Minnesota AG sues insulin makers for deceptive price raising

[Michel]

Business Insider has published several well researched articles on insulin pricing. Here is their take on the lawsuits by the Minnesota AG against Novo Nordisk, Sanofi and Eli Lilly.

https://www.businessinsider.com/r-minnesota-accuses-insulin-makers-of-deceptive-drug-pricing-2018-10?

• The lawsuit alleged that companies fraudulently set artificially high list price for their products while offering rebates to pharmacy benefit managers (PBMs) in exchange for them covering the drug on behalf of health plans.

[Sam]

Bravo! I wish them the best of luck. At least they’ve formally identified the problem.

[Thomas]

The lawsuit alleged that companies fraudulently set artificially high list price for their products while offering rebates to pharmacy benefit managers (PBMs) in exchange for them covering the drug on behalf of health plans.

Sure this is done. But is this “fraud” from a legal point of view? I have a good deal of experience with Federal Fraud cases. I am just not seeing it. I can only assume the AG has a legal tactic planned which is not being broadcast to the media.

The lawsuit contended that the list prices the drug companies set were so far from those net prices that they did not accurately approximate the true cost of insulin and were deceptive and misleading.

It is not required for the pricing to have anything to do with the “true cost”.

If the AG has nothing further then this could all be a publicity stunt.

[Michel]

@Thomas

But is this “fraud” from a legal point of view? I have a good deal of experience with Federal Fraud cases. I am just not seeing it. I can only assume the AG has a legal tactic planned which is not being broadcast to the media

I think the AG must have a specific legal theory in mind based on how the health system works.

For instance, if we knew the real prices charged to everyone (including insurance companies) and found out that, say, in 98% of sales (to insurance companies) the real price is $150 per month, but to the consumer it is $700 per month, the AG might argue that the true price is fraudulently hidden from the consumer in order to provide large profits to the insurance companies on the back on the consumer (who pays for the insurance premiums).

It all depends on what they uncovered, and on exactly how health care laws are written. I don’t have the acumen to know, but I can see how it could work.

Either way, I can see that, if they uncovered truly shocking practices, which I believe is almost certainly true, the scandal could finally cause legislative action.

[Thomas]

@Michel

For instance, if we knew the real price and found out that, say, in 98% of sales (to insurance companies) the real price is $150 per month, but to the consumer it is $700 per month, the AG might argue that the true price is fraudulently hidden from the consumer in order to provide large profits to the insurance companies on the back on the consumer (who pays for the insurance premiums).

My point being, which Federal law does this break?

[Michel]

@Thomas

My point being, which Federal law does this break?

I don’t have a perfect answer, just tentative:

• It depends upon how health cares are written. If, in these laws, there is any expectation on price representing a real entity, and it turns out it is never used except for a super tiny minority of cases, then this would be fraud ( because it aims to enrich specific parties to these transactions)

• But, beyond that, there is expectation of fairness in open markets in common law, which includes the need to disclose true information as opposed to false one. One could say that the price list is a lie because it does not apply, say, to 98% of transactions. Not disclosing information, when you are not regulated, is legal, but giving false information is not. And giving false information for the purpose of enriching some specific parties is fraud.

So I don’t know For sure, I think that ethically this situation (list prices that are BS and result in consumers dying because they can’t pay the inflated price) is wrong. Whether or not the AG can convince a jury, I am not lawyer to know. But I think it is possible.

For instance, if one had data to show list prices went up 300% in 10 years (don’t have the data with me, so quoting by memory), but that insurance prices were stable, would that be fraud? In some circumstances I would imagine yes, and in others no.

For sure I would like to know, though. On the stock exchange, there are very tight requirements on disclosure requirements for an even playing field. Since health care is also reguated, I think we could also have disclosure requirements there, such as, for instance, public price lists at all volumes.

[Thomas]

All I can say is I have read many indictments for Federal Fraud.

It has nothing to do with what is right and wrong. Ethics and Morality do not come into play.

I just don’t see a Federal Law being obviously broken that comes under the legal meaning of Fraud.

However it would be unusual for the prosecution to give away all the information they have right at the start. Assuming a competent AG then one could reasonably assume they have far more which is being held tight then has been given out to the public. As well once a Grand Jury is convened the prosecution then has subpeona power which allows for gathering of significantly more information. However there has to already be a reasonable case to make or the defendants involved can push back. Blatant fishing expeditions are not allowed.

Another tactic the MN AG could be doing is trying to break new ground and create “case law”. That certainly happens but is extremely uncommon [as compared to the number of typical Federal Fraud cases] and very high risk from a prosecution point of view. If going this route, it would need to end up at the Federal Appeals level or possibly the SCOTUS.

[mike_g]

There is also a class action suit filed in early 2017, which some of you may remember. The law firm bringing the suit has put together a web page with lots of info on the suit, including the text of the complaint and other documents: Hagens Berman Looks like they are alleging violations of RICO.

I’ve read elsewhere that 15 USC Chapter 1 may apply, pertaining to attempts to restrain trade or control prices.

Just passing along what I’ve read elsewhere…I know nothing about laws related to trade practices.

[TiaG]

I wish I understood what that RICO allegation really means… I guess they have to prove collusion between the companies? Like that there was some secret, tape-recorded meeting where they all sat together and said “okay, I’m going to raise insulin prices X amount May 5, on Jun 5 you do the same.”? Because raising prices to be in line with your competitors after they raise prices is not necessarily a sign that you broke the law, right? I mean vendors change their prices all the time to be more in line with Amazon pricing or whatever, for instance…

[Michel]

@TiaG

Because raising prices to be in line with your competitors after they raise prices is not necessarily a sign that you broke the law, right? I

Yes, you are right. Even in oligopolistic situations where, according to game theory, players can use pricing to communicate, simultaneous price increases without active collusion have never been criminal acts.

Interestingly, this is exactly what has happened in the past: price increase by one insulin player has almost always been matched by the other. I am on my phone right now but when I have a chance I will post the price curves.

[Michel]

Here are two price curves published by Business Insider, that show a pretty clear picture of what an oligopolistic market (insulin) looks like:

Humalog vs Novolog price history, courtesy Business Insider

Lantus vs Levemir price history, courtesy Business Insider

[mike_g]

Thanks for posting those, Michel. The real money is in the spread between the list price and the net price paid by insurers. To illustrate, here are a few snippets, from the 4/6/18 amended complaint document (from the class action suit I mentioned earlier):

First, a chart sourced from a November 30, 2016 Novo Nordisk press release:

Second, an explanation of the pricing, from the same Novo press release:

Essentially, you have a PBM (and probably others) getting rebates and financial incentives (drawn from the difference between the benchmark and net prices) to help secure a position for a given drug on the formulary. As soon as Novo raises benchmark prices, you can bet Lilly will follow suit immediately, since the spread between the two prices is used to ensure market share. The net price apparently changes very little.

This answers the question: why wouldn’t Lilly or Novo lower benchmark prices to undercut their competition, as in a competitive marketplace? As soon as they’d do that, the PBMs and their ilk would get less rebates, and look less favorably on their drug, with regard to the formulary.

There are multiple casualties with this system. To name a few typical ones:

1. Folks who don’t have insurance and pay the benchmark price at the pharmacy.

2. Folks who have high deductible insurance, and pay the benchmark price minus the insurer’s negotiated discount (typically 15%). This is chump change.

3. Folks in the medicare “donut hole”: medicare pays 75% up to the first $3700 of total drug cost. After the $3700 threshold, the insured person pays 40% of point of sale price, which is determined from the inflated benchmark price.

I’d recommend reading some of the documents if you are looking for more details on the how and why of drug pricing.

[Michel]

@mike_g

I’d recommend reading some of the documents if you are looking for more details on the how and why of drug pricing.

@mike_g, excellent post! This curve and release were documents I had not read although they show a reality that is exactly as I expected it to be

Do you have any references to suggest? You seem to be well informed on the topic and I would love to sponge off you

[Katers87]

Thanks for posting that chart. Like Michel, I would also be interested in reading the documents you mentioned.

An additional casualty are the diabetic enrollees in group health plans with coinsurance as the pharmacy benefit.

This mechanism shifts more of the upfront costs to the enrollee with the insurance company receiving a rebate for a decent portion of their cost.

Premiums for large group health plans are built using the experience of that plan (adjusted for medical trend, benefit changes. and other factors). That experience typically includes most of the rebates, so premiums can be kept a bit lower with this method. Everyone benefits from the lower premiums, but the utilizers/diabetics take the hit of the jacked up cost since they’re paying coinsurance.

For plans with copayments, I don’t think the problem is as pronounced. At the very least, the costs are more transparent.

[mike_g]

@Michel, A story to illustrate some things I’ve learned along the way… I’ve been insured with high deductible coverage since 2008. In that first year, I had an ER visit, hospitalization, a few MRIs, etc. Long story short, I reached my deductible and out of pocket maximum. This being the case, when I needed test strips, I picked up the ReliOn Ultima (IIRC) test strips, and found out they weren’t on the formulary, so no coverage at all. However, OneTouch test strips were covered in full, being on the formulary.

I contacted my insurer, Medica, to ask why on earth they wouldn’t have the cheapest meter in existence on the formulary… I thought the HDHP was all about “shopping around” and “being smart consumers” ??? They wrote a nice flowery letter talking about how their drug formulary is the “cornerstone of their cost management approach” or some slogan such as that. It made no sense to me…how could they control costs paying 3-4x for a product?? I suspected there must be some kickbacks involved, so I started reading on the web, learning about PBMs and the pricing game (not much written then). I also contacted ReliOn to let them know they weren’t on the formulary. It turns out, they don’t play the insurance game, and so, the price of their products are close to real market value. OneTouch pricing presumably had enough “spread” to play the rebates and kickbacks game.

In 2017, I applied to be a member of the class of the suit mentioned above, due to my disgust at the pricing games. I am a proponent of the free market, but this doesn’t look like free markets to me, at all.

For additional references, I’d read the complaint documents hosted on Hagen Bermans website, in the link I posted above. These are obviously biased documents, but they offer a good picture of how the game works.

@Katers87, agreed. However, with the copay plans, the costs are included in higher premium costs, for employers for sure, and often for employees as well.

[Katers87]

@mike_g

@Katers87, agreed. However, with the copay plans, the costs are included in higher premium costs, for employers for sure, and often for employees as well.

The rebates the insurance company received should be included in the experience used to develop the premiums. By experience, I mean claims experience.

I’m sure rebates to pbms aren’t reflected though. However, you would think, theoretically, that they’d be able to charge a lower admin fee because of those rebates. I don’t really know if it works that way though.

[Michel]

@mike_g, I am sure you know the information contained there, but you may be interested in this thread:

How drug prices work: a must-read

This remarkable article is what got me to understand for the first time how drug pricing works: http://static6.businessinsider.com/image/581baa99691e888d008b47cb-960/bi-graphics-big%20pharma%20v03.png courtesy - Business Insider </br/> The consequence, for people with diabetes, is this: Because of the extraordinary public dissatisfaction with drug prices, for the first time some drug makers are now starting to share their net prices rather than their list prices. But, as…

[mike_g]

@Michel,

Thanks for passing that along, that is an informative story and graphic as well. The only thing that is apparently different from their hypothetical case to the case of insulin is the relative amount of spread - taking Novo’s press release at face value, it is currently 3X spread, so if insulin net price was $100, the list price would be $300… Although I wonder if the multiplier is even greater than that, since retail prices on Canadian insulin is around 1/10 the US Benchmark price. I’d hazard a guess that the true net price is close to the Canadian retail.

[Thomas]

@Katers87

I’m sure rebates to pbms aren’t reflected though.

That would be a safe bet.

[docslotnick]

Legislation to fix this problem would be very easy, and avoid “legislation” by the Courts.

Pass a Federal Law that “No rebate or discount or any other remuneration shall be paid by a pharmaceutical manufacturer to anyone other than the end consumer.”

Short, sweet, and gets the job done. And the spirit of the legislation is not in question. That’s why we’ll never see it.