Long-Term Medicaid Excess Payments from Alleged Price Manipulation of Generic Lorazepam

BACKGROUND: Cost savings from the use of generic drugs versus brand-name drugs are well known. Both private and public prescription drug plans encourage the use of generic drugs through a variety of mechanisms. The magnitude of cost savings for a given generic drug is dependent on the degree to which the generic market is competitive. Should the competitive structure become compromised, higher prices and reduced cost savings may result. An alleged conspiracy between Mylan Laboratories and its active-ingredient suppliers in 1997 was associated with an increase in seller concentration in the generic lorazepam market. The Federal Trade Commission (FTC) alleged that Mylan raised costs to consumers by $120 million because of price increases for generic lorazepam from March through December 1998 and for generic clorazepate from January through December 1998. In November 2002, a settlement with Mylan was approved by the FTC, and a federal district court required Mylan to pay $147 million, including $28.2 million to state agencies including Medicaid. OBJECTIVES: To (a) describe the seller concentration in the national Medicaid generic lorazepam market over a 19-year period from January 1991 through December 2009, (b) estimate the excess payments for generic lorazepam by Medicaid between 1998 and 2009, and (c) investigate potentially increased utilization and prices of 2 substitute pharmaceuticals: branded lorazepam (Ativan) and generic alprazolam (another widely used intermediate-acting benzodiazepine). METHODS: Using Medicaid State Drug Utilization Data from the Centers for Medicare Medicaid Services, we calculated the 4-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) for the Medicaid generic lorazepam market, along with pre-rebate reimbursement for pharmacy claims, number of claims (utilization), and average pre-rebate reimbursement per claim (average “price”) for generic lorazepam, from 1991 through 2009. Medicaid’s excess payments were estimated under 2 different assumptions regarding what the average generic lorazepam price would have been in the absence of the alleged conspiracy. To find counterfactual prices, the average per-claim reimbursement for lorazepam for the 4 quarters prior to the alleged conspiracy, $6.80, was inflated using (a) the quarterly change in the average per-claim reimbursement for generic alprazolam and (b) the Consumer Price Index (CPI) for all urban consumers, all goods. Potential impact of the alleged conspiracy on the branded lorazepam and generic alprazolam markets was investigated. RESULTS: The average pre-rebate reimbursements per claim for generic lorazepam were $10.25, $23.12, and $8.48 in 1991, 1998, and 2009, respectively. For the same 3 years, CR4 = 52.80, 76.02, and 86.74, while HHI = 905.71, 2,166.25, and 2,233.36. Medicaid’s excess payments from 1998-2009 were estimated at approximately $625-$657 million. The data also suggest the possibility of small impacts on the utilization of branded lorazepam and the price of generic alprazolam. CONCLUSIONS: Prior to the alleged conspiracy in 1997, average pre-rebate reimbursement per claim for generic lorazepam was declining, while seller concentration was rising. After a jump in average payment per claim in the years immediately following the alleged conspiracy, prices have gradually returned to their pre-1998 levels. However, the generic lorazepam market was more concentrated in 2009 than prior to the alleged conspiracy.