Fixing the Price-Fixers

Revelations this week concerning a secret price-fixing cartel operated by major pharmaceutical companies may serve as an index of contemporary cynicism: Those who were surprised and shocked to learn that 16 members of the Big Pharma club have been in cahoots to charge astronomical prices had retained a certain level of innocence; those who didn’t raise an eyebrow can count themselves either among the ultra-cynical, or among the most realistic and knowing.

Media coverage of the story — a four-year criminal investigation that will likely lead to federal indictments next summer — has been relatively muted. This was due at least in part to the competing stories. Price-fixing, even big-time, gets swamped by the ongoing angst of the Trump administration, cross-border attack tunnels dug by Hezbollah, the Brexit saga, cataclysmic riots in Paris, and so on — but it is also undoubtedly attributable to the drug companies’ reputation for price gouging.

But it still got some headlines, and deservedly so. That drug companies overcharge individually was known; that they worked together to rig the market to assure themselves profits on a fantastic scale could only have been suspected.

To be fair, none of the companies have yet been officially charged with anything. Teva Pharmaceutical Industries, one of the firms named in media reports, issued a strong denial, saying in a court document that allegations of price fixing “are entirely conclusory and devoid of any facts.”

So it must be said that these are allegations, as yet unproved. However, The Washington Post, Bloomberg and other major news organizations have cited sources in the investigation that have the ring of credibility. The facts, they say, are on the way, be patient.

“This is most likely the largest cartel in the history of the United States,” Joseph Nielsen, an assistant attorney general and antitrust investigator involved in the probe, was quoted as saying.

No fewer than 47 states have joined as plaintiffs in a case that prosecutors say show the industry was “riddled” with artificially raised prices for at least 300 drugs.

While Big Pharma will surely fight the case assiduously using their hefty financial resources, it is important to bear in mind that it is not a recreational product that is at stake; rather, it is life-saving and health-giving medicines, ostensibly with the best interests of the public in mind.

Whatever the outcome, even if Big Pharma escapes any convictions, the case and the suspicions already aroused will provide further impetus to various proposals to bring the industry under control.

Even those averse to more federal regulation in general may be willing to concede that the drug industry has earned its exceptional status. Much as the runaway abuses at the turn of the century led to the establishment of the FDA in 1906 to ensure safety in food and health products, so too the behavior of Big Pharma today would justify new regulations to protect consumers from the safe but unfair profits generated by the drugs themselves.

President Donald Trump made the lowering of drug prices a campaign promise, and followed up earlier this year with a proposal announced by HHS Secretary Alex M. Azar to require drug companies to post prices of advertised medicines. At the time, the president denounced pharmacy benefits managers (PBMs) as “middlemen” who are getting “very, very rich” off “a broken system.”

Some in the industry evidently took the comments as too vague to be taken too seriously. Pfizer ignored the warnings and proceeded with a plan to raise list prices on more than 100 prescription drugs.

A few days later, the president let them have it in a scathing rebuke: “Pfizer & others should be ashamed that they have raised drug prices for no reason. They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain-basement prices to other countries in Europe…We will respond!”

That tweet was reportedly followed up with a phone call from the president himself to the guilty drug moguls, and within 24 hours, Pfizer canceled the increases.

It was an edifying example of what the wrath of the chief executive can accomplish.

But that was an isolated rollback. It did not change the fact that the system is still broken. With Big Pharma on the defensive, now is the time to channel that wrath into major legislative reform.

Secretary Azar’s proposal is already in the works and should be finalized. Other proposals, such as imposing penalties on companies that charge far above the price of identical products in other countries, federally-negotiated drug prices for all Medicare patients, requiring PBMs to operate transparently and lower out-of-pocket costs and prices for patients — and more — should all be given serious consideration.

Let rollback become an industry-wide experience.