The FTC's Settlement With Mallinckrodt And What It Says About Our Drug Pricing System

December 11, 2018

 

Almost two years ago in January 2017, the Federal Trade Commission (FTC) fined the drug company Mallinckrodt $100 million for anticompetitive practices, and required the company to allow its competitor to produce a similar medication. This settlement came after widespread outrage after Mallinckrodt purchased a drug called Acthar, which is used to treat infantile spasms and multiple sclerosis, and raised the price by 85,000%, while thwarting attempts by competitors to introduce similar and less expensive drugs. While this case is closed, it shows a couple of problems with our drug pricing system: a company can engage in this price gouging that harms consumers, and anticompetitive behavior is all too common and often goes unpunished.

 

The specialty drug, H.P. Acthar Gel, treats infant spams, seizures and MS and is usually prescribed in life-saving situations, so it is often a matter of life and death. Since it is for children, who cannot pay for it, the burden falls on their parents. This medicine was originally invented in the 1930s, and cost $40 per vial in 2000, with a treatment regimen requiring three vials over the course of several weeks. Mallinckrodt used its monopoly of the drug to repeatedly raise its price, from $40 per vial to over $34,000 per vial-an increase of 85,000%! A three vial treatment for an infant would cost over $100,000, an unaffordable sum for working and middle class families, and even many upper class families.

 

This demonstrates the first problem with our drug price system-a company can have a monopoly of a medicine, especially a lifesaving medicine that parents have to use to save their children from dangerous situations, and engage in price gouging. But Mallinckrodt was not simply content with this exploitative behavior. The company acquired the rights to Synacthen Depot, a drug that is also used to treat these conditions (for much lower prices) and that was a direct competitor of Acthar. Other companies were bidding to develop the drug and sell it for a substantial discount, which would have greatly helped kids and families, and forced Mallinckrodt to lower Acthar's prices. However, the company managed to stifle that competition, nipping it in the bud.

 

Fortunately, this anticompetitive behavior did not go unnoticed. The Federal Trade Commission filed suit against Mallinckrodt, accusing them of violating antitrust laws, and it was joined by Alaska, Maryland, New York, Texas, and Washington. Then FTC Chairwoman Edith Ramirez said that "to maintain its monopoly pricing, it acquired the rights to its greatest competitive threat, a synthetic version of Acthar, to forestall future competition. This is precisely the kind of conduct the antitrust laws prohibit." The company eventually paid $100 million to settle the charges, and had to grant a license to develop Synacthen Depot to treat infantile spasms and nephrotic syndrome to another drug company approved by the FTC.

 

This demonstrates a second problem with our drug price system-the fact that such anticompetitive behavior is common and often unchecked. To be sure, there are no laws prohibiting drug price gouging (although there should be) so the FTC's powers are very limited. But the FTC can and should adopt an aggressive stance against companies that stifle competition and collude to raise prices. Evidence suggests that this is a serious problem across the health care industry. Just this week, the Washington Post ran an article on possible collusion to raise prices in the generic drug industry.

 

The FTC has substantial powers to promote competition, enforce antitrust laws, and punish malefactors of great wealth. It should boldly use them.

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