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Sweeping lawsuit accuses top generic drug companies, executives of fixing prices

Generic drug makers accused of price fixing
Sweeping lawsuit accuses top generic drug companies, executives of fixing prices 14:12

It might be the biggest price-fixing scheme in U.S. history. On Friday, Connecticut and a coalition of more than 40 states filed a 500-page lawsuit accusing the biggest generic drug makers of a massive, systematic conspiracy to bilk consumers out of billions of dollars. It's a more sweeping version of a similar lawsuit the states filed in 2016 that's still being litigated. The generic industry vehemently denies the allegations.

Congress established the current generic industry in 1984 to push prices down. The idea was that once patents on brand name drugs expired, generic makers would compete to make drugs more affordable. But 1,215 generics, many of them the most prescribed drugs, jumped on average more than 400 percent in a single year.

Connecticut has been examining the generic drug industry for almost five years. Tonight, we'll take you inside its investigation and show you how two dogged attorneys built the cases the state attorney general calls the most egregious examples of corporate greed he has ever seen.

William Tong

William Tong: It's an industry-wide conspiracy. And I think it answers one of the biggest questions all of us are asking, which is why are prescription drugs so expensive? And I think we know why now. Because the prices of generic drugs are fixed. And there's a widespread conspiracy to rig the market.

Connecticut Attorney General William Tong says his office found evidence of price fixing by dozens of generic drug industry sales directors, marketers, CEOs dating back to 2006.

Bill Whitaker: How many drugs are we talking about?

William Tong: Hundreds. Hundreds of drugs.

Bill Whitaker: What kinds of drugs?

William Tong: Every kind of drug that touches our everyday lives. I'll give you an example, Bill. This is my bottle of doxycycline. It is a common antibiotic that I take every day for a skin condition. And there is a conspiracy around doxycycline. And so sitting here today as the attorney general of the state of Connecticut, I'm one of the victims.

Between 2013 and  2014, a bottle of doxycycline shot up 8,281 percent from $20 to more than $1800. A bottle of asthma medication, albuterol sulfate, jumped more than 4000 percent, from $11 to $434. Pravastatin, a cholesterol drug, up more than 500 percent, from $27 a bottle to $196.

The sudden price spikes caught the attention of Congress, which called a hearing; the Department of Justice, which launched an investigation; and the state of Connecticut, which now has filed two lawsuits.

William Tong: This is a phased approach And we're focusing on all the major players.

Bill Whitaker: So is it your contention that these companies are putting Americans' lives at risk?

William Tong: Yes, you know, it's $100 billion market. We're talking about the drugs that America takes every day to live. And they're profiteering off of that in a highly illegal way. They're just taking advantage.

Bill Whitaker: The industry says that the prices went up because of market forces and because of drug shortages. These explanations don't wash with you?

William Tong: No. I mean they've said this to me to my face. And—

Bill Whitaker: Why don't you believe that?

William Tong: Because we have evidence, hard evidence, in the form of text messages, emails, documents, witnesses that demonstrate clearly that it wasn't about product shortages. It was about profit. It was about cold, hard greed.

Correspondent Bill Whitaker with Joe Nielsen and Mike Cole

How can he say that? Because of what these two sleuth attorneys uncovered. Mike Cole heads the antitrust division in the Connecticut Attorney General's office. Joe Nielsen is his lead prosecutor on this case. They've worked together for more than a decade reaching multi-million dollar settlements with big names like Apple and Bank of America. This, they say, is their biggest case yet.

Michael Cole: This particular industry — the generic drug industry — touches everybody.

Joe Nielsen: 90 percent of all prescriptions filled in this country are filled with generic drugs.

In the summer of 2014, Cole and Nielsen spotted a newspaper article about a sharp rise in the price of a decades-old generic heart medication called digoxin.  

Bill Whitaker: So you read the article and something just didn't smell right?

Michael Cole: I guess you could say you get a little bit of a sixth sense after you do this type of work for a long period of time which we both have. So we did a little bit more due diligence. And we sent out three subpoenas.

Bill Whitaker: What did you think you would find?

Michael Cole: We were looking for communications amongst competitors. When you do this kind of work it's really not one hot document, as they say, that's gonna prove a case. It's kind of like putting together a puzzle, a piece at a time.

The puzzle grew into a monster. Three subpoenas turned into more than 300 to major generic drug companies, dozens of employees and phone companies. Over the course of the investigation, the subpoenas generated almost 19 million internal documents and phone records. There were so many pieces, Joe Nielsen couldn't make out the big picture at first. For more than two years, he was the only one working the case. He spent days at his office desk and many nights at his dining room table looking for patterns. He eventually bought software used by law enforcement to investigate drug cartels, so he could analyze nearly 12 million phone logs.

Bill Whitaker: And this allowed you to do what?

Joe Nielsen: Well, this allows you within five minutes to look at someone's entire phone records and see the history of who they communicated with, when.

Nielsen saw a picture emerge of a cozy relationship among industry competitors with lots of phone chatter right before they increased prices apparently in lock step.  

Joe Nielsen: You know, we can see that competitor A is talking to competitor B five times on one day. And what that allows us to do is to go into our document database and look on that day at what they were saying.

It all snapped into sharp focus when he matched phone logs to thousands of text messages from Heritage Pharmaceuticals. Nielsen says this exchange, with competitor Citron Pharma, showed collusion to increase the price of a diabetes medication. The text messages implicate two other companies: Aurobindo and Teva, the world's largest generic drug maker. The national accounts manager at Heritage wrote:

A.S.: "We are raising the price right now — just letting you know, Teva says they will follow"
A.S.: "Aurobindo agrees too"

A corporate account representative from Citron answered:

KA: "...we are def [initely] in to raise pricing ... are doing this immediately"

The Heritage executive responded:

AS: "We are raising our customers 200% over current market price."

Bill Whitaker: So what's wrong with these companies talking to each other?

Joe Nielsen: If they were talking about— their families or, you know, a barbecue that they went to, there would be nothing wrong with it. But when they talk about raising prices and they agree to do that then it's completely and totally illegal.

Take the case of the antifungal drug Nystatin. As you can see with this graph, the price held steady at $68 a bottle for years, but in April 2013 Sun Pharmaceuticals almost doubled the price to $131. Right after the increase there was this flurry of phone calls between Sun and competitors, Heritage and Teva.

Joe Nielsen: So you see a phone call between Heritage and Sun pharmaceuticals lasting over 45 minutes.

After dozens of calls like this, first Teva, then Heritage followed Sun's lead and jacked up the price of Nystatin to $142 a bottle. Joe Nielsen also found messages that seemed to show companies, including Pfizer, conspiring to divvy up the market for other drugs. The lawsuit filed Friday states: "Pfizer, acting through its wholly-owned subsidiary and alter ego... Greenstone, entered into agreements with Teva and... other competitors to allocate and divide customers and markets... and to fix and raise prices." It refers to this email from Teva as evidence.

"[T]ell Greenstone we are playing nice in the sandbox and we will let them have [the … customer]."

Bill Whitaker: Play nice in the sandbox. What does that mean?

Joe Nielsen: Avoid competing with each other, take your fair share and don't go after anything more than that. Keep the prices as high as you can.

Bill Whitaker: But I thought the whole point of generic drugs was to have competition and keep the price down?

Joe Nielsen: That's the point for us, but that's what the companies who are selling the generic drugs want to avoid.

William Tong: I think what we've come upon is that the generic drug industry is the largest private sector corporate cartel in history.

Bill Whitaker: What is the effect of that on you? Me? Average consumer?

William Tong: It's devastating. it affects health insurance premiums and health insurance plans. It impacts Medicare and Medicaid. And it is a chain reaction that drives up the price of American healthcare to unnatural heights.

We reached out to the companies mentioned in our report for comment. Pfizer, which advertises on this broadcast, denies any wrongdoing and says it has cooperated with the Connecticut Attorney General. It says its subsidiary, Greenstone, intends to vigorously fight the claims. Sun issued this statement: "Sun Pharma is committed to the highest level of ethics and integrity... We believe the allegations made in these lawsuits are without merit and we will continue to vigorously defend against them."

In court filings Sun and other drug makers have argued there's no proof of an overarching conspiracy. The industry trade group told us generic prices declined three straight years from 2016.

William Tong: There has been some leveling off. But I don't think that means that the conspiracy has ended. They're still unnaturally high. What we haven't seen is if they stopped colluding you would expect prices to go down dramatically. You would expect competition to ensue and one competitor would go after another. And they'd start undercutting each other on price. That hasn't happened.

Dr. Thomas Pliura

Bill Whitaker: Are you seeing patients today?

Dr. Thomas Pliura: I am.

Dr. Tom Pliura is feeling the impact of rising generic drug prices. He runs a clinic that serves 14,000 people in rural, southern Illinois. This is a federally designated, "health care shortage area," which is a bureaucratic way of saying there aren't enough doctors around here.

Three quarters of his patients are on Medicare or Medicaid. Both government programs set limits on reimbursements for drugs. The rising generic prices have created a medical emergency for him. Since the government won't cover the increased costs, his patients or his clinic must.

Dr. Thomas Pliura: We've been able to— to keep the doors open. But it's getting harder and harder. And with these tremendous— spikes— it's a problem.

Bill Whitaker: The impact of the rising prices is so great that it might put you out of business?

Dr. Thomas Pliura: No question about it. We've had that discussion right here in this building.

He worries his patients will suffer. So, Dr. Pliura has joined unions, pharmacies, school employees and other plaintiffs that have filed dozens of class action lawsuits in the wake of Connecticut's investigation, all accusing generic drug makers of fixing prices.   

Bill Whitaker: That's a big fight for a small clinic in rural Illinois to pick.

Dr. Thomas Pliura: I think somebody has to raise their hand. Somebody has to say, "You know— it's wrong, what's going on." you can't put people in a position where they're forced to either pay their rent or buy food and forego their medication." And that's what's — that's what's happening all over the U.S.

William Tong: As an attorney general, I look at that and I say, "How can they do that?" And I think what we've concluded is they know it's illegal. And— and it's not that they're too big to fail. It's that they're just too big to care.

Bill Whitaker: That sounds harsh. Too big to care.

William Tong: That's the only conclusion I think anyone can draw when they see this evidence. And so then you start wondering why would they do this? Because there's just too much money to be made.

Connecticut Attorney General Tong told us he and the other state attorneys general are continuing to investigate the generic drug industry and plan to file more lawsuits.

William Tong: This conspiracy has caused billions and billions of dollars in damages to the people of Connecticut and states across the country. And we're gonna take them on in court and hold them accountable. And they're gonna pay for the money they stole from the American people.

Produced by Marc Lieberman and Ali Rawaf. Associate producer, Ian Flickinger

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