RACHEL MARTIN, HOST:
Federal and state investigators say some generic drugmakers have been fixing prices. Nineteen companies have been named so far in a scheme where investigators say consumers were overcharged for a long list of medications. Charles Lane of member station WSHU reports.
CHARLES LANE, BYLINE: Prosecutors say they have a good idea about how the scheme worked. Let's say Walgreens or another major buyer needed drugs. The pharmacies wanted the lowest price, so they would ask generic drugmakers to bid.
MICHAEL COLE: And what would happen behind the scenes is the companies would work out in advance who would get the lowest price. And then the other competitors may put in what we would call a cover bid.
LANE: Michael Cole heads the antitrust department at the Connecticut attorney general's office. Through subpoena, his team has assembled millions of texts, emails and phone calls between 2012 and 2015. They say the records show executives divvying up customers, setting prices and giving the illusion that generic pharmaceuticals were transacted in an open and fair marketplace.
COLE: Because of price fixing, a couple of things are going to happen. Your premium's going to go up. Your co-pay is going to go up. Or both of them are going to go up. Some of these programs are just straight up taxpayer-funded programs. Medicare, Medicaid has a prescription benefit.
LANE: So far, two executives from Heritage Pharmaceuticals have pleaded guilty to antitrust crimes. Both are now feeding information to prosecutors who say the two rigged prices on, among other drugs, the common antibiotic doxycycline, which shot the price up 8,000 percent. Most companies named in the complaint have denied wrongdoing. The fact that the Department of Justice is involved has caught the attention of class-action lawyers. Attorney Jason Dubner says the allegations are so massive, prices throughout the generic industry could have been affected.
JASON DUBNER: Dermatological cures, antidepressants, cardiac care, antifungal, gallbladder - like, you start to get an understanding of just how widespread this alleged conspiracy was to cover so many different types of cures.
LANE: Law firms that specialize in class actions are lining up more companies who may have paid too much, like retail pharmacies, employee unions, insurance companies and even individuals.
DUBNER: Yes, individual consumers would then also have the potential to file notice of claim and potentially recover for their damages.
LANE: Ronny Gal is a market analyst for Sanford Bernstein. He's a bit skeptical that the generic drug industry is as nefarious as the plaintiffs describe. But he says, in an efficient marketplace, generic drug wholesalers should have actually kept these prices in check. But that didn't happen.
RONNY GAL: In a market that has only three or four really large distribution organizations, they are sometimes tempted to maximize their own profits in a way that does not always 100 percent reflect the best interests of their clients.
LANE: This is what investigators are looking at now. In their complaint, they suggest but don't allege that the price fixing conspiracy also involved drug distributors. Connecticut Assistant Attorney General Michael Cole said his office is planning more subpoenas.
COLE: It could be more generic manufacturers. It could be more drugs. It could be more entities at different levels in the distribution chain. Could be all of that.
LANE: Knowing only what's in the current lawsuit, analysts estimate that an eventual settlement could be around a billion dollars. That number could go as high as $5 billion, especially if more drugs are included.
For NPR News, I'm Charles Lane.
(SOUNDBITE OF TRIO ELF'S "EMPTINESS")
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.