Pharmaceutical industry pays the price

Today’s lead story in the Wall Street Journal (Cases, Fines Soar In Fraud Probes Of Drug Pricing) describes the large increase in fraud investigations and prosecutions of pharmaceutical companies. Hundreds of cases are underway, and fines may top $1 billion this year. A common allegation is that pharmaceutical companies evaded the requirement to provide Medicaid with the lowest price.

Here’s some context, based on what I’ve seen:

In the early to mid-90s, pharmaceutical benefit managers (PBMs) and managed care companies were starting to flex their muscles. They negotiated rebates and special programs much more aggressively than Medicaid did.

The pharmaceutical companies were deathly afraid of the power of managed care to shift market share (which it turns out they over-estimated at the time) and put together some deals that seemed clever and necessary then, but which won’t look too good in today’s environment. I remember seeing a number of companies put together pricing committees to oversee these decisions, and it will be interesting to see whether the oversight they provided then will hold up to the scrutiny of today’s investigators.

June 7, 2005

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