Novartis Pharmaceuticals Corp. isn’t having the greatest year — and things just got much worse for the drug giant. In a civil suit that builds on a separate, sealed whistleblower case, federal prosecutors charged Novartis on Wednesday morning with paying out kickbacks in an effort to get pharmacies to switch kidney transplant patients’ anti-transplant rejection generic drugs with the brand-name Novartis product Myfortic.

The scope of Novartis’ alleged fraud is staggering. In the civil complaint, prosecutors charge that the company’s U.S.-based wing “used a program of rebates and discounts to boost sales of its anti-rejection drug.” Since Myfortic is far more expensive than its generic counterparts, this market share-gouging cost government health entitlements such as Medicare and Medicaid “tens of millions of dollars in reimbursements to pharmacies for which they were never entitled,” with Myfortic sales at companies that received the bribes totaling over $100 million. Some of those pharmacies allegedly received kickbacks making up a full 20 percent of their total Myfortic sales, while the U.S. government drove an outsized 47 percent of the drug’s total sales by specialty pharmacies.

If the allegations are true, then not only did Novartis brazenly defraud the United States government — the corporation and its co-conspirators also compromised public safety and patient health. As the civil complaint states, “Hundreds, possibly thousands, of transplant patients have undergone switches in their medication as a result of the recommendations from pharmacies that were based on undisclosed financial, rather than independent critical, considerations.”

Medicare and Medicaid fraud by pharmaceutical companies is the main driver of Justice Department settlements under the False Claims Act — the same statute that Novartis is being sued under. In 2012 alone, the Justice Department nabbed $3 billion from doctors and pharmaceutical companies that swindled the public entitlement programs by charging the government more than their services were actually worth. In fact, in 2010, Novartis had to settle a separate case involving kickbacks and misuse of drugs, paying out $420 million in criminal and civil damages. The newest slate of charges against the drug giant prompted Manhattan U.S. Attorney Preet Bharara to call Novartis “a repeat offender.”

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On Monday, India’s Supreme Court rejected a patent application by pharmaceutical giant Novartis for Veenat, a generic version of the company’s top-selling cancer treatment drug Gleevec. As the New York Times reports, public health advocates cheered the decision as a major victory for the country’s low-income population, as continued access to the affordable generic could save millions of lives. But the underlying differences in how intellectual patents function in India versus the U.S. also reveals a major source of Americans’ inflated prescription drug costs.

India, which exports $10 billion worth of generic medications every year, didn’t pass a robust intellectual property patent law until 2005. This law allowed for patents on medications discovered after 1995. At first glance, that would appear to qualify Novartis to pursue a patent on Veenat. But as the Times explains, the Indian justices concluded that an older, patented Gleevec version was too similar to the post-1995 version to qualify the later iteration as a “new” drug — a heightened standard of scrutiny that the U.S. does not share:

In 1993, Novartis patented a version of Gleevec that it later abandoned in development, but the Indian judges ruled that the early and later versions were not different enough for the later one to merit a separate patent. [...]

Anand Grover, a lawyer who argued the case on behalf of Cancer Patients Aid Association in India, said the ruling had a sweeping effect since it confirmed that India has a very high bar for approving patents on medicines.

“What is happening in the United States is that a lot of money is being wasted on new forms of old drugs,” Mr. Grover said. Because of Monday’s ruling, “that will not happen in India.”

Indeed, the vast majority of drug patents given in the United States are for tiny changes that often provide patients few meaningful benefits but allow drug companies to continue charging high prices for years beyond the original patent life.

In a classic example, AstraZeneca extended for years its franchise around the huge-selling heartburn pill, Prilosec, by performing a bit of chemical wizardry and renaming the medicine Nexium. Amgen has won so many patents on its hugely expensive erythropoietin-stimulating drugs that the company has maintained exclusive sales rights for 24 years, double the usual period.

This culture of Big Pharma companies reauthorizing U.S. drug patents by instituting negligible changes to the “inactive ingredients” in their products perpetuates high costs for both the American people and public insurance plans that must subsidize the price of expensive, brand name drugs. Pharmaceutical companies’ ability to extend their intellectual property protection (IPP) is a consequence of a series of laws that were passed beginning in the 1980s. While these laws were meant to encourage drug innovation, they have also had the adverse effect of extending patents on certain drugs’ active ingredients to as many as 20 years, as this data compiled in a National Institute for Health Care Management (NIHCM) Foundation report shows:

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According to a new Consumer Reports investigative study published Thursday, there is rampant variation in the price of generic drugs as large U.S. pharmacy chains — including CVS, Rite Aid, and Target — mark up the prices of generic drug versions for common medications by as much as 18 times what wholesale chains like Costco charge. That price variance ends up costing Americans, who spend an average of $758 out-of-pocket on drugs every year, hundreds of dollars in unnecessary spending each month.

Consumer Reports compiled the data by contacting hundred of pharmacies throughout the country and asking what their drug prices were for generic versions of Lipitor, Plavix, Actos, and other common medications. The results were striking, with pharmacy representatives claiming that the higher prices were necessary for covering overhead, and considering that selling medication constitutes most of their revenue and profit margins:

Costco was the least expensive overall, and you don’t need to be a member to use its pharmacy. A few independent pharmacies came in even cheaper, though their prices varied widely, as did grocery-store pharmacies. The online retailers Healthwarehouse.com and FamilyMeds.com also had very low prices. On the other end of the spectrum, CVS, Rite Aid, and Target had the highest retail prices. [...]

A representative of CVS told us that its retail drug prices reflect other services offered by the chain, including drive-through windows, automated prescription refill systems, free outreach programs to help make sure patients are taking their prescriptions correctly, and 24-hour pharmacies. Costco pharmacies, the cheapest overall, are open only from 10 a.m. to 7 or 8:30 p.m. and are typically closed on Sundays.

“Big-box stores such as Costco and Walmart use the pharmacy as a traffic builder for their stores, whereas traditional chain stores, such as CVS, Rite Aid, and Walgreens, make the majority of their revenue and profits from the pharmacy,” says Stephen W. Schondelmeyer, Ph.D., Pharm.D., a professor of pharmacy economics at the University of Minnesota.

The study’s full findings are illustrated in this chart:

The use of generic drugs — rather than their brand name counterparts — actually drives down spending on medications, consequently lowering Americans’ out-of-pocket costs and government spending on public insurance programs such as Medicare and Medicaid. But the Consumer Reports investigation suggests there are significantly more savings to be had.

This isn’t the first time generic drug makers have been in the news this week. On Monday, the Supreme Court took up Federal Trade Commission (FTC) v. Actavis — which one expert dubbed “the health care reform case of 2013″ — a case centering on the legality and antitrust implications of so-called “pay for delay” arrangements in which brand name drug makers pay off their generic drug counterparts to delay a drug’s generic version from entry into the market. If the FTC winds up winning that case, it could save Americans and the government billions of dollars on drug costs every year. But as this new report demonstrates, they could save much more if pharmacies stopped jacking up their rates to startling degrees.

In addition to the high-profile cases on marriage equality that are slated for consideration this week, another crucial legal battle that begins on Monday could have huge implications for the future of the health care industry. Federal Trade Commission (FTC) v. Actavis could save consumers and the government hundreds of billions of dollars in health care spending, prompting one plaintiff to dub it “the health care reform case of 2013.”

The case centers on the widespread and arguably collusive practice of “reverse payment” settlements — commonly referred to as “pay for delay” — between brand name drug manufacturers and their cheaper generic drug counterparts. Such arrangements involve brand name drug makers paying off generic manufacturers to delay a generic drug’s release into the market, allowing the brand name producers to further profit off of their significantly more expensive drugs:

Congress saw the difference that generic drugs could make in health care spending when in 1984 it passed the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act.

That law, together with amendments passed roughly 20 years later, encouraged generic drug makers to challenge the patents protecting lucrative brand-name drugs.

But a loophole in the law has turned the theory of patent infringement on its head, allowing a brand-name company to pay the generic drug maker to keep its low-price version off the market for a given number of years. That is the opposite of how a patent-infringement case is usually settled, with the generic infringer paying the brand-name patent holder. Thus, the deals are known as “reverse payment” settlements.

These schemes cost American consumers as much as $3.5 billion every year by delaying access to relatively cheap generic drugs and keeping prescription drug costs unnecessarily high, despite recent drops in drug spending driven by the greater use of generics. In fact, brand name drugs only constituted “18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending,” and Big Pharma companies use the massive profit margins produced by that dynamic to effectively silence their competitors by offering a deal that’s too good to refuse. Brand name and generic drug makers — who both have plenty to gain financially through the shoddy arrangements — argue that such deals are actually beneficial for the consumer, as expensive patent lawsuits between the two industries could end up delaying a generic drug’s release even further.

But that argument is a smokescreen that ignores Congress’ original intent in passing the Drug Price Competition Act. It is an unintended consequence — as confirmed by none other than bill author Rep. Henry Waxman (D-CA) himself. In an amicus brief filed with the Court urging the justices to side with the FTC, Waxman wrote, “The Hatch-Waxman Amendments’ intention was to promote competition by generic drug manufacturers. The possibility of agreements such as those involved in this case is an unintended consequence of the legislation. Hatch-Waxman was never intended to foster such agreements, still less to render the antitrust laws’ prohibition of anticompetitive agreements among competitors inapplicable to agreements allowing generic manufacturers to exact a potion of a brand-name manufacturer’s monopoly profits in return for withholding entry into the market.”

According to a new report by the children’s medical safety advocacy group Safe Kids Worldwide, “a parent or caregiver calls a poison control center after a young child gets into medication, or is given the wrong dose of medicine” every single minute due to unsecured pills and bottles.

In a press release accompanying the report, Safe Kids Worldwide CEO Kate Carr said, “Ask any parent, and they will tell you they store medicine where children can’t get them. But they might not be thinking of pills stored in purses, vitamins left on counter tops or a diaper rash remedy near a changing table.” The findings, summarized in a report infographic below, support results from a 2012 study by the group finding that child poisoning deaths from medications doubled between 1979 and 2006:

A new report by Express Scripts Holding Co. finds that, while the total costs of U.S. drug payments rose slightly last year, 2012 was the first time in two decades that spending on drug treatments for common ailments such as high cholesterol and diabetes declined. That drop is largely due to Americans’ increasing use of generic — rather than brand name — medications to treat the conditions.

As Reuters reports, brand name companies have the freedom to charge higher rates on their prescription drugs for a set period of time before their patents lapse into the public domain, allowing expanded use of less costly generic drugs — a practice that is also encouraged by Obamacare:

The lower prices for common drugs came after the patents on branded versions ran out, putting cheaper generic competitors onto the market. Big pharmaceutical companies like Pfizer Inc and Merck & Co hold the patents on drugs for about a decade after they start selling them. Then competitors like Teva Pharmaceuticals Ltd can start selling their own generic versions.

President Barack Obama’s healthcare overhaul law rewards the use of generic drugs as a way to decrease healthcare spending, which rose about 4 percent last year and accounts for about 17 percent of gross domestic product.

The patent for Pfizer’s Lipitor, a cholesterol treatment that was once the world’s best-selling drug, expired in November 2011. Cheaper generics hit the market soon after, which sharply reduced spending on treatments in 2012.

“The move towards lower-cost generic alternatives has had a tremendous impact,” said Sharon Frazee, vice president research and analytics at Express Scripts.

Falling drug prices can have a tangible impact on Americans’ treatments for obesity-related illnesses that take a particularly large toll on the nation’s health. For example, the cost of high cholesterol medication fell by 10 percent for a 30-day supply — which quickly adds up for Americans who have chronic conditions like excess cholesterol and diabetes.

But Americans are denied the full benefits of falling generic drug prices due to the abundance of so-called “pay-for-delay” schemes between brand name and generic drug companies — when brand name drug companies pay off generic drug manufacturers in exchange for their consent to delay the release of a drug’s generic version into the market, a method of maximizing the brand name drug’s profitability. The Supreme Court is set to take up a case — Federal Trade Commission v. Watson Pharmaceuticals — to determine whether or not such schemes violate consumer protections and antitrust laws.

And the outcome of that decision could have a significant impact on U.S. health care expenditures. Considering the fact that the new report found the overall increase in national drug spending was driven by the high costs of specialty drugs for arthritis, cancer, and hepatitis C, which “accounted for 24.5 percent of the nation’s total spending on prescription drugs,” encouraging the production of generic prescription drugs could go a long way towards lowering health care costs.

In a case that encompasses illegal drug promotion, corporate kickbacks to doctors, and pre-meditated Medicare fraud, Los Angeles Times reports that biotech and pharmaceutical conglomerate Amgen will be fined $762 million after pleading guilty to allegations of improper drug marketing.

Kassie Westmoreland, a former Amgen employee and a whistleblower in the suit, was one of several people to charge that Amgen promoted the anemia-treatment drug Aranesp for off-label use and overfilled doctors’ promotional samples of the drug. In a brazen twist, Westmoreland also claims that the company orchestrated a collusive scheme to allow doctors to fraudulently profit off of their patients’ drug benefits:

[Westmoreland's] suit charged that Amgen overfilled vials of Aranesp to supply doctors with extra medicine at no charge. She alleged the company then encouraged doctors to bill Medicare and private insurers for this surplus amount, reaping them extra profit. Amgen pursued this strategy to take business away from Procrit, a popular anemia drug sold by Johnson & Johnson, according to the suit.

The Westmoreland case cited internal spreadsheets used by Amgen sales representatives to allegedly show doctors how much more money they could make from the overfills.

“Amgen provided extra product in the Aranesp vials as a liquid kickback that doctors could then cash in with federal and state governments through Medicare and Medicaid reimbursements,” said Charles Kester, a Calabasas attorney who represents Westmoreland along with law firms in Boston and Washington, D.C. “Amgen is being held to account in a serious way for its choices to market this drug unlawfully.”

Amgen’s penalties highlight the fact that most federal health care settlements stem from Medicare fraud and pharmaceutical misconduct. While doctors can prescribe drugs for off-label use, it is illegal for pharmaceutical companies to advertise drugs for purposes other than what the Food and Drug Administration (FDA) has approved. But settlements of this kind — and the government’s ability to crack down on drug makers’ practices that may threaten public health — could soon be a thing of the past.

A recent appellate court ruling in favor of the pharmaceutical industries’ right to promote their products as they see fit has set the stage for a Supreme Court showdown over drug makers’ First Amendment rights — and opens up big questions about how stringently the FDA can regulate Big Pharma.

The Supreme Court is already preparing to take up several game-changing cases next year on issues ranging from human gene patenting to promoting the off-label use of drugs. And now the nation’s highest court is slated to hear another landmark case within the pharmaceutical industry that could have enormous ramifications for Americans’ prescription drug costs.

Federal Trade Commission v. Watson Pharmaceuticals addresses the widespread practice of “pay for delay,” a scheme in which brand name drug manufacturers — whose products are considerably more expensive than their generic counterparts — pay off generic drug manufacturers in exchange for their consent to delay the release of a drug’s generic version into the market. While the drug industry claims the controversial practice is more efficient than potential costly patenting lawsuits over similar drugs, federal trade regulators argue that it actually serves to line industry pockets at the expense of American consumers:

“This is the health care reform case of 2013,” said David Balto, a former FTC policy director who helped file the first lawsuit against pay-for-delay deals back in the 1990s. “There’s no other case that can have as much impact on reducing health care costs.”

The FTC has estimated the deals cost consumers $3.5 billion annually by delaying access to cheaper generics, an estimate disputed by pharmaceutical companies. The Congressional Budget Office estimated that legislation introduced to restrict the deals would save the government more than $2.5 billion over 10 years in federal health care spending. [...]

FTC Chairman Jon Leibowitz has made the delay-deals a signature issue, arguing that they illegally prop up profits for drug companies at the expense of consumers. And in July, the U.S. Court of Appeals for the 3rd Circuit sided with the FTC, upsetting more than 10 years of precedent upholding the arrangements.

The case is particularly relevant in an era of skyrocketing brand name drug prices. Proposals to lower Medicare spending without harming benefits also often involve negotiating Medicaid drug rebate rates for Medicare beneficiaries — a tactic that would benefit even further from the earlier release of generic drugs.

Austin Frakt over at The Incidental Economist points out that the cost of brand name prescription drugs has skyrocketed relative to the price of their generic counterparts:

While this doesn’t pose a significant problem for seniors on Medicare — surveys have shown that close to 90 percent of seniors are satisfied with their Medicare plans, largely thanks to the fact that Obamacare helps save seniors money on their prescription drugs by closing the program’s “donut hole” coverage gap — it is a concerning trend for those with private insurance plans whose benefits might not be as generous.

The rise in brand name prescription drug costs mirrors the general trend for health care costs, which have been skyrocketing over the last three decades. As private insurers hike their premium rates in response to the price of care, Americans with extensive drug needs may see the cost of their treatments slip into unaffordable territory.

Furthermore, the upward trajectory in brand name drug prices poses a significant hurdle for Americans suffering from rarer disorders. These consumers require a more complex cocktail of drugs to meet their medical needs — needs that likely cannot be met by existing generic drugs.