Any business can make a profit, but that's profiteering. The Rockford file is the story of how a very expensive prescription drug threatened to cripple a whole city financially. This city is Rockford, Ill., An old industrial city outside of Chicago. Instead of using health insurance, Rockford has spent years paying its own health care for its 1,000 employees and family members.
When Rockford was hit by drug legislation, it was so powerful that at that time the mayor started to understand why.
Larry Morrissey: Everyone asks, "Why is health care so expensive?" Because the bug is fixed. That is the answer. That's the short answer.
When Larry Morrissey was Mayor of Rockford, he was hit by a crisis: the city was bleeding money.
Lesley Stahl: They found out that the health budget went bankrupt.
Larry Morrissey: Yes, the budget was out of control.
Lesley Stahl: And you had to squeeze other things. Like what?
Larry Morrissey: Police and fire department cease. Keep fire extinguishers and other equipment on the streets. We began to realize that drug costs were exploding.
Lesley Stahl: And I heard that it was just a drug.
Larry Morrissey: A certain drug called Acthar.
In 2015, two small children of Rockford employees were treated with Actor, a drug that has been on the market since 1952. It is used to treat a rare and potentially fatal condition called infantile spasm, which infects about 2,000 babies a year [196592002LesleyStahl:Howmuchmoneyforthesetwobabiesonthescore?]
Larry Morrissey: We spent hundreds of thousands of dollars on these sick baby cases.
Lesley Stahl: Nearly $ 500,000 we've heard.
Larry Morrissey: Combined, yes.
Lesley Steel: Combined.
Larry Morrissey: Yes.
"Any company can make a profit, but that's profiteering.
The drug works – it is considered the gold standard for infantile spasms, but when it was discovered, it was not always so expensive." In 2001, Acthar sold for about 40 A $ 1,000 vial today, more than $ 40,000, an increase of 100,000 percent, he wanted to know how that could have happened, but for two years he kept running against a wall.
Lesley Stahl: Why It was so hard to figure out what was going on and why?
Larry Morrissey: It's absolute secrecy.There is an absolutely opaque system of drug pricing in our country.That's part of the problem.
His Investigation only came last year when the Federal Trade Commission charged drug maker Mallinckrodt with violating antitrust laws to "maintain extremely high prices for Acthar."
Larry Morrissey: And d That was the big a-ha.
Lesley Stahl: That's the only way you've learned? Otherwise you would not know
Larry Morrissey: We may not have known.
And what they know now makes them angry. So they hired lawyer Don Haviland to sue Mallinckrodt for price fixing, a lawsuit denied by the company.
Don Haviland: Any business can make a profit, but that's a win-win.
When investigating the case, he discovered that Acthar's largest price increases were under the former owner of the drug, Questcor, whom Mallinckrodt bought in 2014.
Lesley Stahl: When Questcor started raising prices, did they do any research and development, anything to make the product better to improve it?
Don Haviland: Absolutely nothing. There was no R & D. There was no improvement of the product. There is no improvement in the company. All they did was raise the price.
To keep the price high, the FTC found that they were doing something else: they bought another drug that was Acthar's main competitor, a drug called Synacthen, which has been sold in Europe and Canada for years. For how much?
Don Haviland: Synacthen cost $ 33 in Canada. $ 196.
Lesley Stahl: Acthar bought the other drug
Don Haviland: The competition drug, yes. That's antitrust, and that's why the Federal Trade Commission went after them. Because they took the only competitive product, paid a lot of money and put it on the shelf.
Lesley Stahl: So they bought their only competitor and never sold it?
Don Haviland: Right.
Mallinckrodt did not commit misconduct, but in settling the case, the Federal Trade Commission forced the company to pay $ 100 million. Not much, he says, for a company that earns more than $ 1 billion a year on Acthar alone.
Don Haviland: In this case, it's a drop in the bucket. 100 million dollars? There is nothing.
Lesley Stahl: In an e-mail to us Mallinckrodt said that when the big price hike came, they did not own the business. It was Questcor, not her. Should they be responsible? She – she –
Don Haviland: Absolutely. It is her company. You own Questcor. You own the business model. And they do not lower the price.
In fact, Mallinckrodt has raised the price by about $ 8,000 a vial since acquiring the company.
Mallinckrodt, who declined our request for an interview, sent us this email, saying that it has invested in new research and development into the drug. When we asked them how much, they told us, "This information is confidential and proprietary."
In our own investigation, we found that the company, with only about 2,000 cases of childhood spas per year, made a strategic decision in 2010 to sell Acthar for other illnesses.
We were able to find an old press release that said so much: the company would "… expand our existing markets (and) find new therapeutic applications for Acthar." And so, the company began marketing the drug for various chronic conditions, such as adult rheumatoid arthritis.
Dr. Peter Bach: What shocks me is half a billion dollars for this drug for seniors, where there's no evidence that it's the right drug for them.
We have Dr. Asked Peter Bach, who investigates the cost and value of drugs at Memorial Sloan Kettering in New York, to investigate Acthar for us. What attracted his attention was that Medicare spent half a billion dollars a year on Acthar in 2015-tens of thousands of dollars per vial, not for weeks, like babies, but for years.
Lesley Stahl: Is there any evidence that these medicines are effective in the diseases caused by the elderly?
Dr. Peter Bach: I mean, nothing that the Food and Drug Administration would find convincing.
Lesley Stahl: So the Food and Drug Administration has not approved the medicines for these diseases?
Dr. Peter Bach: The approval for these drugs is therefore older than all the evidence we use today.
The FDA approved the use of Acthar for the treatment of these chronic diseases in 1952 – when drug manufacturers only had to prove the safety of a drug, not its effectiveness.
Dr. Peter Bach: And more importantly, there are many other medicines that are really cheap.
Lesley Stahl: Why Doctors Acthar prescribed for these diseases when there is something cheaper?
Dr. Peter Bach: Many of the physicians who prescribed much Acthar also got money from the company Acthar makes to talk, to seek advice, to conduct research studies for the company, which add up to huge sums. And these doctors seem to be the ones most likely to prescribe Acthar.
Mallinckrodt paid millions of doctors over a period of almost two years, according to Pro-Publica, an investigative report group that shows how much doctors earn from pharmaceutical companies, with the top earner receiving more than $ 350,000.
Dr. Peter Bach: They use a proven strategy, they raise the price to a very high level and focus their energy on a few doctors to whom they can prescribe the drug. And it works well for their revenue. It does not help patients. And in 2015, spending on Medicare totaled half a billion dollars.
Whether or not it is effective for these other conditions, and the company says Medicare is not allowed to bargain for the price of drugs because of a law passed by Congress. Instead, Medicare relies largely on a little-known company to conduct negotiations for them, called Pharmacy Benefit Managers or PBMs, and it's not just Medicare, it's also cities like Rockford that engage them to win the prize of bargaining drugs. But as you'll see, pharmacy users can benefit when drug prices are high.
The Rockford Pricing Company is Express Scripts, the largest company in the country, representing tens of millions of patients. Rockford is also suing this company.
Don Haviland: So they have not used their purchases performance. They did not use their influence. Their job was to negotiate a lower price from the manufacturer. They did not do it.
Lesley Stahl: How would you lower the price? What would you do?
Don Haviland: I can give you an example of where you have a high-priced drug, one of which was $ 13.50. It was one day raised by 5000% to $ 750.
Lesley Stahl: One day?
Don Haviland: Express Scripts says, "We will not pay it." The company refused to lower the price. They went out and got another manufacturer for $ 1. $ 1965.9002 Lesley Stahl: Did you actually ask another company to make the same medication?
Don Haviland: Yes, and that's the one they covered for their patients and payers.
Lesley Stahl: And you say that? they could have done that in this case?
Don Haviland: Absolutely.
"The basic problem we have with prescription drugs in this country is that every single actor has the potential to make money when drug prices rise."
He argues that Express Scripts should have used the same clout to bring the cheaper alternative Synacthen, which was sold in Canada for $ 33, to market.
We wanted to ask Express Scripts why that was not the case. But they told us in this email that they could not discuss "because of pending legal disputes". But Don Haviland thinks he knows why they did not fight for a lower price.
Don Haviland: In a word, the money. It's all about money. They obviously have a shared loyalty.
Dr. Peter Bach: Express Scripts is a big company. It also has parts of it that make money, when drugs cost more and when more expensive drugs are sold.
Lesley Steel: Whoa. Wait, wait, wait (LAUGH) wait. You say that these PBM, whose job it is to keep drug prices low, is making money when drug prices are high? Did you just say that?
Dr. Peter Bach: Yes. So express scripts are many companies, not just the PBM. It also owns a pharmacy that sells expensive medicines. It also owns a company that ships and packs expensive medicines. All these other parts of the Express Scripts Corporation make more money, the more Acthar leaves the door, the more prescriptions for Acthar are filled and refilled.
The city of Rockford was able to find another piece of the puzzle: Express Scripts, the company that hired them to keep prices down, also had an agreement to act as Acthar's exclusive distributor.
Rockford's attorney, Haviland accuses Express Scripts of cheating the city.
Don Haviland: They serve two different constituents. They have the manufacturers on one side and the cities of Rockford and patients on the other side.
Lesley Stahl: We have an email from Express Scripts and they say they do not believe there is a conflict of interest. And that express scripts do not set the price for drugs. That is their answer
Don Haviland: We have concluded a cost containment contract with them. And they did not do it.
But in the Rockford lawsuit, Express Scripts denies any wrongdoing and argues in its motion for dismissal that it is not "contractually obligated" to curb costs.
Don Haviland: It's ridiculous for her to say that. That's her business model. They – They sell the model of "We will include your costs. We will lower the drug prices." I welcome this argument to a jury of 12 in court. I welcome this argument.
Lesley Stahl: What do you think? That's your world. They work on drug prices and why they are rising.
Dr. Peter Bach: The basic problem we have with prescription drugs in this country is that every single actor has the potential to make money when drug prices rise. Keep in mind that with drugs given to patients by their patients, they make more money by using expensive drugs than less expensive drugs. This also applies to hospitals. This also applies to pharmacies. And so this ever-growing cake serves all people.
All except those who need the drug and those who pay for it like Medicare. Mayor Morrissey says it was a long and difficult journey to unravel the network of interests that cost his city so much money.
Larry Morrissey: The drug companies do not advertise, hey, we'll rape you. We use you out. We exploit children and abuse taxpayers. You do not talk like that, right? Although that's the net effect of what they do.
Lesley Stahl: You almost sound like you call her a bunch of crooks.
Larry Morrissey: These are your words. I like those words. I think that's good words. And as long as they can get away with the price increase, they will do it. Until someone pushes back.