Antitrust Regulators Crack Down on Health Industry

The federal government is stepping up its antitrust scrutiny of the nation’s health and pharmaceutical businesses, amid concern that the industries’ increasing consolidation will dampen consumer choice and increase prices.

The latest and most dramatic example came Monday, when the Federal Trade Commission voted to seek an unprecedented $120 million in damages against the nation’s second-largest producer of generic drugs.

If the FTC prevails, most of the money would be refunded to consumers.

It will be only the second time the government has sought fines in an antitrust lawsuit against a drug company and the first time it has accused a pharmaceutical firm of such massive price-fixing.

The action against Mylan Laboratories Inc. and three of its suppliers is the latest in a series of aggressive anti-monopoly moves by regulators, who last summer blocked two major mergers by pharmaceutical companies.

The four-member FTC, capping an investigation begun last summer, voted unanimously to sue Mylan for allegedly conspiring with its suppliers to create a monopoly on two widely prescribed drugs often used by the elderly to treat anxiety and hypertension. The company is accused of raising prices by more than 3,000%.

“The agency’s decision was radical, rushed and wrong,” said Milan Puskar, chairman and chief executive of Pittsburgh-based Mylan. He accused the FTC of trying to push the company out of the market and promised to fight the lawsuit.

Federal regulators expect to be joined by 10 states, whose attorneys general say they will file suits this week. And Mylan’s attorney said the company learned Monday of two class-action cases filed in California and Florida.

The federal and state lawsuits come at a time when concerns about antitrust issues in the rapidly consolidating health-care industry are running particularly high--and they dovetail with a renewed belief on the part of elected officials that the public will support increased regulation.

Last summer, the FTC prevailed in blocking proposed mergers that would have combined the nation’s four largest drug wholesalers into two dominant giants.

A federal judge in August granted an injunction preventing Orange-based Bergen Brunswig Corp. from merging with Dublin, Ohio-based Cardinal Health Inc. The judge also blocked San Francisco-based McKesson Corp. from acquiring AmeriSource Health Corp. of Valley Forge, Pa.

Just last week, the American Medical Assn. asked the Justice Department to investigate the proposed merger of Aetna Inc. and the health-care division of Prudential Insurance Co. A leading consumer group is expected to file a challenge to the merger Wednesday.

The Prudential purchase would make Aetna so big that it would control health insurance for nearly one in 10 Americans, and groups representing both doctors and patients say the company would be able to raise prices and force doctors out of the network if they spent too much time and money on patients.

“This is not just about Aetna,” said Dr. E. Ratcliffe Anderson, executive vice president of the AMA. “This is about the precedent that this sets in the medical marketplace. . . . It may be good for Wall Street, but it’s certainly not good for Main Street.”

Justice Department officials would not comment except to say they are trying to determine whether they or the FTC will examine the merger.

On Monday, the FTC charged that Mylan--along with Cambrex Corp. of East Rutherford, N.J.; Cambrex’s Italian subsidiary, Profarmaco; and Gyma Laboratories of America Inc. of Westbury, N.Y.--cornered the market on the chemicals needed to make the drugs and then raised prices.

The wholesale price of the anti-anxiety medication lorazepam, the generic version of Ativan, increased from $7.30 for a bottle of 500 tablets to $190, the FTC charged. The price for clorazepate, the generic for Tranxene, rose from $11.36 to $377 for a bottle of 500, according to the FTC.

To facilitate the price increases, the agency charged, the company signed exclusive agreements with its suppliers, which make the chemicals that go into the drugs.

“Mylan made its enormous profits on drugs that are used to treat anxiety and hypertension and are widely prescribed to treat the elderly and infirm,” said William J. Baer, director of the FTC’s Bureau of Competition. “Mylan’s illegal conduct deprived some consumers of access to these important drugs and put some consumers’ health at risk.”

The firm’s price increases, which began early in 1998, were so sudden that some in Washington have accused the company of single-handedly causing a rise in the prescription drug portion of the producer price index.

Last year, lorazepam accounted for about 10% of the company’s total revenue of $528.6 million.

Kevin Arquit, the former chief of the FTC’s Bureau of Competition who is now an attorney representing Mylan, said the case is unfair.

“The relief they’re seeking is unprecedented,” Arquit said.

Mylan, Arquit argued, signed the exclusive agreements to protect itself against competitors that might attempt to lock the company out of the market.

Mylan only raised prices, he said, because they had been artificially low during a price war and it could no longer afford to produce them.

And, he said, the generics still sell for about half the price of their name-brand equivalents.

“These medications were selling for a couple of dollars a bottle,” he said. “This was a price war. It was either raise prices or discontinue the product.”

After the FTC’s action Monday, Mylan shares plunged $3.31 to close at $26.75 on the New York Stock Exchange.

Consumer advocates warned that Mylan’s decision to raise prices is a harbinger of things to come if consolidation in health care is not slowed.

“This is a typical maneuver in the for-profit world of health care,” said Doug Heller of Consumers for Quality Care. “This is exactly what we fear with the Aetna-Prudential merger.” The Santa Monica organization plans on Wednesday to formally request that the Justice Department forbid the merger.

Competition in the market for generic drugs is particularly important, Heller said, because managed-care companies and people on fixed incomes rely on generics.

In 1996, generic drugs accounted for 43% of all prescription drugs sold in the United States, up from 19% in 1984, according to the Congressional Budget Office.

Peter Boland, a leading health-care industry consultant based in Berkeley, cautioned against lumping concerns about the Mylan case in with the mergers among health maintenance organizations such as Aetna and Prudential.

The question in the Mylan case, he said, is fairly straightforward: Did the company conspire to corner the market and then set prices? In the case of Aetna, he said, it is unclear--and will be difficult to measure--whether the company’s national dominance would translate into inappropriate market share in individual cities.

For example, he said, while Aetna is indeed the nation’s largest provider of health care, some of its members are in Medicare, others are in HMOs, and still more are in other types of plans. They are scattered not only around the country, but also throughout different market segments.

“It’s incomprehensible to me that even a bigger Aetna would control much more than a rather modest portion of health care in any market,” he said.

It is not clear whether the government’s case against Mylan and its suppliers will succeed. The FTC’s earlier effort, a 1992 case against Abbott Laboratories for alleged price-fixing of baby food formula, ended in failure when a judge ruled that the agency had not proved its case. In that suit, the FTC had sought a fine of $19 million.

Shelley Rouillard, program director of the Health Rights Hotline in Sacramento, said if the companies that make the nation’s drugs and provide its health care continue to gobble up their competitors, consumers and doctors will have little choice but to pay high prices--and settle for fewer products.

“It’s kind of scary,” Rouillard said. “Consumers are caught in the middle. We have no say in any of these activities.”