By Howard Fischer
Mail | X: @azcapmedia

PHOENIX — Attorney General Kris Mayes filed suit Monday against manufacturers and distributors of insulin accusing them of conspiring to raise prices and keep them high.

The result of this scheme, she claims, is that many of the more than 631,000 Arizonans who have diabetes are paying far more than they should. So Mayes wants a Maricopa County Superior Court judge to not only bar similar agreements among the companies but also to order that they reimburse Arizona consumers for the excess payments they had to make.

The lawsuit doesn’t specify how much that is. But it says that in Arizona alone diabetes costs about $5.1 billion a year in direct medical expenses.

At the heart of the claim is what the lawsuit says has been a meteoric rise in prices.

“The cost of diabetes medications has skyrocketed over the past 20 years,” the lawyers say. Specifically, they argue while the average cost of consumer goods and services has risen 175% over that time, the cost of some diabetes meds have risen more than 1,000%.

“Insulins, which today cost manufacturers as little as $2 per vial to produce, and which were prices at $20 per vial in the 1990s, now range in price from $300 to $700,” according to the lawsuit.

“These price increases are not due to the rising costs of goods, production costs, investment in research and development, or competitive market forces,” the legal papers state. “These price increases have been engineered by defendants to exponentially increase their profits at the expense of consumers, including payors.”

But the lawsuit goes beyond the price hikes themselves. It goes to the claim of conspiracy.

It cites findings by an investigation by the U.S. Senate Finance Committee, which concluded the increases came “in tandem,” with prices being increased among the manufacturers “down to the decimal point within a few days of one another.”

And what makes all of that important, according to Mayes, is  the inventors of insulin sold their original patent rights to the University of Toronto for $1 each, reasoning that “when the details of the method of preparation are published anyone would be free to prepare the extract, but no one secure a profitable monopoly.”

Named as defendants are the major manufacturers of insulin: Eli Lilly, Novo Nordisk and Sanofi-Aventis. According to the lawsuit they control 92% of the global market for diabetes drugs.

But the legal issues, the lawsuit says, go beyond the manufacturers. It also accuses the three largest pharmacy benefit managers — firms that control 80% of the market for filling prescriptions — of also being part of the scheme to keep prices high.

Those firms PBMs named in the lawsuit are CVS Caremark, Express Scripts and Optum Rx.

None of the named defendants immediately responded to requests for comment.

According to Mayes, that purchasing power by the PBMs and the ability to control formularies — the approved drug list — “should theoretically drive down list prices because drug manufacturers normally compete for inclusion on the standard national formularies.”

She said, though, what happens with insulin is the manufacturers artificially inflate their list prices “and then pay a significant, yet undisclosed portion of that inflated price back to the PBMs.”

That, said Mayes, can take several forms.

For example, she said, a deal with benefit managers might result in them placing the manufacturer’s branded product in a lower cost-sharing tier or relaxing utilization controls, like prior authorization requirements or quantity limits.

“Favorable placement of a relatively more expensive drug encourages use of that drug and leads to higher out-of-pocket costs,” she said, for not just insurance companies but also individuals, whether they are uninsured and have to pay the entire bill or simply have to make co-payments.

The bottom line, said Mayes, is that the cost of the drugs for consumers are not the result of free-market competition for the business of those who ultimately are paying the bills.

“To the contrary, their list prices are the product of collusion between the manufacturers and the PBMs to facilitation the insulin pricing scheme,” the lawsuit says.

“The insulin pricing scheme thus creates a ‘best of both worlds’ scenario for defendants,” the attorney general’s office charges. “The manufacturers buy formulary access and thereby increase their sales and revenue, while the PBM defendant receive significant, secret manufacturer payments based on the manufacturers’ inflated list prices.”

The lawsuit comes following adoption by Congress of the Inflation Reduction Act. That caps the monthly cost of insulin for seniors on Medicare at no more than $35 a month.

A spokesman for Mayes, however, said none of that benefits those who are not enrolled in Medicare.

What Mayes is using as the basis for the lawsuit is the state’s Consumer Fraud Act.

It prohibits any person or corporation of using any deception, fraud, false pretenses, misrepresentation or concealment, suppression of any material fact in connection with the sale or advertising of goods in Arizona.

“Defendants’ conduct was unfair or deceptive within the meaning of the Act in that defendants conspired to artificially inflated the list prices for the at-issue drugs solely to increase their own profits and at the expense of Arizona payors and patients,” the lawsuit claims.

“Defendants’ conduct was also unfair or deceptive in that the manufacturer defendants misrepresented and actively concealed the true reason why they set and raised list prices — the truth being that it was to increase revenues and profits and to offer higher prices and larger manufacturer payments to the PBMs — all with the PBM defendants’ knowledge, consent and cooperation.”

The lawsuit is not costing the state anything to pursue.

Richie Taylor, a spokesman for Mayes, said the office has a contract with outside attorneys who have agreed to take the case on a contingency basis, keeping a percentage of what they recover.

State law caps any such arrangement by the Attorney General’s Office at 25% of the first $10 million, 20% of the next $5 million, 15% of anything between $15 million and $20 million, 10% of the next $5 million, and 5% of anything over that. And the maximum that can go to outside counsel under such an arrangement is $50 million.