Excessive Drug Pricing as an Antitrust Violation

• Author: Harry First
• Position: Charles L. Denison Professor of Law, New York University School of Law
• Pages: 701-740

EXCESSIVE DRUG PRICING AS AN

ANTITRUST VIOLATION

H

ARRY

F

IRST

*

We have become all too familiar with a recurring pattern in pharmaceutical

drug pricing. First, a report is published about an astonishing rise in the price

of a pharmaceutical drug that patients need for a life-threatening illness or

event.

1

Denunciations of price gouging then come quickly. Politicians send

letters to the drug companies asking for explanations.

2

Congressional hearings

are held.

3

Corporate executives try to explain—they don’t make so much

* Charles L. Denison Professor of Law, New York University School of Law. Fellow, Inno-

vators Network Foundation. A research grant from the Filomen D’Agostino and Max E. Green-

berg Research Fund at New York University School of Law provided financial assistance for this

article. I thank Michael Carrier, William Comanor, the participants in the Department of Justice

Antitrust Division’s Competition Law and Policy Seminar Series, and the New York State Bar

Association Antitrust Section’s Monthly Meeting Series for their helpful comments on earlier

drafts. I also thank Leah Harrell, Geoffrey van de Walle, and Kevin Wu for their excellent

research assistance.

1

See, e.g., David Crow, US Drugmaker Raises Price of Vitamins by More Than 800%, F

IN

.

T

IMES

, Dec. 10, 2017 (post-acquisition 809% increase of Niacor, prescription version of niacin,

and 2,469% increase in SSKI, a respiratory drug); Adam Feuerstein, Acadia Pharma Raised the

Price of Its Only Drug Twice But Quarterly Sales Still Disappoint, STAT

NEWS

.

COM

(Feb. 28,

2018) (price of drug for treating symptoms of Parkinson’s raised twice at end of 2017; annual

cost now $32,400, 35% more than when introduced in 2016; CEO says we are now better able

“to appreciate and gauge the value of the drug that we’re delivering”); Andrew Pollack, Drug

Goes from $13.50 a Tablet to $750, Overnight, N.Y. T

IMES

(Sept. 20, 2015), www.nytimes.com/

2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html. For fuller

treatment, see R

OBIN

F

ELDMAN

& E

VAN

F

RONDORF

, D

RUG

W

ARS

: H

OW

B

IG

P

HARMA

R

AISES

P

RICES AND

K

EEPS

G

ENERICS OFF THE

M

ARKET

1–12 (2017).

2

See, e.g., Anjali Cordeiro & Makiko Kitamura, Valeant Under Fresh Scrutiny with New

Subpoenas on Prices, B

LOOMBERG

(Oct. 15, 2015); Ed Silverman, Lawmakers Demand Answers

on a Huge Price Hike for an Old Drug, STAT

NEWS

.

COM

(Dec. 20, 2017) (reporting letter from

three U.S. Senators questioning price increase of Keveyis, which sold for $50 for 100 pills and

now costs $15,000; sharp price increase post-acquisition); Ed Silverman, Lawmakers Demand

Info on Opioid Overdose Antidote After a Big Price Hike, STAT

NEWS

.

COM

(Feb. 8, 2017); Ed

Silverman, Grassley Probes EpiPen Rival over Its $4,500 List Price, STAT

NEWS

.

COM

(Mar. 8,

2017); James Swann, Senate Panel Investigating Drugmakers About Price Hikes, B

LOOMBERG

BNA (Nov. 4, 2015).

3

See, e.g., Associated Press, Senate Initiates Inquiry into Spikes of Drug Prices, N.Y. T

IMES

(Nov. 4, 2015), www.nytimes.com/2015/11/05/business/senate-initiates-inquiry-into-spikes-of-

drug-prices.html.

701

82 Antitrust Law Journal No. 2 (2019). Copyright 2019 American Bar Association. Reproduced

by permission. All rights reserved. This information or any portio n thereof may not be copied

or disseminated in any form or by any means or downloaded or stored in an electronic

database or retrieval system without the express written consent of the American Bar

Association.

702

A

NTITRUST

L

AW

J

OURNAL

[Vol. 82

(middle-men take the profit), they don’t make enough (new drugs cost a lot to

develop), pharmaceutical drug regulation is really to blame.

4

They then offer

some relief (maybe coupons to consumers to help with deductibles), but not

much.

5

It’s all a version of what our parents told us—take your medicine, it

will be good for you, it’s not our fault if it tastes bad, that can’t be helped.

But is it true that it can’t be helped? Various public policy approaches have

been advanced: allow (or require) government agencies to bargain over prices,

require greater transparency in drug pricing, increase imports, forbid drug

companies from issuing coupons to consumers, force drug companies to man-

ufacture in the United States, reduce (or maybe eliminate) aspects of FDA

regulation, jaw-bone pharmaceutical companies into lowering prices.

6

Politicians and bureaucrats have stepped up the rhetoric—presidential

candidates condemn,

7

a president threatens,

8

administrators form task for-

4

See, e.g., David Balto, How PBMs Make the Drug Price Problem Worse, T

HE

H

ILL

(Aug.

31, 2016), thehill.com/blogs/pundits-blog/healthcare/294025-how-pbms-make-the-drug-price-

problem-worse; Eric Lipton & Katie Thomas, Drug Lobbyists’ Battle Cry over Prices: Blame the

Others, N.Y. T

IMES

(May 29, 2017), www.nytimes.com/2017/05/29/health/drug-lobbyists-battle-

cry-over-prices-blame-the-others.html; Jonathan D. Rockoff, Behind the Push to Keep Higher-

Priced EpiPen in Consumers’ Hands, W

ALL

S

T

. J. (Aug. 6, 2017), www.wsj.com/articles/be

hind-the-push-to-keep-higher-priced-epipen-in-consumers-hands-1502036741; Zachary Tracer,

Robert Langreth & Anna Edney, Big Pharma Is Pointing Fingers, and Hoping Trump Will Lis-

ten, B

LOOMBERG

(Feb. 8, 2017).

5

See, e.g., Andrew Pollack, Mylan Tries Again to Quell Pricing Outrage by Offering Generic

EpiPen, N.Y. T

IMES

(Aug. 29, 2016), www.nytimes.com/2016/08/30/business/mylan-generic-

epipen.html (“So now, the company will essentially sell the same product under two names at

two price points, in competition with each other. . . . [T]he generic would still be triple the price

of the EpiPen in 2007, when Mylan acquired the product and began steadily raising its price.”);

Ed Silverman, Novo Nordisk Becomes Second Major Drug Maker to Limit Price Hikes,

STAT

NEWS

.

COM

(Dec. 5, 2016) (“In an open letter discussing the cost of medicines, Novo

Nordisk President Jakob Riis promised not to raise the list price of any medicine by more than

single-digit percentages annually.”).

6

See Jared S. Hopkins, Allergan CEO Pushes for Trump to Lead Drug Price Discussions,

B

LOOMBERG

(Feb. 22, 2017) (urging presidential negotiations similar to Kennedy’s effort to

restrain steel pricing); David Nather, Washington Has Big Hopes, But Little Power, To Negotiate

Drug Prices, STAT

NEWS

.

COM

(Jan. 6, 2016) (explaining problems of having CMS negotiate

drug prices); STAT Staff, Transcript: Trump Tells Pharma Execs ‘We’re Gonna Streamline the

FDA’, STAT

NEWS

.

COM

(Jan. 31, 2017), (“One thing I really want you to do a lot of—I’ve seen

this over the years, but a lot of the companies have moved out. They don’t make the drugs in our

country anymore. . . . So you have to get your companies back here.”); Ed Silverman, To Lower

Drug Costs, a Bill in California Would Prohibit Coupons, STAT

NEWS

.

COM

(Feb. 3, 2017).

7

See Thomas Kaplan, Hillary Clinton Unveils Plan to Address ‘Excessive’ Increases in Drug

Prices, N.Y. Times (Sept. 2, 2016),www.nytimes.com/2016/09/03/us/politics/hillary-clinton-

epipen-mylan.html (plan would impose fines on drug companies); Carolyn Y. Johnson, Clinton

Unveils Plan to Stop Price-Gouging on Old Drugs, W

ASH

. P

OST

: W

ONKBLOG

(Sept. 2, 2016),

www.washingtonpost.com/blogs/wonkblog/files/2016/09/DrugPricingPlan.pdf?noredirect=on

(would establish a new group to investigate “unjustified” price increases and respond with “an

aggressive new set of enforcement tools”).

8

See, e.g., Adam Feuerstein & Damien Garde, Trump Promised to Bring Pharma to Justice.

His Speech Sent Drug Stocks Soaring, STAT

NEWS

.

COM

(May 11, 2018) (“We are going to see

those prices go down. It will be a beautiful thing to watch.”); Ed Silverman, Trump Promised

2019]

E

XCESSIVE

D

RUG

P

RICING

703

ces

9

—and drug companies have rolled back price increases a bit (but have still

raised prices overall).

10

When effective federal action does not materialize,

states try to fill the gap.

11

So far, though, either the proposals have made little

sense or, even if sensible and adopted, have had little effect.

One might think that antitrust would be on the list of public policy tools to

wield against high pharmaceutical prices, but it’s not.

12

Of course, there have

been antitrust enforcement efforts against various pharmaceutical practices

Drug Makers Would Lower Their Prices, But Not Every Company Got the Memo,

STAT

NEWS

.

COM

(July 3, 2018) (after Trump promises “‘voluntary, massive drops in prices’ in

two weeks,” Pfizer and Teva took “hefty price hikes on numerous medicines”); Dylan Scott,

Trump Promises Reforms on Drug Prices, Saying Companies ‘Getting Away with Murder’,

STAT

NEWS

.

COM

(Jan. 11, 2017) (“‘Our drug industry has been disastrous. They’re leaving left

and right.’”).

9

See Press Release, U.S. Food & Drug Admin., Statement by FDA Commissioner Scott

Gottlieb (July 19, 2018), www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/

ucm613931.htm (announcing formation of a “new work group” to study allowing the short-term

importation of lower-priced foreign versions of drugs subject to “sudden, significant price in-

creases” in domestic markets); A

MERICAN

P

ATIENTS

F

IRST

23, U.S. D

EP

’

TOF

H

EALTH

& H

UMAN

S

ERVICES

(May 2018), www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf (HHS “may

undertake” a number of steps “to the extent permitted by law, in response to President Trump’s

call to action”).

10

See Robert Langreth, Cynthia Koons & Jackie Gu, After Raising Prices for 100s of Drugs,

Industry Pledges Restraint, B

LOOMBERG

(July 16, 2018) (although some drug makers announced

price reductions or a decision not to raise prices, 255 brand drugs had price increases between

Feb. 1, 2018 and July 15, 2018; 96% of the increases were below 10%, with 27% between 9 and

10%, based on list prices); Ed Silverman, Under Pressure from Trump, Pfizer Agrees to Roll

Back Price Hikes, STAT

NEWS

.

COM

(July 10, 2018) (after discussion with President Trump, de-

ferring until the end of the year announced price increases on 40 drugs, the majority of which

had exceeded 9%).

11

See, e.g., M

D

. H

EALTH

-G

ENERAL

C

ODE

A

NN

. § 2-802 (prohibiting price gouging in sale of

essential off-patent or generic drug; held unconstitutional in Ass’n for Accessible Medicines v.

Frosh, 887 F.3d 664 (4th Cir. 2018) (dormant commerce clause)); Twenty States Passed 37 Bills

to Curb Rising Rx Drug Costs in the Short 2018 Legislative Session, N

AT

’

L

A

CAD

.

FOR

S

TATE

H

EALTH

P

OL

’

Y

(July 24, 2018) (detailing efforts), www.nashp.org/twenty-states-passed-37-bills-

to-curb-rising-rx-drug-costs-in-the-short-2018-legislative-session/; Ed Silverman, More State

Lawmakers Are Pushing Transparency Bills for Diabetes Drugs, STAT

NEWS

.

COM

(Feb. 8,

2018); Ed Silverman, Congress Isn’t Acting to Curb Drug Prices, So States Are Stepping Up.

Here’s How, STAT

NEWS

.

COM

(Oct. 18, 2017) (reviewing state efforts).

12

See C

OUNCIL OF

E

CONOMIC

A

DVISERS

, R

EFORMING

B

IOPHARMACEUTICAL

P

RICING AT

H

OME AND

A

BROAD

5 (Feb. 2018), www.whitehouse.gov/wp-content/uploads/2017/11/CEA-Rx-

White-Paper-Final2.pdf (although pointing out that in a “well-functioning competitive market,

the price of a good is driven down to the cost of production,” and that this principle applies to all

markets, including pharmaceutical drugs, report makes no mention of using antitrust as a way to

lower the price of drugs); D

EP

’

TOF

H

EALTH

& H

UMAN

S

ERVS

., HHS B

LUEPRINT TO

L

OWER

D

RUG

P

RICES AND

R

EDUCE

O

UT

-

OF

-P

OCKET

C

OSTS

, 83 Fed. Reg. 22,692 (May 16, 2018) (same).

Cf. Statement of the Federal Trade Commission to the Department of Health and Human Ser-

vices Regarding the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs 1, 4

(July 16, 2018), www.ftc.gov/system/files/documents/advocacy_documents/statement-federal-

trade-commission-department-health-human-services-regarding-hhs-blueprint-lower/v1800

08_commission_comment_to_hhs_re_blueprint_for_lower_drug_prices_and_costs.pdf (focusing

on preventing abuse of REMS process and spurring biologics competition, but noting the “limita-

tions of antitrust enforcement” to address REMS abuses).