Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence by Kwanghyuk Yoo :: SSRN

October 19, 2018

Titanic-scale multistate generic pricing antitrust litigation has been underway since December 2016, involving increasingly a myriad of generic drug manufacturers and drugs. Forty-seven states allege a pricing conspiracy wherein twenty defendants participated in a multitude of specific horizontal conspiracies to fix prices and markets for fifteen generic drugs in a manner to injure robust generic competition. However, this litigation may have overshadowed an overlooked but important concern. This article argues that the behind-the-scenes conspiracy between generic manufacturers and so-called pharmacy benefit managers (“PBMs”) may have constituted an integral part of the overarching conspiracy alleged in the litigation. PBMs play a pivotal role as intermediaries in the pharmaceutical supply chain and orchestrate a multitude of inter-generic conspiracies. The pharmaceutical industry well situates PBMs in a dominant position to have exclusive and full access to price information and exert influence over profit-maximizing pricing strategies of generic manufacturers. This fact serves as strong evidence that generic manufacturers locked in the PBM-constrained industrial structure are highly incentivized to buy off PBMs in order to control the overarching pricing conspiracy. PBMs’ role in the pharmaceutical logistical chain allows them to further anticompetitive generic collusion, taking the form of vigorous manipulation of two cost-saving schemes: manufacturer rebates and pharmacy reimbursement. The article thoroughly examines the mechanics of how PBMs specifically manipulate these schemes utilizing the complex pricing system, and further provides circumstantial and economic evidence strongly implicating the generic-PBM conspiracy and pragmatic suggestions for prospective antitrust scrutiny.

via Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence by Kwanghyuk Yoo :: SSRN


Regulatory Exclusivity Revision: Working to Achieve Greater Innovation in Approved New Molecular Entities by William Rich :: SSRN

October 18, 2018

Abstract Rewarding innovation is a part of the regulatory system for drugs, both in terms of patent protection and the granting of regulatory exclusivity. One particular area where there has been a significant amount of innovation is in the development of orphan drugs. However, there has been a persistent issue regarding the significant percentage of approved new drugs that are less innovative than their counterparts. Further, it appears that the level of innovation in approved drugs containing a new molecular entity (NME) has been on the decline. This issue is highlighted by the proliferation of “me-too” or “addition-to-class” drugs. Me-too or addition-to-class drugs include drugs such as Lipitor and Nexium. These are considered less ground-breaking than other NMEs, as they generally function similarly to products that are already on the market. To combat the proliferation of me-too drugs, this Note proposes increasing regulatory exclusivity as a way to incentivize drug companies to create more innovative NMEs. This Note suggests that increasing exclusivity periods for more innovative NMEs, in that they are a drug with an NME that either demonstrates a new way to treat a disease or is designated for priority review by the FDA, will result in a greater number of these drugs being produced.

via Regulatory Exclusivity Revision: Working to Achieve Greater Innovation in Approved New Molecular Entities by William Rich :: SSRN


Quality Regulation and Competition: Evidence from Pharmaceutical Markets by Juan Pablo Atal, José Ignacio Cuesta, Morten Sæthre :: SSRN

October 18, 2018

We study the effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. We estimate that the number of drugs in the market decreased by 25%, average paid prices increased by 10%, and total sales decreased by 20%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics — and therefore reduced vertical differentiation — were overturned by adverse competitive effects arising from the costs of complying with the regulation.

via Quality Regulation and Competition: Evidence from Pharmaceutical Markets by Juan Pablo Atal, José Ignacio Cuesta, Morten Sæthre :: SSRN


Perverse Incentives: Why Everyone Prefers High Drug Prices — Except for Those Who Pay the Bills

May 29, 2018

Health care spending rarely follows an ordinary, rational model. Yet even in that context, prescription drug prices are rising at a puzzling rate. What is causing the phenomenon? Quite simply, incentives percolating throughout the prescription drug market push players toward higher prices. At the center, lies the highly secretive and concentrated PBM industry — middle players who negotiate between drug companies and health insurers, arranging for rebates and establishing coverage levels for patients.

Contracts between drug companies and the middle players are closely guarded secrets. The PBM customers, including Medicare, private insurers, and even their auditors, are not permitted access to the terms. And the middle players are not alone; everyone is feeding at the trough.

Markets, like gardens, grow best in the sun; they wither without information. Thus, competitive distortions and suboptimal outcomes are unsurprising.

Despite the extreme secrecy, details have begun to seep out — through case documents (including recent contract disputes among parties), government reports, shareholder disclosures, and industry insider reports. Piecing together these sources, this article presents a picture of incentive structures in which higher-priced drugs receive favorable treatment, and patients are channeled towards more expensive medicines. In exchange for financial incentives structured in different ways to appeal to hospitals, insurers, doctors, and even patient advocacy groups, drug companies ensure that lower-priced substitutes cannot gain a foothold. It is a win-win for everyone, except of course for taxpayers and society. This article also analyzes popular proposals that are unlikely to work and suggests approaches for aligning incentives.

via Perverse Incentives: Why Everyone Prefers High Drug Prices — Except for Those Who Pay the Bills by Robin Feldman :: SSRN


Perverse Incentives: Why Everyone Prefers High Drug Prices — Except for Those Who Pay the Bills

May 14, 2018

Health care spending rarely follows an ordinary, rational model. Yet even in that context, prescription drug prices are rising at a puzzling rate. What is causing the phenomenon? Quite simply, incentives percolating throughout the prescription drug market push players toward higher prices. At the center, lies the highly secretive and concentrated PBM industry — middle players who negotiate between drug companies and health insurers, arranging for rebates and establishing coverage levels for patients.

Contracts between drug companies and the middle players are closely guarded secrets. The PBM customers, including Medicare, private insurers, and even their auditors, are not permitted access to the terms. And the middle players are not alone; everyone is feeding at the trough.

Markets, like gardens, grow best in the sun; they wither without information. Thus, competitive distortions and suboptimal outcomes are unsurprising.

Despite the extreme secrecy, details have begun to seep out — through case documents (including recent contract disputes among parties), government reports, shareholder disclosures, and industry insider reports. Piecing together these sources, this article presents a picture of incentive structures in which higher-priced drugs receive favorable treatment, and patients are channeled towards more expensive medicines. In exchange for financial incentives structured in different ways to appeal to hospitals, insurers, doctors, and even patient advocacy groups, drug companies ensure that lower-priced substitutes cannot gain a foothold. It is a win-win for everyone, except of course for taxpayers and society. This article also analyzes popular proposals that are unlikely to work and suggests approaches for aligning incentives.

via Perverse Incentives: Why Everyone Prefers High Drug Prices — Except for Those Who Pay the Bills by Robin Feldman :: SSRN


Why Has Economic Growth Slowed When Innovation Appears to Be Accelerating?

May 13, 2018

Measured between quarters with identical unemployment rates, U. S. economic growth slowed by more than half from 3.2 percent per year during 1970-2006 to only 1.4 percent during 2006-16, and only half of this GDP growth slowdown is accounted for diminished productivity growth. The paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation’s problems, including faltering education, aging infrastructure, and the looming shortfall in funding for Social Security and Medicare, and it also implies lower net investment and a reduced rate at which new capital can embody the latest technology. The paper documents the contribution to slower GDP growth of the separate components of demography — fertility, mortality, life expectancy, and immigration. Particular emphasis is placed on the interaction between rising inequality and the slower secular rise of life expectancy in the U.S. compared to other developed countries, both in the form of a large gap in life expectancy between rich and poor, and the stagnation of life expectancy for the lowest income quintile. Further contributions to slowing growth are made by a decline in the population share of both legal and illegal immigration and a turnaround from rising to declining labor force participation. Rising inequality creates a gap between the growth of average real per-capita income relative to that of median real income, and alternative measures of the evolution of this gap are compared and assessed.Causes of declining productivity growth begin with the slowdown in the rate of increase of educational attainment resulting from the interplay of demand and supply factors, including the flattening of the college wage premium and the rising relative price of college education. Why did productivity growth decline after 2006 despite an increase in the rate at which new U.S. patents were issued in 2006-16 compared to earlier decades? Part of the slowdown is attributed to the maturity of the IT revolution, which also helps to explain the trajectory of the college wage premium. Aspects of the productivity growth slowdown include the declining productivity of research workers, diminishing returns to drug innovation, and the evolutionary rather than revolutionary impact of robots and artificial intelligence, which are replacing workers slowly and only in a minority of industrial sectors throughout the economy. Also considered are alternative explanations of slower productivity growth, including low investment and mismeasurement.

via Why Has Economic Growth Slowed When Innovation Appears to Be Accelerating? by Robert J. Gordon :: SSRN


Are Biotechnology Startups Different?

May 12, 2018

In the domain of technology startups, biotechnology has often been considered as specific. Their unique technology content, the type of founders and managers they have, the amount of venture capital they raise, the time it takes them to reach an exit as well as the technology clusters they belong to are seen as such unique features. Based on extensive research from new databases, the author claims that the biotechnology startups are not as different as it might have been claimed: the amount of venture capital raised, the time to exit, their geography are indeed similar and even their equity structure to founders and managers have similarities. The differences still exist, for example the experience of the founders, the revenue and profit level at exit.

via Are Biotechnology Startups Different? by Hervé Lebret :: SSRN