For Your Benefit

Public Agencies Taking Pharma Fight to Court

An Illinois city is the latest to file suit against drugmakers and PBMs to clamp down on soaring costs.

By Rita Pyrillis


resident Donald Trump put drugmakers and health care “middlemen” on notice during a speech in May pushing for lower prices on prescription drugs. But one employer was ahead of the president, already taking them on in the courts in hopes that more will follow.

The city of Rockford, Illinois, filed a lawsuit April 6 against drug manufacturer Mallinckrodt, which makes H.P. Acthar, a drug that treats a rare and potentially fatal epileptic disorder in infants. Two years ago, Rockford, about 80 miles northwest of Chicago, discovered that the cost to treat just two babies with the drug accounted for 2.5 percent of its $23 million health care fund — nearly a half-million dollars. The drug cost $40 a dose in 2001, but as of 2017, the price soared to more than $34,000 per dose.

“The city of Rockford came to a startling realization a few years ago that they were running an insurance company,” said Ryan Brauns, a consultant with Rockford Consulting and Brokerage, which represents the city in health care matters. “They are self-insured so the cost of a doctor visit comes right out of the city health fund, which was at minus-$4 million. It led to taking a more proactive approach.”

In 2015, city officials opened an onsite health clinic that provided a clearer picture of their health care spending, according to Brauns. “It was pretty quickly obvious that we had a problem with Acthar,” he said.

Rockford is one of a small group of public employers fighting runaway drug costs by suing drug manufacturers and pharmacy benefit managers, the so-called middlemen between employers and drugmakers. The city also named a subsidiary of Express Scripts, a St. Louis-based PBM, in its lawsuit.

In 2014 the Southeastern Pennsylvania Transportation Authority in Philadelphia filed a lawsuit against drugmaker Gilead alleging price gouging over the drug Sovaldi, which treats hepatitis C. The state agency said that it paid more than $2.4 million for Sovaldi prescriptions for its employees that year.

Two years later the city of Providence, Rhode Island, sued CVS Health Corp. over the cost of generic prescription drugs.

Rockford’s lawsuit alleges that Mallinckrodt violated federal antitrust laws by maintaining a monopoly that allowed them to increase the price of Acthar to an exorbitant level, according to the complaint.

Last year the Irish drugmaker faced similar charges filed by the Federal Trade Commission and three state attorneys general and agreed to pay $100 million to settle the lawsuit, according to an FTC press release. In 2001 the company’s U.S. subsidiary purchased the drug and began raising the price while preventing competitors from introducing a similar drug.

However, the FTC failed to establish a price for the drug, leaving the door open for future abuses, according to Brauns.

“Our suit is about exposing this anticompetitive behavior and asking the court to set the price,” he said. “We are the ones on the frontlines of this, we’re the ones dealing with price inflation and we’re the ones who must raise our voices about this. We said, ‘We’re just not going to take it any more.’ ”

Cheryl Larson, president and CEO of the Midwest Business Group on Health, applauds Rockford’s decision to sue a drug manufacturer, but points to PBMs as a bigger problem in the pharmaceutical supply chain.

PBMs, the middlemen Trump referred to in his speech, are one of the most influential players in the drug supply chain, representing a multibillion-dollar industry. They serve as an intermediary between the employer and the other players in the health care system, promising great savings to companies by using the buying power of enrollees to bargain for lower prices from drugmakers.

PBMs also create the list of drugs that a health plan offers, known as a formulary. Drugmakers vie for a preferred spot on that list, paying PBMs a percentage of the drug’s price. But how they make their money is often unclear.

“The real issue is the PBM, not the drug manufacturer,” she said. “Pharma is being held hostage by PBMs with their rebates. Long gone are the days when drug formularies are built on clinical efficacy, if they ever were.”

As for Rockford, the lawsuit and a recent segment by TV news show “60 Minutes” has generated “dozens and dozens” of calls and emails from public employers across the country who want to join the lawsuit, according to Brauns.

“The municipal sector is uniquely equipped to take this on,” he said. “A lot of plan sponsors are busy with their core business. Rockford has its own legal department and the capacity not only to represent our employees but the citizens of Rockford as well. We can press that advantage. You can get these municipalities to band together in pursuit of these kinds of actions.”