions of dollars have done little to deter pharmaceuticals. The companies are far more wary of additional oversight and government regulation that could be placed on them in response to investigations and illegal activities.

Obvious and Inexplicable Price Hikes

The massive changes in price for some drugs were what originally led to investigations. Traditionally, generic drugs have the advantage of being far more affordable than brand name versions. Most drug companies will milk the advantages of a patent and charge premium prices for as long as that patent is held. Once the patent expires, generic versions of the same drug are manufactured and sold for far less.

When the prices of such generic drugs go up instead of down, then it is a red flag for consumers and investigators alike. Massive price jumps are also an obvious indicator that something shady is going on. For example, the price of doxycycline, a generic antibiotic, saw a price increase from $20 a bottle to almost $2000 a bottle in less than a year. Another old heart medication jumped from just eleven cents a pill to over a dollar.

Steak Dinner Conspiracy

Investigators have called the price fixing a conspiracy by multiple companies to hold prices artificially high and cheat various regulations on price. Heritage Pharmaceuticals was named as the ring leader of the conspiracy. Five other companies were named, including several from the United States as well as one of the biggest manufacturers in Israel and India.

According to reports, the deals were made over steak dinners, and the executives of the companies knew exactly what they were doing and the legal implications of their actions. This is shown by the fact that they quickly made moves to hide what they’d done when investigations began two years ago.

Follow the Money

Overall, drug companies seem to deserve the bad reputation they get. It is well known that big pharma spends far more money on advertising than it does on actual research. The companies also dump hundreds of millions of dollars a year into lobbying campaigns and special interest activities to ensure the government remains on their side.

This clearly shows where the interests of these companies lie. It has nothing to do with health or improving lives and everything to do with greed, backroom dealing and undercutting. What is clear is that the biggest losers in the battle with big pharma are the patients who rely on the life-saving medications they produce.

Despite the attempts of big pharma to control government actions, limit oversights and shoot down investigations, the outpouring of rage from consumers has forced the hands of both presidential candidates and congressional representatives. Congress has held several hearings related to the overall cost of drugs. Even when illegal activities and price fixing aren’t obvious, it’s clear that something untoward is happening in the world of big pharma.

The Complicated World of Drug Prices

Unfortunately, there is no clear answer to the spiraling cost of drug prices in the United States. Even though Americans spend more on healthcare than any other industrialized nation, and yet have little benefit to show for it, the vast majority of this money ends up in the hands of big pharma. Most wonder why some simple regulations can’t fix the problem, and that is primarily due to the complexity that is hidden from the eyes of most consumers.

Some drugs, especially certain cancer drugs, have eye-popping costs in the hundreds of thousands of dollars a year. Experts claim that these prices, especially for cancer treatment, are due to the limited competition in those markets. However, the problem certainly isn’t limited to cancer drugs as this investigation into generic drug price fixing indicates. It is these huge numbers which often attract the ire of patients and politicians.

Drug companies commonly argue that these greatly inflated prices are due to the incredible costs incurred with bringing a new drug to market. These costs include the hundreds of millions of dollars in research, fees and various other expensive regulatory hoops the company must jump through, especially when it comes to getting FDA approval. This argument is somewhat valid in terms of brand-name drugs, but the same argument doesn’t hold for generics, which are little more than knock-offs and require basically no research to develop.

The other complication is the convoluted system currently in place for dispensing drugs. By the time any particular drug is sold to a consumer, it has already been in the hands of numerous middlemen who have all taken a chunk out of the profits for that drug.

There is also the idea that very few patients actually pay the real cost of the drugs they buy. When drugs are covered under insurance, most patients pay only a tiny fraction of the full cost. Despite this, someone ultimately still pays the cost. A patient may not have to pay upfront, but drug prices are surely the strongest driver of overall insurance premium costs.

The dark secret, which has become much less of a secret as soaring insurance premiums and poor affordable healthcare options become more of a problem, is that the poorest patients are often those hurt the most by inflated drug prices. Those with private, high-deductible health insurance plans often pay the full price of medications until they hit their deductibles that could be several thousand dollars a year.

The most vulnerable members of our society are those gouged by big pharma. In reality, everyone loses because as government programs soak up more of the cost of healthcare, that cost is ultimately reflected in taxes and other burdens on every member of society. One can only hope that investigations like these, and the outrage they rightly produce, will prompt a closer look at the real cost of big pharma and introduce better regulations to control the massive and unfair expense of these medications.