ROCKFORD, Illinois — This city 90 miles from Chicago runs its own health plan for its hundreds of police, firefighters, and other city workers. And a couple of years ago city officials watching the books noticed something weird about its healthcare spending.
Just two babies on Rockford's health insurance were eating up 2.5% of the plan's total budget. That money wasn't going for heroic surgeries or cancer treatment. Instead, the infants were being given a drug to stop infantile spasms, which is serious but easy to treat.
The problem was just nine vials of H.P. Achtar, the drug the children needed, cost the city nearly a half-million dollars. The drug isn't new. It's been around decades and used to cost just $40 a dose. But the drug's owner hiked it up to $36,000 in recent years.
So this city of 150,000 decided to do something almost unheard of. It sued.
Cutting down on healthcare spending
On April 6, the City of Rockford filed a lawsuit against Mallinckrodt, the makers of H.P. Acthar, "to challenge an anti-competitive, unfair and deceptive scheme" that the company undertook "to enhance and maintain Mallinckrodt’s monopoly power in the U.S. market for adrenocorticotropic hormone (ACTH) drugs in violation of the U.S. antitrust laws."
Class-action suits contesting high prices have become increasingly common; one against the makers of insulins and another against that maker of the EpiPen have been filed in the past few months. In 2016, Providence, Rhode Island, sued generic drugmakers over the antibiotic doxycycline and a heart medication called digoxin. The antibiotic has since been involved in a price-fixing case brought by 20 state attorneys general. And in 2014, Philadelphia's transit agency sued Gilead, the maker of the hepatitis C cure Sovaldi, over the price of the drug, which has a list price of roughly $1,000 a pill.
But it's still a little unusual for a midsize city to be leading the charge.
Rockford is part of a growing movement of employers keeping track of how much they're spending on medications. In going after Mallinckrodt the city hopes to inspire other employers to take on the rising prices of prescription drugs.
As a self-funded health plan, Rockford's essentially pays for its employees' health care expenses out of its own pocket, instead of those funds coming from a health-insurance company.
Starting in 2005, Rockford wanted to get a better idea of how much the city was spending on healthcare. At the time, the city was running a $4 million deficit in its health fund. By looking at the city's healthcare spending, Rockford managed to put $12 million in reserve at one point, which the city then used to start a clinic for its employees.
As part of that initiative, the city realized it spent a lot on specialty pharmaceuticals, a term that's often used to describe costly medications that are a bit more complex than the antibiotic you might pick up at the pharmacy. These include biologic drugs used to treat autoimmune disorders, and Acthar, a drug that came on the market in the 1950s.
"We set this chain of events in motion where we were constantly reviewing the drug spend, and that meant getting pretty granular at the specific drugs that were being purchased and how they were being utilized," Ryan Brauns, a consultant at Rockford Consulting & Brokerage who has been working closely with Rockford's health fund since 2005, told Business Insider.
That's when they started seeing a trend. "The most significant cost threat to the plan at this point is specialty medications," he said. Overall, medical expenses for Rockford were down 0.25% in 2016 compared to 2015 in the face of a 6% rate of regional medical inflation. Pharmacy expenses, on the other hand, were up 25.2% in 2016 compared to 2015.
One drug that made up 2.5% of the total health fund
Achtar is not frequently used, but its high price tag means a few prescriptions can add up quickly. In addition to infantile spasms, the drug is used to treat flare-ups of multiple sclerosis and other autoimmune disorders. In 2015, Medicare spent $504 million on the drug.
In total, Rockford and its employees spent almost $500,000 on Acthar in 2015, coming out to a gross cost of $54,339.76 per vial, according to the suit. The cost made up a significant portion of Rockford's $20 million healthcare fund.
" While we will not comment on the details of this litigation, we can reiterate our publicly expressed view related to the FTC settlement – that we strongly disagreed with allegations that we engaged in any anti-competitive behavior," a Mallinckrodt spokesman said in a statement to Business Insider.
Rockford, of course, has catastrophic claims it has to cover every year, such as emergency surgeries, accidents, or other unexpected medical bills. But Kim Ryan, associate director of human resources, told Business Insider that "the pharmacy seems to be the most blatant and growing problem that health plans are facing trying to control all these expenses," she said.
"The abuse that can take place through the network in the pharmacy benefits management world, and how something like this could happen is really very shocking," Rockford Mayor Larry Morrissey told Business Insider. Morrissey 's term as mayor is up at the beginning of May, but Morrissey said Mayor-elect Tom McNamara supports the suit.
While Rockford investigated its drug spending, Mallinckrodt settled with the Federal Trade Commission over Acthar in January, agreeing to pay $100 million, after the FTC charged the company with violating antitrust laws. Back in 2013, Questcor (a company that Mallinckrodt later acquired) bought a competitor to Acthar called Synacthen. The FTC alleged that this kept other companies from selling the competing drug at a lower price. As part of the settlement, Mallinckrodt had to agree to license Synacthen to Marathon Pharmaceuticals to treat infantile spasms and nephrotic syndrome in the US.
"Questcor took advantage of its monopoly to repeatedly raise the price of Acthar, from $40 per vial in 2001 to more than $34,000 per vial today – an 85,000 percent increase," FTC Chairwoman Edith Ramirez said in a January news release. "We charge that, to maintain its monopoly pricing, it acquired the rights to its greatest competitive threat, a synthetic version of Acthar, to forestall future competition. This is precisely the kind of conduct the antitrust laws prohibit."
Mallinckrodt, on the other hand, had a different perspective on the settlement.
"We are pleased with the agreement reached to resolve this legacy matter, although we continue to strongly disagree with allegations outlined in the FTC's complaint, believing that key claims are unsupported and even contradicted by scientific data and market facts, and appear to be inconsistent with the views of the FDA," the company said in a news release at the time.
But the settlement didn't go far enough, Morrissey argued. "The question that I asked when I was going through some of the background before the lawsuit was filed, was how in the world does the federal government allow a $100 million settlement on a drug" when the government didn't get a commitment to change the price moving forward, he said.
This is why Rockford decided to file its own suit against the company, using the FTC's case as a starting point. Morrissey said he hoped the case would clear up some misconceptions about how much employers are paying for medications.
"There's this mythology that the healthcare industry tries to describe that this doesn't hurt anybody except big insurance companies," Morrissey said. But in the case of Rockford, "Every dollar that we overpay there is a dollar that can't go to other community services, has to be paid for by taxation."
In its lawsuit, Rockford also named United Biosource Corporation, a company that's owned by the pharmacy benefit manger Express Scripts.
After Rockford filed the complaint on April 6, Brauns said he got calls from other employers who might be interested in joining in on the class-action suit. In particular, those calls came from employers in the public sector who have started looking at their own health plans.
"There's been a lot of talk about what to do with rising cost of pharmaceuticals," Brauns said.
Using this case, Rockford wants to get Acthar on Washington's radar. It's not without the realm of possibility. President Donald Trump has said drugmakers are "getting away with murder" and expressed an interest in negotiating drug prices, something the government isn't allowed to do for Medicare and Medicaid. And in March, the president met with Reps. Elijah Cummings and Peter Welch, at which time the representatives showed Trump a bill that would allow Medicare to negotiate lower drug prices.
As the case goes forward, the city hopes to get a refund on the $500,000 it spent on Acthar. Morrissey said he hopes the case goes beyond that. Ideally, the case will bring the price down so that if Rockford needs to purchase Acthar again, the city won't face the same prices.
"There's zero discouragement of future antitrust conduct when you get a slap on the wrist," Morrissey said.
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