The Other Collusion
By Phil Mattera for the Dirt Diggers Digest
The Trump crowd may have escaped
prosecution on charges of colluding with the Russians, but another case
involving collusion is moving full steam ahead. Attorneys general from 43 states and Puerto Rico are pursuing a blockbuster lawsuit against the generic drug industry on charges of conspiring to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different products.
Led by Connecticut Attorney General
William Tong, the coalition claims to have extensive evidence in the
form of emails, text messages, telephone records, and statements from former
company insiders documenting that 20 companies such as Teva, Sandoz and Mylan
engaged in a “broad, coordinated and systematic campaign” to conspire with each
other to generate prices increases that in some instances exceeded 1,000
percent.
The case, which could result in a
multi-billion-dollar settlement, is a reminder that price-fixing, one of the
oldest forms of corporate crime, remains a live issue.
The main change is the method by which companies collude. Adam Smith’s discussion of the practice in The Wealth of Nations (1776) stated that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Now the same results can be achieved electronically, without face-to-face encounters.
The main change is the method by which companies collude. Adam Smith’s discussion of the practice in The Wealth of Nations (1776) stated that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Now the same results can be achieved electronically, without face-to-face encounters.
Price-fixing accounts for more of
the federal criminal cases in Violation
Tracker than any other offense type besides environmental
matters. The 212 cases have resulted in $10 billion
in penalties, including more than two dozen cases in which the defendants had
to pay more than $100 million.
Many of those cases involve industries such as auto parts, electronic components and chemicals; in other words, business-to-business transactions. Federal antitrust prosecutors have focused much less on goods purchased by individual consumers.
That’s where the states come in. The
current case against the generic drug companies is just the latest in a string
of lawsuits in which state AGs have banded together to address anti-competitive
practices that affect consumers.
We’re now in the process of
collecting data on those cases to add to Violation Tracker. So far, we have
identified more than 100 multistate lawsuits involving price-fixing and related
matters. Quite a few of these involve drug and vitamin producers.
There have even been some brought
against the same generic producers targeted in the new case. For example, in
2000 Mylan agreed to pay $108 million to settle
multistate allegations that it conspired with other companies to control the
market for generic anti-anxiety drugs.
The past and current allegations
against companies such as Teva and Mylan are especially troubling because these
generic producers were supposed to be the heroes of the drug industry.
Instead of acting as a check on the avaricious impulses of the brand-name producers, it appears that they jumped on the profit-maximization bandwagon.
This should serve as another indicator that market forces are not up to the task of eliminating price-gouging in the pharmaceutical industry. Strong government intervention is the only remedy.
Instead of acting as a check on the avaricious impulses of the brand-name producers, it appears that they jumped on the profit-maximization bandwagon.
This should serve as another indicator that market forces are not up to the task of eliminating price-gouging in the pharmaceutical industry. Strong government intervention is the only remedy.