Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices

By Jonathan D. Rockoff and Ed Silverman
The Wall Street Journal, April 26, 2015

On Feb. 10, Valeant Pharmaceuticals International Inc. bought the rights to a pair of life-saving heart drugs. The same day, their list prices rose by 525% and 212%.

Neither of the drugs, Nitropress or Isuprel, was improved as a result of costly investment in lab work and human testing, Valeant said. Nor was manufacture of the medicines shifted to an expensive new plant. The big change: the drugs’ ownership.

“Our duty is to our shareholders and to maximize the value” of the products that Valeant sells, said Laurie Little, a company spokeswoman.

More pharmaceutical companies are buying drugs that they see as undervalued, then raising the prices. It is one of a number of industry tactics, along with companies regularly upping the prices of their own older medicines and launching new treatments at once unheard of sums, driving up the cost of drugs.

Since 2008, branded-drug prices have increased 127%, compared with an 11% rise in the consumer price index, according to drug-benefits manager Express Scripts Holding Co.

Early last year, Mallinckrodt PLC paid $1.4 billion for Cadence Pharmaceuticals, though the Ofirmev pain injections that were the crown jewel of the deal were projected to have just $110.5 million in 2013 revenue, according to a Mallinckrodt conference call with analysts discussing the deal. Three months later, the list price for a package of 24 Ofirmev vials jumped almost 2½ times to $1,019.52, according to health-care data firm Truven Health Analytics.

“It seemed like highway robbery,” said Erin Fox, who directs the drug-information service at University of Utah Health Care.

The price increases can be very lucrative for companies. Horizon Pharma PLC upped the price of Vimovo pain tablets after buying the rights from AstraZeneca in late 2013. On Jan. 1, 2014, its first day selling Vimovo, Horizon raised the list price for 60 tablets to $959.04, a 597% increase. Horizon raised the price again on Jan. 1 this year to $1,678.32 for the tablets.

After Valeant agreed to buy the drugs in early January, the company hired a consultant to look at their prices. The consultant found the prices didn’t reflect the benefits of the drugs to patients and the costs that hospitals save by using the medicines, the person said. Valeant decided to raise the price. The list price of a one-milliliter vial of Isuprel, a treatment for abnormal heart rhythms, jumped to $1,346.62, up from $215.46, according to Truven. Meantime, a two-milliliter vial of Nitropress, which combats dangerously high blood pressure and acute heart failure, increased from $257.80 to $805.61.

http://www.wsj.com/articles/pharmaceutical-companies-buy-rivals-drugs-then-jack-up-the-prices-1430096431

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Comment:

By Don McCanne, MD

It seems that everywhere you turn these days there are articles covering the skyrocketing prices of pharmaceuticals.

One factor used by the pharmaceutical firms to explain their price increases is the benefit patients receive from the drugs – benefits that the pharmaceutical firms claim are so valuable that the prices should be much higher than their costs of doing business. When you have a superior product, you sell it at a higher price, with the financial benefits accruing to the owners of the firm. That’s the way markets work.

This WSJ article describes an even more nefarious process of market manipulations of drug prices. Pharmaceutical firms are buying the rights to the products of other firms, often buying the firms themselves, paying very high prices for these rights. There are several examples in thus article, but an even more egregious example is the action of Gilead Sciences in buying up the rights to the newer, more effective Hepatitis C drugs, again paying outrageous prices for those rights. They are recovering this capital cost by charging $1,000 or more for each pill sold, when a course of treatment may be 84 pills.

Think about that. A massive amount of capital is paid out, requiring the purchasing firm to charge much higher prices for those drugs to recover the funds paid to acquire the drug rights. Who receives the capital paid out? The wealthiest tier – the tier that holds by far the largest percentage of shares in public and private corporations. Who is paying higher prices to compensate for the capital purchase of the drug rights at inflated prices? It is predominantly middle-income Americans in the form of direct drug purchases or indirectly through insurance premiums, taxes for public programs, or forgone wages to pay for employer-sponsored benefits.

Thus the pharmaceutical firms are compounding the inequitable shift of capital from the workers to the wealthy (described by Piketty, Saez and others). This is being done through financial constructs for which Wall Street is so infamous. As patients, we are powerless to impede this process. It is the responsibility of government to provide the appropriate oversight to correct these injustices. Yet what did they do? Through the Affordable Care Act they handed more power and control over to the insurers and the pharmaceutical firms, leaving us at their mercy, even though mercy is not a quality found in amoral corporations.

These injustices would not be tolerated in a single payer system.

The Demise of Vermont’s Single-Payer Plan

By John E. McDonough, Dr.P.H., M.P.A.
The New England Journal of Medicine, April 23, 2015

On December 17, 2014, Vermont Governor Peter Shumlin publicly ended his administration’s 4-year initiative to develop, enact, and implement a single-payer health care system in his state. 

In reality, the Vermont plan was abandoned because of legitimate political considerations.

In many states, legislators continue filing bills to establish state single-payer systems. Because of Vermont’s failure, their path is both clearer and more difficult. Any other state considering this path will find obstacles similar to Vermont’s.

In the early 1990s, I served as a Massachusetts legislator who took a turn as the state’s leading single-payer advocate. After years of failure, I reluctantly concluded that single payer is too heavy a political lift for a state. Though the economic case is compelling, our body politic cares about more than just economics. In 2011, many observers thought that Vermont, a small and progressive state, was the ideal locale in which to try single payer. No more.

At some point, perhaps 5 to 15 years from now, as the size and scope of Medicare, Medicaid, and the ACA subsidy structure balloon far beyond today’s larger-than-life levels, our political leaders may discover the inanity of running multiple complex systems to insure different classes of Americans. If advanced by the right leaders at the right time, the logic of consolidation may become glaringly evident and launch us on a new path. If such consolidation is to occur, like it or not, I believe it will happen federally and not in the states — and no time soon.

**

From the audio:

“People who like the state approach refer to how the Canadian health care system started with the adoption of universal coverage for hospital services in the province of Saskatchewan back in the 1940s, and that is the idealized model. I just am unclear, unsure, doubtful how relevant that model is in an advanced developed system like those in the United States and the fifty states at this point.”

John McDonough is a professor of public health practice and director of the Center for Executive and Continuing Professional Education at the Harvard T.H. Chan School of Public Health.

NEJM article and audio: http://www.nejm.org/doi/full/10.1056/NEJMp1501050

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Comment:

By Don McCanne, MD

Professor John McDonough, as an academic and as a legislator, has long been in the trenches with single payer. He knows what he is talking about.

The problem with using Saskatchewan as a model for reform in the United States is that Canada began with a clean slate whereas we have complex federal and state financing systems that will need to be replaced. States alone cannot do it without federal action.

Though we need federal reform, it will not happen in the immediate future since the politics are not in alignment. We need to intensify our efforts with the basics: education, coalitions, and grassroots organizing.

Until we get the politics aligned, activists should continue advocating for whatever state reforms are possible that would move us closer to health care justice. But do not let up in the least on the drumbeat for a single payer national health program – an improved Medicare that would cover everyone.

Teva Offers to Buy Mylan in $40.1B Cash-and-Stock Deal

By Linda A. Johnson, AP
ABC News, April 21, 2015

Generic drug giant Teva formally offered to buy fellow drugmaker Mylan for about $40.1 billion in cash and stock on Tuesday, despite Mylan’s cold shoulder and the certainty the proposed acquisition will bring intense scrutiny by antitrust regulators.

If Israel-based Teva Pharmaceutical Industries Ltd. succeeded, the combination would dominate the global generic drug market, be a major contender in some other specialty drug categories — and have the leverage to try to raise generic drugs prices.

After years of stability, generic medicine prices recently have risen several percent a year on average. Some have skyrocketed by up to 1,000 percent, generally when competition vanishes due to consolidation or shortages caused by manufacturing quality problems.

A tie-up wouldn’t just increase Teva’s scale, allowing it to boost profitability by cutting jobs and other costs. It would increase its leverage in negotiating drug prices with insurers and other payers, noted Les Funtleyder, health care portfolio manager at E Squared Asset Management.

“That’s going to feed into regulators’ interest,” he said.

That’s particularly true in the U.S., where seven of eight prescriptions filled are for generics and employers, insurers and government health programs encourage their use to hold down costs.

http://abcnews.go.com/Business/wireStory/teva-offers-buy-mylan-401b-cash-stock-deal-30476610

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Comment:

By Don McCanne, MD

New pharmaceutical products usually enter the market at the maximum prices that the market would bear. So it was always a relief when the patents expired and patients could obtain much less expensive generic versions of these drugs.

Now that almost 90 percent of prescriptions have generic versions available, the industry is busy trying to find ways of increasing generic drug prices, and they have been successful with prices rising as much as tenfold. One of the methods has been to gain greater control of markets through consolidation. That explains Teva’s interest in purchasing Mylan. Drug shortages, whether or not contrived, have also been a method of boosting prices. In many instances, drug prices sharply increased after the line was purchased by another firm, partly to recover capital investments, but no doubt to simply increase profits.

Is that the way markets should work? Supposedly markets should bring prices down, but today’s market innovations have been raising prices – almost intolerably so in the drug markets. The greater dependency on pharmacy benefit managers has only added a new wasteful administrative layer on top of our already overpriced drugs.

This would not be tolerated under a single payer system. Our own public purchaser of health care products and services would demand appropriate pricing – just enough profit to keep the pharmaceutical firms interested in pursuing their fair portion of our national health expenditures. But PhRMA had a front seat when the Affordable Care Act was constructed. That lobbying investment is really paying off for them now.

Obamacare, Hands Off My Medicare

By Thomas B. Edsall
The New York Times, April 22, 2015

A number of factors underpin the anti-redistributionist shift in public opinion that I wrote about last week.

First, and perhaps most important, is the emergence of significant resistance to downward redistribution among the elderly, a major voting bloc.

The views of older voters deserve scrutiny. They “worry that redistribution will come at their expense, in particular via cuts to Medicare,” Vivekinan Ashok, a Ph.D. candidate in political science at Yale; Ilyana Kuziemko, a professor of economics at Princeton; and Ebonya Washington, a professor of economics at Yale, write in a March 2015 Brookings Institution essay, “Support for Redistribution in an Age of Rising Inequality”— an essay my Times colleague Neil Irwin also discussed in a recent column that asked why Americans don’t want to soak the rich.

In the end, Ashok, Kuziemko and Washington conclude that “the elderly have grown increasingly opposed to government provision of health insurance and that controlling for this tendency explains roughly half of their declining relative support of redistribution.”

What the Brookings essay neglects to explore are the material circumstances of over-65 voters that might affect their views on redistribution. Over a third of retirees depend on Social Security for 90 percent or more of their annual income, according to the Social Security Administration. In the zero-sum competition for federal dollars, the cost of major spending programs like the Affordable Care Act has to be made up by spending cuts elsewhere.

The Obama administration has reported that the Affordable Care Act will be financed in part by $716 billion in Medicare cuts over 10 years. Somewhat improbably, the administration also contends that cuts of this magnitude will not reduce services to Medicare beneficiaries.

The decline in support among the elderly in the United States for redistributive social spending stands in contrast to Britain, Germany, Sweden and Australia where Ashok, Kuziemko and Washington found that older people were more supportive of redistribution than those of working age. In most European countries, health care is guaranteed regardless of age, while in the United States, before the enactment of the Affordable Care Act in 2010, only the elderly were guaranteed health coverage through Medicare.

This lends support to the authors’ conclusion that “seniors, a group unique in having guaranteed health insurance during our sample period, may increasingly feel that expansions of redistributive programs could come at their expense.”

Further increasing anxiety among the aged in the United States is the shift from defined benefit pensions, which guarantee payments, to defined contribution pensions, which do not.

“Our best assessment is that retirees are falling short and will fall increasingly short over time,” Alicia H. Munnell, Matthew S. Rutledge and Anthony Webb, researchers at Boston College’s Center for Retirement Research, wrote in November 2014.

“The new demographic transition is a longevity transition: how will individuals and societies respond to mortality decline when almost all of the decline will occur late in life?” Karen N. Eggleston, director of the Stanford Asia Health Policy Program, and Victor R. Fuchs, professor emeritus of economics at Stanford write in a 2012 study. The combination of longer lives and unreliable pension benefits increases retirees’ dependence “on transfers from the working population for living expenses, including large consumption of medical care,” Eggleston and Fuchs note.

In his new book, “The Business of America Is Lobbying,” Lee Drutman, a senior fellow at the New America Foundation, provides insight into a crucial element of this power shift.

Beginning in the early 1970s, just as support for redistribution began to decline, “corporate America began to devote attention and meaningful resources to politics,” Drutman writes. “The 40-year trend has overwhelmingly moved in one direction: growth. Corporate lobbying expenditures now dwarf the comparable investments of unions” and public interest or citizen groups.

From 1998 to 2012, the ratio of corporate/trade association lobbying spending to union/public interest group spending went from 22 to one to 34 to one, Drutman found.

In a November 2014 article “The Ideological Asymmetry of the American Party System,” Yphtach Lelkes of the University of Amsterdam, and Paul Sniderman of Stanford, both political scientists, develop an intriguing argument on how Republicans have mobilized public opposition to Democratic social policies that initially carried strong popular support.

The conservative strategy, they write, is to portray “social welfare policies as benefiting particular interest groups rather than society as a whole.” The more the electorate sees a policy or program as “particularistic” — as opposed to universalist — the less backing the public will give the program.

On a broader scale, the political scientists Jacob Hacker and Paul Pierson, in their chapter of the 2013 book “Representation: Elections and Beyond,” have sought to understand the logic of working-class white “support for the G.O.P. in an era of runaway inequality.”

Hacker and Pierson argue that not only has business mobilized for over four decades now, but so, too, have conservative foundations, think tanks and the religious right.

“There was a common theme linking these disparate trends: all of them worked to diminish the presence of organized voices addressing the economic concerns of ordinary Americans in Washington,” Hacker and Pierson write. “G.O.P. electoral inroads among less affluent voters have occurred alongside declining public confidence in government and growing perceptions that politicians are excessively responsive to ‘special interests.’ ”

The authors add, “In this context, calls for limited government and self-reliance receive greater hearing, especially when there are few contrary organizational signals pushing voters the other way.”

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Comment:

By Don McCanne, MD

A half century ago, when the nation seemed ready to ensure health care for everyone, it was decided instead to establish programs for the two groups with the greatest needs: Medicare for retirees and Medicaid for the poor. It was intended that Medicare eventually would be expanded to include everyone.

As it turns out, these two programs have such strong political support that they not only survived the half century, they will be perpetuated indefinitely as a result of the decision to enact the the policies contained in the Affordable Care Act rather than to expand Medicare, as originally intended.

Thomas Edsall provides us with a background of understanding why our seniors so passionately support Medicare while demanding that we keep the government out of their Medicare. No matter how progressive a person’s views are, there is always an element of self-interest, and quite appropriately so. Edsall, in expanding on his anti-redistributionist article of last week, explains that seniors are concerned that further redistribution to others risks reduction of redistribution to themselves, though they might not think of it in those terms. It is this fear that has contributed to declining support by our seniors for health care for all.

Of course, conservatives, through massive lobbying efforts, have leveraged this view to convert it into policy. Those who would suffer the most through a reduction in redistribution have been particularly tenacious in clinging to the idea that greater benefits for others would reduce benefits for themselves. You know that’s true because it’s on Fox News.

In reality, a well designed system of redistribution would improve benefits for everyone. The cost would be borne disproportionately by those who are already spending massively to thwart programs of social justice.

Thomas Piketty and others have shown us that disproportionate taxation (progressive taxes) is precisely what we need, and the concentration of income and wealth at the top is so great that the lifestyles of the rich would not be impaired in the least. But just try to tell that to the elderly lady carrying the picket sign stating, “KEEP GOVERNMENT HANDS OFF MY MEDICARE!”

State questions rise in overdose drug price

By Brian MacQuarrie
The Boston Globe, April 20, 2015

Attorney General Maura Healey is demanding that companies selling naloxone in Massachusetts explain why the cost of the drug, which is used to reverse heroin overdoses, has skyrocketed since former governor Deval Patrick declared a public health emergency a year ago.

The drug, often marketed under the brand name Narcan, has become a critical tool for emergency workers who use it to revive overdose victims. Without Narcan, thousands of overdoses during the past few years would have resulted in deaths, authorities have said.

To help ensure that distributors are not taking advantage of a sudden surge in demand, Healey’s office last week asked the distributors to provide detailed records of all naloxone sales to public entities in Massachusetts since April 1, 2014, less than a week after Patrick’s declaration made the drug available to all first responders.

Since then, price increases “have strained access to this life-saving medication at exactly the moment when it is most needed,” the companies were told in certified letters. “Our office has heard regularly from local law enforcement and public health workers worried about their ability to maintain supplies.”

Healey’s office sent certified letters requesting answers by April 30 to Moore Medical of Farmington, Conn.; Bound Tree Medical of Dublin, Ohio; McKesson Corp. of San Francisco; and Southeastern Emergency Equipment of Wake Forest, N.C.

Kristin Hunter, a spokeswoman for McKesson Corp., told the Globe that the company “does not set wholesale prices or the retail drug prices paid by consumers or health plans.”

Those prices often are set by the manufacturer. Staff from Healey’s office identified Amphastar Pharmaceuticals of Rancho Cucamonga, Calif., as the producer of much of the naloxone used in Massachusetts, and said they have been in discussions with the company about pricing since February.

Amphastar officials did not return repeated phone calls from the Globe requesting comment.

http://www.bostonglobe.com/metro/2015/04/19/healey-investigates-rising-price-for-drug-that-reverses-overdoses/Wav71qeW4gbMAwb9bcx2tI/story.html

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Comment:

By Don McCanne, MD

Drug manufacturers recently have been engaged in outrageous pricing practices for essential drugs that they produce – the hepatitis C drugs being an egregious example.

Narcan – a crucial life saving drug that reverses narcotic overdoses – now has much wider distribution since it has become available to first responders. The manufacturer – Amphastar Pharmaceuticals – in what has to be more than a mere coincidence, chose this time to sharply increase the price of this drug.

When the market is dysfunctional, it is the responsibility of government to intervene. The United States has shirked its responsibility. We need to revise our approach.

A single payer national health program functions as a monopsony – a single purchaser of products and services. In private markets, monopsonistic pricing can be as evil as monopolistic pricing like the example of Narcan. The difference with a government monopsony is that it gets pricing right – an adequate price to be sure that products and services remain available, yet at a price that does not gouge the taxpayers who fund the system.

Has Obamacare Turned Voters Against Sharing the Wealth?

By Thomas B. Edsall
The New York Times, April 15, 2015

With the advent of the Affordable Care Act, the share of Americans convinced that health care is a right shrank from a majority to a minority.

This shift in public opinion is a major victory for the Republican Party. It is part of a larger trend: a steady decline in support for redistributive government policies. Emmanuel Saez, an economics professor at Berkeley and one of the nation’s premier experts on inequality, is a co-author of a study that confirms this trend, which has been developing over the last four decades. A separate study, “The Structure of Inequality and Americans’ Attitudes Toward Redistribution,” found that as inequality increases, so does ideological conservatism in the electorate.

The erosion of the belief in health care as a government-protected right is perhaps the most dramatic reflection of these trends. In 2006, by a margin of more than two to one, 69-28, those surveyed by Gallup said that the federal government should guarantee health care coverage for all citizens of the United States. By late 2014, however, Gallup found that this percentage had fallen 24 points to 45 percent, while the percentage of respondents who said health care is not a federal responsibility nearly doubled to 52 percent.

“The Structure of Inequality and Americans’ Attitudes Toward Redistribution,” suggests that Democratic programs providing tax-financed benefits to the poor are facing growing hostility. The author of the paper, Matthew Luttig, a Ph.D. candidate in political science at the University of Minnesota, found that while “numerous political theorists suggest that rising inequality and the shift in the distribution of income to those at the top should lead to increasing support for liberal policies,” in practice, “rising inequality in the United States has largely promoted ideological conservatism.”

I asked two experts, Jacob Hacker, a political scientist at Yale, and Robert Frank, an economist at Cornell, if Luttig’s conclusions are consistent with their own research, and both said he is on target.

“The General Social Survey shows there has been a slight decrease in stated support for redistribution in the US since the 1970s, even among those who self-identify as having below-average income,” according to Saez and his three co-authors, Ilyana Kuziemko, a professor at Columbia Business School, Michael I. Norton, a professor at Harvard Business School, and Stefanie Stantcheva, a junior fellow at Harvard.

Even worse for Democrats, the Saez paper found that “information about inequality also makes respondents trust government less,” decreasing “by nearly twenty percent the share of respondents who ‘trust government’ most of the time.”

The findings of the Saez group are consistent with Luttig’s. Taken together, they suggest that even if Democrats win the presidency and the Senate in 2016, largely on the basis of favorable demographic trends, the party will confront serious hurdles if it attempts to deliver material support to working men and women and the very poor. Redistribution is in trouble, and that is likely to tie American politics in knots for many years to come.

Matthew Luttig:  The Structure of Inequality and Americans’ Attitudes Toward Redistribution

http://poq.oxfordjournals.org/content/early/2013/09/11/poq.nft025.abstract

Ilyana Kuziemko, Michael I. Norton, Emmanuel Saez, and Stefanie Stantcheva:  How Elastic Are Preferences for Redistribution? Evidence from Randomized Survey Experiments

https://www0.gsb.columbia.edu/faculty/ikuziemko/papers/kuziemko-norton-saez-stantchevaNBER13.pdf

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Comment:

By Don McCanne, MD

Thomas Edsall states that, as income and wealth inequality have expanded, the number of Americans who believe that health care is a right has declined from a majority to a minority. Of particular concern is Matthew Luttig’s finding, supported by others, that “rising inequality in the United States has largely promoted ideological conservatism.”

What mechanism might explain this? Gilens and Page have shown that the very wealthy have control over the political process. Part of that control is through the media and other forms of public communication.

Redistribution (or transfer) refers to the process of collecting taxes, largely progressive, and distributing those funds based on public need. Some public services benefit everyone, but other services disproportionately benefit those with basic needs who do not otherwise have the funds to pay for them.

Those who benefit from tax reduction have been successful in creating the meme that government redistribution through tax and spending policies is is an inappropriate role of government, a concept that, ironically, is especially prevalent amongst the poor and relatively uneducated.

Quoting from Kuziemko, Saez, et al (link above):

“About 5,000 respondents were randomized into treatments providing interactive information on U.S. income inequality, the link between top income tax rates and economic growth, and the estate tax. We find that the informational treatment has very large effects on whether respondents view inequality as an important problem. By contrast, we find quantitatively small effects of the treatment on views about policy and redistribution: support for taxing the rich increases slightly, support for transfers to the poor does not, especially among those with lower incomes and education.”

Further, they state:

“An exception is the estate tax — we find that informing respondents that it affects only the very richest families has an extremely large positive effect on estate tax support, even increasing respondents’ willingness to write to their U.S. senator about the issue.”

In addition:

“We also find that the treatment substantially decreases trust in government, potentially mitigating respondents’ willingness to translate concerns about inequality into government action.”

So what can we make of this? 

The nation strongly supports Social Security and Medicare – both very important programs that involve redistribution – yet the topic of redistribution is rarely mentioned in discussions of these programs, with the exception of those who would reduce redistribution by privatizing these programs.

Although many have concerns about redistribution of income, that does not seem to carry over to their views on redistribution of wealth. When people understand the degree of wealth inequality and the selective application of estate taxes, they become even more supportive of taxing those large estates.

Just as people believe the meme that “the government can’t do anything right,” even though they truly support most specific government programs, people seem to be swayed by the newly implanted meme that redistribution is a function of a government that cannot be trusted, even though they support specific programs involving redistribution. This seems to represent the phenomenon wherein empty rhetoric threatens to spill over into policy positions.

Conservatives and libertarians do support catastrophic insurance plans – clearly a private sector redistribution from those who do not experience specific losses to those who do. So the opposition is not to the concept of redistribution itself, but rather it is an ideological opposition to the government role in redistribution.

A component of this opposition is the objection to being forced to participate in a redistribution pool such as health insurance coverage. Some individuals would prefer to accept the risk of personal financial ruin even if their losses are passed onto their fellow Americans. It is the latter reason that establishes the legitimacy of the government in requiring participation of all – preventing individuals from electing to be free riders at a cost to the rest of us. Nobody supports policies requiring themselves to pay more to cover those who shirk their responsibilities to pay their own share (ideally through equitable taxes).

So do Americans believe that health care is a right? The answer is muddled by rhetorical memes, but, in general, they actually do believe that the financing of health care is a collective responsibility.