OBJECTIVES: A conspiracy between Mylan Laboratories and its active-ingredient suppliers during the late 1990s resulted in the exit of manufacturers from the lorazepam market and a collusive price increase.  The objectives were to 1) analyze the market structure for lorazepam before and after the conspiracy; 2) measure lorazepam prices before and after the conspiracy; and 3) estimate the social cost of the conspiracy.   METHODS: Data sources were the Medicaid State Drug Utilization Data maintained by the Centers for Medicare & Medicaid Services (CMS) and the First DataBank® National Drug File. The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman index (HHI) for the Medicaid lorazepam market were measured from 1991 through 2009.  Average quarterly per-claim pharmacy reimbursement, as a proxy for average drug price, was computed.  Average wholesale prices (AWPs) for specific drug forms were obtained from First DataBank®.  Three separate methods were used to estimate overall Medicaid and social cost. RESULTS: CR4 and HHI rose from 53 and 906, respectively, in 1991 to 87 and 2234 in 2009.  In 1997, the average spending per generic lorazepam prescription by Medicaid was $7.00; it was $30.24 in 1999.  In 2009, spending per prescription was $8.48.  AWPs for 3 common dosage forms jumped identically for 8 firms on February 18, 1998.  The estimated total (12-year) cost of the conspiracy to Medicaid ranged from $613.7 - $713.5 million (2009 $); and, overall for society, from $4.9 - $5.7 billion (2009 $). CONCLUSIONS: Not all generic markets offer competitive prices.  The lorazepam conspiracy was very costly to Medicaid and other payers. This study has policy implications for antitrust authorities as well as physicians and payers who need to have available to them solid comparative-effectiveness research to justify the use of substitute drugs in case of collusive pricing behavior in a single market such as lorazepam.