Big Pharma (Part 1):

A Bitter Pill to Swallow

September 19th, 2017

One in ten Americans is prescribed a medication that is not financially accessible to the patient.

No wonder.  Per-capita spending on prescription drugs in the United States ($856) is more than double the average of the next 19 industrialized nations ($400).[1]Big Pharma claims that research and development is the source of this rocket burn.

But if this were the case, why have four of the most popular drugs more than doubled in cost over the past five years?  Wouldn’t research costs already be baked into the price? 

The price of insulin, used to treat diabetes, has more than tripled between 2002 and 2013.[2]   Humira, a drug used to treat rheumatoid arthritis, had a retail cost of $1,550 for two doses in 2009.  Today, it has a retail cost of $4,537 for two doses in the United States.[3]  By comparison, the drug costs $2,726 for two doses in Canada.[4]  A two-pack of EpiPens, used for allergic reactions, is now over $600, up from a little more than $100 in 2007.[5]  The annual cost of Lipitor, an anti-cholesterol medication, rose from $1,290 in 2006 to $2,140 in 2012.[6]

On average, the U.S. prices for the world’s top 20 selling medications are three times higher than in Great Britain.[7]

The price hikes on many generics have also been steep.  For example, erythromycin in 500-mg tablets had three increases of more than 100%, ranging from 24 cents per tablet in 2010 to $8.96 per tablet in 2015.[8]Methazolamide, a glaucoma drug, increased 454% from 33 cents per tablet in 2010 to $1.85 in 2011. By 2015, the drug’s price was $5.47.  This is an increase of 1,538% over five years.[9]The antibiotic doxycycline hyclate jumped from $20 for 500 capsules in October of 2013 to a staggering $1,849 in April of 2014.[10]  The antibiotic tetracycline soared from 6 cents for a pill in 2013 to $4.60 per pill in 2015, a 1,000% increase in two years.[11]

For many years, people with health insurance were one step removed from these price increases.  Health insurers, through pharmaceutical benefit managers (PBMs), negotiated a price with the drug manufacturers and, depending on the terms, designated the medication as a “preferred” product on a formulary.[12]  At the same time, pharmacies negotiated with drug manufacturers and insurance companies to be part of the covered network of the insurer, in many cases agreeing to charge a lower price for medications on the formulary.  

The discounts and rebates negotiated by insurers through this process can be significant—up to 80% off from the list price. [13]

Today, however, as many as 40 percent of people with health insurance are covered under high-deductible plans.  Even though they have insurance, they must pay for their drugs out-of-pocket until they hit their high deductible.  Every drug company contacted by Bloomberg News last fall said that when patients in high-deductible plans pay for drugs out of pocket, drug companies pay the rebates to the insurer or pharmacy benefit manager, not the patient. In other words, high-deductible plans don’t give the benefit of rebates negotiated by insurers to their patients.

Similarly, the uninsured are charged a “sticker” (list) price for medications, a price not paid by insurers or the government.  They too don’t get the benefits of the discounts.  Because of this price disparity, the uninsured, who do not have access to health insurance (in many cases due to its cost), go without necessary medications, incurring more medical costs.

Real reform of this mess should be initiated by Congress. For instance, a law should be enacted that gives the federal government the authority to negotiate the price of medications for Medicare patients.   At least one research paper determined allowing Medicare to negotiate prices could save over $16 billion per year.[14]

While meaningful reform requires Congress to act, there are steps the state of Minnesota can take to address the prescription drug disgrace.

For instance, the states of Oregon and Washington created a program where all residents—including those covered by high-deductible plans and the uninsured—benefit from discounts and rebates negotiated by government purchasers.[15]The two states use their purchasing clout to negotiate with the pharmaceutical industry for better prices for drugs in prisons, schools, state nursing homes, and other public facilities.[16]   The two states then permit their individual residents to join these state purchasing pools so that the public also gets to share in the states’ negotiating clout.[17]

Oregon’s drug discount program provides an average discount of 50% off list prices for brand name drugs and up to 80% discounts for generics.  In Washington, enrollees save on average about 60% off a drug’s sticker price, or $43 per prescription.  In Oregon over 296,000 people participate.  In Washington over 230,000 participate. 

Minnesota should implement a similar program.  

Since 1985, the state of Minnesota has administered a purchasing pool called the Minnesota Multistate Contracting Alliance for Pharmacy (MMCAP).  This pool combines the purchasing power of 5,000 separate facilities from 49 state governments (such as higher education facilities, hospitals, prisons, first responders, and the like) to buy more than $1 billion per year in medical supplies, including medications, influenza vaccines, dental supplies, and drug testing equipment.[18]Counties, cities and school districts are also members. 

The state should combine the efficiency of MMCAP with the drug discount programs available to the people of Washington and Oregon so that Minnesota residents can receive discounts off their prescription drugs like the HMOs and insurance companies do.

The proposal is simple. 

The proposal doesn’t require a new infrastructure. 

The proposal doesn’t require a big financial budget.

While this action will not address the full scope of the pharmaceutical problem, we shouldn’t just do nothing while we wait for the federal government to step up to the plate.

Let’s do it.



















Big Pharma (Part 2):

PBMs: Sunlight is the Best Disinfectant

October 4th, 2017

I write with more thoughts about prescription drugs.

High Cost of Health Care.   The U.S. spends more than $3 trillion—or about $10,000 per person—on health care.  This is more than twice per capita than the average spent by other developed countries. Health care is almost 18% of our economy [1]but our health outcomes are no better than other developed nations.[2] 

High Cost of Prescription Drugs.  Pharmaceutical costs consume nearly 17% of the health care dollar in the United States.[3] Prescription drug costs are the fastest growing component of health care expenses.[4] In 2014, pharmaceutical sales in the United States rose to $374 billion—16 times the cost of living.  In 2015, they increased to $425 billion—17 times the cost of living.  Since 2011, prices for four of the nation’s top 10 drugs increased more than 100%, and six others went up more than 50%.[5] U.S. prices for the world’s 20 top-selling medicines are on average three times higher than in Britain, a country that negotiates drug prices.[6] 

Litigation is Not the Solution.  During my tenure as Attorney General, we have been very active in filing lawsuits or settlements with approximately 100 pharmaceutical manufacturers, resulting in over $100 million in recoveries.  We have pending price-fixing lawsuits against generic manufacturers of diabetic and antibiotic medications.  We are also in court against manufactures that improperly extend patents to keep out competition.  While these lawsuits and investigations are important, litigation cannot solve the problem with the high cost of prescription drugs.  

Pharmacy Benefit Managers.  This column focuses on one opaque facet of the industry: so-called “pharmacy benefit managers,” or PBMs.  As discussed below, Minnesota needs to join other states in moving the PBM industry forward with transparency.

As seen below, the pharmaceutical market has a very complex structure. 

Manufacturers and Distributors.   Pharmaceutical manufacturers produce the drugs.  Most drugs are then distributed through wholesalers. Three national distributors—Amerisource-Bergen Corporation, Cardinal Health, and McKesson Corporation—control up to 90 percent of the distribution sector.[7]

In the 1970s, the industry was pretty simple.  The distributors negotiated prices and product delivery with pharmacies, which then sold the drugs to patients.  Patients with health insurance could then request reimbursement from their insurer.

The Middle Man.  This simple history is long past.  A new type of company—the pharmacy benefit manager (or PBM)—now plays a central role in pharmaceutical pricing.  Health plans (which include HMOs, insurance companies or self-insured employer-sponsored plans) hire PBMs to negotiate prices with drug manufacturers, wholesalers, and pharmacies.  Today, the United States has three dominant PBMs:  Express Scripts, CVS, and OptumRX.  These PBMs are hugely profitable, generating an estimated $280 billion in revenue in 2014.[8]

PBM Leverage.  PBMs create formularies for health plans.  A formulary is a list of approved drugs.  Drugs that are not on the formulary are not covered by the health plan or are covered under less attractive terms for the patient.  Manufacturers have a large incentive to get their drugs on the formulary so that patients will use them and sales will go up.  The use of formularies in turn gives PBMs big leverage over manufacturers.[9]  The theory is that PBMs will use this leverage to negotiate lower prices for their health plan clients.

Discounts and Rebates.  Do PBMs reduce drugs costs?  Many commentators don’t think so.  They argue that today’s PBMs get paid in part based on the percentage spread by which they can get drug companies to lower their prices.  They argue that, to curry favor with PBMs, the drug companies raise their list prices, the PBMs get a steeper discount, and then get paid more by the health plans.  Meanwhile, prices for drugs spiral upward.  This forces the uninsured and those with high deductibles to pay ever-higher prices for their medications. 

As important, many pharmaceutical manufacturers pay a rebate for total sales of a particular drug through all health plans serviced by the PBM—essentially a bonus commission based on total sales—at periodic intervals, such as annually.  The higher rebate paid by one manufacturer for annual sales of a particular drug is a tremendous inducement for the PBM to ignore the overtures of other manufacturers that may offer a drug that is more cost-efficient or effective.   In many cases, the rebate is undisclosed to the health plans served by the PBM.

Clawbacks.  In some cases, generic drugs cost less than plan deductibles for brand name drugs.  The policyholder doesn’t know this, however, and pays more for the deductible on a formulary drug.   The pharmacist is not permitted to counsel the patient on this, however, when PBMs insert a “clawback” provision in their contracts with pharmacies, which prohibits the pharmacy from advising the consumer of cheaper access to specific medications.  A current lawsuit involves a consumer who paid a $50 co-pay to fill her prescription, even though her pharmacy had contracted to pay only $11.65 for the medication.  According to the allegations, the $38.35 went back to the PBM.[10]

Real Money.  The irony is that health plans hire PBMs to negotiate lower drug prices, but many commentators believe that PBMs actually inflate the cost of drugs to generate higher compensation for themselves.[11]The CEO of Pharma, the trade association representing drug manufacturers, claimed that PBM rebates and discounts have doubled in the last few years.[12]This statement was followed up with an unusual exchange in which the CEO of Mylan, the manufacturer of the Epipen, testified in Congress that one-half the price of an Epipen two-pack, now costing over $600, goes to middleman, including PBMs.  The PBMs responded by labelling the Mylan statement a “scam.”[13]

Good News and Bad News.  The bad news is that neither Congress or Minnesota has addressed these problems.  The good news is that other states are trying to address the issue, and Minnesota can borrow from their experience. According to the National Conference of State Legislatures, more than 230 bills on access to pharmaceuticals were introduced in 2017 in 39 states. 

PBM Disclosure. Several states, including Maryland, North Dakota, South Dakota, Vermont, plus theDistrict of Columbia,mandate that PBMs provide financial data to health plans.  Californiahas been debating a similar provision.[14]  None of the states, however, require PBMs to make such disclosures on a regular basis.[15]Ironically, Minnesota has a law that permits PBMs to audit pharmacies but no law that permits health plans to audit PBMs.[16]

PBM Transparency.  Vermont recently enacted a law to take action on price spikes that exceed 50% of the average wholesale price over the past five years or 15% of the wholesale price over the last year.[17]

Nevada and Insulin Legislation.  A bill signed in June in Nevada applies to insulin manufactures like Novo Nordisk, Sanofi, and Eli Lilly.  It requires them to annually disclose their production costs, administrative and marketing costs, list prices, profits, discounts to insurance companies, and rebates or other fees paid to PBMs.[18]   Manufacturers must explain in detail the reason for any price increases above the Consumer Price Index.

Maryland and Generic Price Legislation.In Maryland, the legislature last spring enacted a law to fine a generic drug manufacturer if a drug costing over $80 hikes its price more than 50% in one year.[19]

Connecticut and Clawbacks.  This summer Connecticut enacted legislation that prohibits the use of clawback provisions that gag pharmacies from disclosing relevant drug price information to consumers.[20]

Regulatory Activity.  Connecticut also requires PBMs to be registered by the state insurance regulator and empowers the regulator to suspend or revoke the registration for unfair or deceptive business practices. Mississippirequires PBMs to be regulated by the Board of Pharmacy.  Georgia, Iowa, andKansasrequire PBMs to register as third party administrators. 

Fiduciary Duty Legislation.  Maine and D.C. enacted legislation to impose a fiduciary duty on PBMs, forcing them to disclose their payments.  Unfortunately, the D.C. Circuit struck down the D.C. law as preempted by federal law. Mainethen repealed its requirement. In 2013, Mississippi proposed legislation to require PBMs to “act in the best interests of the patient.”  The state dropped the matter after threats of litigation by the PBM trade association.  New York then considered but dropped similar legislation in the face of threatened litigation.  

While states have backtracked from the idea of imposing a fiduciary duty of PBMs, Iowaand Vermonthave adopted legislation to impose a “duty of good faith and fair dealing” (although no meaningful results have yet been attained through the courts). 

Conclusion. We regulate the maximum rate for interest on consumer loans, the price of electricity and natural gas, and to a degree the price of auto and health insurance. Not so for the price of pharmaceuticals. 

Real reform of the prescription drug industry must come from Congress.  But we can’t count on that anytime soon.  To the contrary, Congress enacted legislation to prohibit Medicare (which has huge buying power because it represents 40 million beneficiaries) from negotiating drug prices.[21]  Other states aren’t waiting for Congress to act, and neither should Minnesota.  The State should move forward now and do what it can to address this problem.    You can help by letting your state legislators know that you want solutions to this vexing problem.


[2] - item-start














[16]Minn. Stat. §151.50 - §151.70.






The Opioid Epidemic

June 28th, 2017

Over 30,000 people will die from opioid-related overdoses this year in the United States.

The United States has less than 5% of the world’s population but uses 80% of the world’s prescription opioid painkillers. 

People who abuse prescription painkillers often turn to street heroin, at a rate of about 600 per day, because of its lower cost. 

One tragic consequence of the opioid epidemic is babies who are born addicted to opioids like OxyContin or Vicodin.  This alone costs over $300 million in hospital care, not to mention the human toll.

I have joined with a number of other Attorneys General in an investigation into the potential legal culpability of pharmaceutical manufacturers in the marketing and sale of opioid prescription painkillers. I hope that any money recovered from this effort could help fund treatment, which is desperately needed to curb this epidemic.

Investigations and lawsuits alone, however, will not stop the addiction crisis.  Nor can Minnesota arrest or prosecute its way out of this problem.

Before the legislative session, I issued a white paper on the opioid epidemic.  The paper made a number of legislative proposals which, if enacted, would hopefully help save lives.  The white paper was recently recognized as a 2017 Notable Documentby the National Conference of State Legislatures(the only white paper to address the opioid crisis).  Unfortunately, most of the proposals in the paper failed to be enacted into law this year.  Lobbyists whose clients wanted to duck responsibility on the issue turned out against the legislation.

The proposals include the following:

  • Minnesota should require prescribers and dispensers to review a patient’s history in Minnesota’s prescription drug monitoring database before prescribing or dispensing controlled substances. Research indicates that required use of a drug monitoring program is effective in reducing prescription painkiller abuse and doctor-shopping.This proposal failed to be enacted.
  • Opioid prescribers and dispensers should be required to receive periodic continuing education on pain management, substance abuse disorder, and painkiller risksThis proposal failed to be enacted.
  • Patients should be given plain-language information about the risks of opioid abuse and the proper disposal of these medications when they fill a painkiller prescription. This proposal failed to be enacted.
  • To limit diversion of drugs, there should be acollection receptacle in each county to dispose of unwanted opioid painkillers. This proposal was enacted.
  • To stop painkillers from falling into the wrong hands, the time period for a painkiller prescription to become void if not filled should be shortened.  This proposal was not enacted.
  • Occupational health licensing boards and law enforcement agencies should be given access to data to shut down “pill mills” that use professional licenses to sell inappropriate drugs to addicted patients.   This proposal was not enacted.
  • Drug treatment should be substantially expanded. Every $1 spent on substance abuse treatment saves $4 in health care costs and $7 in criminal justice costs. Only modest new treatment funding was appropriated.
  • Drug courts should be expanded to give judges options in getting people who are addicted to drugs help with their addiction.  Some additional funds were appropriated to the courts.

Another proposal—which I support—would have charged a one-penny fee on each painkiller dispensed (measured in morphine milligram equivalents).  The fee would have generated an estimated $20 million per year for drug treatment.  This proposal was not enacted.

This epidemic affects people from all parts of Minnesota and all walks of life.  The victims include people who are addicted to drugs, their families and friends, their employers, and those who fall prey to crimes like theft, assault, and intoxicated driving caused by drug abuse.

I hope that you will review the white paper and contact your legislators with your thoughts on this crisis.  Despite the lobbying, legislators will respond to these proposals if they hear from enough constituents who make it clear that the epidemic affects their communities.

Congress Needs To Act On Prescription Reform

December 25th, 2016

(as published in the Duluth News Tribune)

One in 10 Americans is prescribed a medication that can't be afforded.  No wonder. Per-capita spending on prescription drugs in the United States ($858) is more than double the average of the next 19 industrialized nations ($400). Big Pharma claims that research and development is the source of this rocket bum, but four of the 10 most popular drugs more than doubled in cost in the last five years. Wouldn't research costs already be baked into the 2011 price?

In 2009, Humira, a drug to treat rheumatoid arthritis, cost $762 a dose. Today it's $1,728. An EpiPen two-pack, used for allergic reactions, went from $100 in 2009 to more than $600 this year. Lipitor, a statin for high cholesterol, costs $430 in the U.S. but about $37 in Britain.

The price hikes on generics aren't any better. Between 2013 and 2014, generic versions of the asthma drug albuterol sulfate went from $11 to $434, the antibiotic doxycycline hyclate jumped  from $20 to $1,849, and the blood pressure medication isoproterenol went from $44 a dose to $1,200 a dose.

The uninsured often get charged the "sticker" (list) price for medications, a price not paid by insurers that negotiate discounts and rebates that save more than $100 billion per year. On some drugs, these discounts can be up to 80 percent. Uninsured patients who lack the market clout to negotiate get charged full price. One study found they pay 60 percent more on average than the federal government for prescriptions. They also are the most likely to go without prescriptions due to cost.

Patients with health insurance used to be one step removed from the high cost of drugs. Not anymore. The Centers for Disease Control estimates that 40 percent of people with health insurance are now in high-deductible plans -where insurance doesn't pay until a high deductible is met. Every drug company contacted by Bloomberg News in October said that when patients in high-deductible plans pay for drugs out of pocket, drug companies pay the rebates to the insurer or pharmacy benefit manager, not the patient. In other words, high-deductible plans don't give the benefit of rebates negotiated by insurers.

While real reform requires Congress to act, there are steps the state of Minnesota can take in the upcoming legislative session to help people pinched by high drug costs.

One model that doesn't cost taxpayers money or require a new government infrastructure already exists. The states of Oregon and Washington allow residents to benefit from discounts and rebates negotiated by government purchasers. The discount programs are open to anyone, regardless of income. In Oregon, 295,000 people participate,  and 231,000 people participate in Washington.

Here's how it works: State and local governments currently join purchasing alliances to negotiate better prices for drugs for prisons, schools, state nursing homes, and other public facilities. The purchasing pools use their collective power to negotiate more competitive pharmaceutical prices than any single member could obtain. Oregon and Washington permit citizens to join these state purchasing pools. Oregon's drug discount program provides an average discount of 50 percent off list prices for brand­ name drugs and up to 80 percent for generics. In Washington, enrollees save on average about 60 percent off a drug's sticker price, or $43 per prescription.

The largest government purchasing pool is in our backyard. The Minnesota Multistate Contracting Alliance for Pharmacy, formed in 1985, combines the purchasing power of 5,000 separate facilities from 49 states and buys more than $1 billion a year in drugs.

Legislators might consider combining the frugal structure of the drug-discount programs of Oregon and Washington with the negotiating heft of a purchasing alliance to bring lower drug prices to underinsured and uninsured patients in Minnesota.

This could be just what the doctor ordered.

For-Profit HMOs: Minnesota Is Posed to Fall Into a Trap

May 10th, 2017

(as published in the Star Tribune)

In 1996, management of a non-profit health plan in Ohio agreed to sell it to the for-profit Columbia/HCA. The for-profit would pay the non-profit executives a $19 million "consulting fee." The for-profit also paid $3.9 million in "consulting fees" to the seven non-profit directors. The insurance regulators agreed to keep the transaction secret. When the deal leaked out, the Cleveland Plain Dealer sued to get the documents, and the deal collapsed. The directors, who already received their "consulting fee," agreed to return $2.4 million to the non-profit.

In Massachusetts, a for-profit company paid $4 million to Fallon Healthcare System,  which owned a health plan and hospitals, for one of its hospitals. The for-profit received $17 million of working  capital  and  equipment  valued  at $72 million  from  Fallon.    The for-profit  then  paid bonuses  of  $60 million  to  Fallon  executives  and  physicians. The Boston  Globe retained  an appraiser who valued the hospital alone as worth $38 million.

In Indiana, the executives of a non-profit health plan purchased stock in a subsidiary that they planned to convert to a for-profit public company. They paid  $261,000  for  options  to  buy 985,000 shares of the successor for-profit company. When the for-profit had a public offering, their stock jumped  in value to $29 million, an increase of more than I 0,000%.

Blue Cross Georgia converted to a for-profit company, which was then sold to WellPoint Health Network.  The executives received $28 million in bonuses.  The CEO got $3 million.

The executives of a California non-profit health insurance plan sought to quietly convert to a for­ profit enterprise by paying $100 million to a charitable organization. After public exposure, the executives raised the price to $3 billion.

After numerous  scandals, many states enacted laws to stop the corporate raids on the treasuries of non-profit health insurance plans.

Minnesota seems to be going in the opposite direction.

For 40 years, Minnesota prohibited for-profit corporations from owning HMOs. As a result, in Minnesota five non-profit health plans dominate the market: HealthPartners, Medica, Blue Cross Blue Shield of Minnesota, Preferred One, and UCare. This may not sound like many companies, but it is more than the one or two plans that exist in some states. In 2016, these non-profit health plans reported assets of $7.1 billion and reserves of $3.3 billion.

In  January,  the  Legislature  enacted  a  law  that  allows  HMOs  in  Minnesota  to  be  for-profit corporations. A  bill  had  been  meandering  through  the  legislative  process  that  would  have established various protections if such a conversion took place, such as independent valuation of the  non-profit  assets  (which  would  then  be  protected  for  policyholders  and  taxpayers),  a prohibition on self-dealing by the executives, public hearings, and adequate tools to review the transactions .

Last week, in a conference committee, the Legislature passed a "delete all" amendment that stripped out the most important protections , apparently claiming that the assets of the nonprofit health plans can be valued at a sliver of their worth.

Minnesota has UnitedHealthcare, the largest for-profit HMO in the country. The company has had some very profitable years, at one point awarding its CEO $1.6 billion in stock options. Until this year, UnitedHealthcare could not sell HMO coverage in Minnesota because of the prohibition on for-profit HMOs.

There is no mystery about the name of the leading for-profit candidate to acquire the non-profit health insurance plans in Minnesota. And there should be no surprise when the non-profit health insurance executives-acting under the cover of the "delete all" legislation-once again fleece the policyholders, taxpayers, and the public.

I hope the Governor vetoes this troubling "delete all" legislation.