Nearly two dozen states, as well as consumers and unions, are suing scores of pharmaceutical companies for allegedly deceiving them into paying too much for drugs.
At the heart of the litigation are claims that doctors and pharmacies pay artificially low prices-set by the drug industry -for prescriptions, then overcharge consumers, insurers and government health programs for those drugs by anywhere from 50% to more than 1,000%.
States, which have hired a battery of private law firms to litigate their cases, say the pharmaceutical industry is putting up a tough fight.
“I think a lot of these drug manufacturers believe that a hard defense will run AGs into the ground, that they can go out and hire lawyers at $500 an hour and poor little AGs are going to give up,” said Patrick O’Connell, assistant attorney general for Texas, which has collected more than $50 million in drug-pricing settlements in recent years and has several more suits pending.
“We aren’t going to go away . . . and it’s very safe to say that our plan is that when we have settled the cases that we have going on, we’ll move onto the next one on the list.”
The pharmaceutical industry, meanwhile, is armed and ready.
“The defense bar is fighting these cases vigorously right now,” said attorney Jay D. Marinstein, co-chairman of the Pharmaceutical and Biotech Practice Group at Philadelphia’s Fox Rothschild. Marinstein, who in recent years successfully defended a drug company in a pricing lawsuit, believes many drug companies are being unfairly targeted in the litigation.
“I think the plaintiffs’ bar sees the pharmaceutical companies as easy targets, regardless of the merits of the cases,” said Marinstein, based in Pittsburgh.
22 states in fight
To date, 22 states have filed pricing- fraud lawsuits against drug manufacturers-more than half of them filed in the last 18 months-claiming that drug makers inflated their prices and caused states to overpay pharmacies for drugs for the poor, specifically Medicaid recipients.
Most recently, on May 18, the U.S. Department of Justice intervened in a Florida whistleblower suit against Abbott Laboratories, alleging that the company had reported fraudulent and inflated prices for several drugs, knowing the government’s reimbursement rates were based on those prices. The DOJ claims that Abbott reported prices that were more than 10 times the sales prices. Ven-A-Care of the Florida Keys v. Abbott Laboratories, No. 95-1354-CJY-GOLD (S.D. Fla.).
A nationwide class action is also pending in Massachusetts, where consumers, unions and third-party payers, including insurance companies, claim they paid too much in co-pays for lifesaving drugs for certain Medicare patients. In re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456 Civil Action No. 01-12257 (D. Mass.).
May 2006 Wisconsin reaches $2.1 million settlement with Pfizer and $798,000 settlement with Tap Pharma Products.
April 2006 Missouri reaches a $29 million settlement with Dey Inc.
November 2005 King Pharmaceuticals reaches a $124 million settlement with the Department of Justice.
November 2005 Texas reaches a $10.1 million settlement with Roxane.
September 2005 GlaxoSmithKline reaches $149 million settlement with DOJ.
Plaintiffs’ lawyers and consumer advocates claim that this alleged pricing scheme is carried out, in part, by drug representatives who venture into pharmacies like gambling bookies, armed with catalogs that show how much a drug actually costs, and how much pharmacists can get reimbursed for it.
According to the DOJ, over charging examples include a chemotherapy agent that sold for $34.30, but cost the government $136.49; an asthma drug that sold for $9.17, but was reimbursed at $30.25; and bags of intravenous fluids that cost $2.25, but the government paid $928.51.
“That is at the heart of these allegations, they have done what is called marketing the spread . . . and there are some truly absurd alleged spreads,” said attorney Alex Sugerman-Brozan, director of the Prescription Access Litigation Project, a Boston-based watchdog that monitors prescription-drug pricing. “Pharmaceutical companies, which are supposed to be in the business of helping people, have taken advantage of this system to increase the cost of health care.”
But many in the pharmaceutical industry deny engaging in any fraudulent- pricing scheme.
“Obviously we are vigorously defending these suits. We’ve acted in a responsible and lawful manner,” said Deborah Spak, spokeswoman for Baxter International Inc., a Deerfield, Ill.-based maker of intravenous solutions and devices that has been named in nearly 50 lawsuits.
Spak denied any secret pricing scheme, arguing that Baxter submits to the federal government quarterly reports detailing actual transaction data and prices for drugs used by Medicaid patients. “There is a great deal of transparency and has been for quite some time,” Baxter said.
Baxter also disputed a DOJ report that showed that bags of intravenous fluid made by Baxter had an average wholesale price-that is, the amount the government pays for the product-of $928.51. That’s how much an entire case, which includes 96 intravenous bags, costs, not an individual bag.
DOJ officials were unavailable for comment.
Abbott also defended its pricing practices.
“We have a strong defense and intend to vigorously defend against these claims,” said Abbott spokesman Jonathon Hamilton. “Abbott has consistently complied with all laws and regulations. Abbott has properly and lawfully provided information required by the government and requested by the independent drug price reporting services.”
Novartis A.G., which is being sued in nine states, also denied allegations of unfair pricing. “Novartis has not ‘unfairly inflated’ the price of its drugs. Novartis’ pricing practices have not adversely affected either the Medicare or Medicaid programs. In fact, Novartis rebates millions of dollars to states every year under the Medicaid rebate program in order to reduce the states’ total drug cost,” said Novartis spokeswoman Gina Moran.
Moran went on to explain that when determining pricing, several factors are considered, including costs required to bring a product from scientific discovery and clinical trials to regulatory approval, health-outcomes research, manufacturing, availability in the marketplace and the overall value that the product delivers.
But plaintiffs’ lawyers handling many of the suits for the states claim that the drug industry is trying to hide a secret pricing scheme that has allowed it to keep private how much doctors and pharmacists actually pay wholesalers for drugs. The average wholesale price is what programs like Medicaid and Medicare use in reimbursing pharmacists and doctors.
Such prices are listed in industry journals like a Red Book or Blue Book, similar to those used in the car industry. “It’s basically a phony price,” charged attorney Wilson Daniel “Dee” Miles III of Beasley, Allen, Crow, Methvin, Portis & Miles in Montgomery, Ala., who is helping attorneys general in Alabama, Mississippi and Hawaii with their drug-pricing lawsuits. “Nobody knows what the real price is, except for the defendants.”
According to several lawyers, the alleged drug-pricing scheme came to light in a 1998 whistleblower lawsuit filed by a Florida pharmacist who noticed wide discrepancies in prices charged by drug manufacturers. A 2001 DOJ report also discovered that drug prices charged to Medicaid programs were inflated.
Miles said that the 2001 federal report prompted him to start researching Alabama’s Medicaid costs, which also were “skyrocketing,” he said. He eventually approached the state attorney general about suing the drug manufacturers over the alleged pricing scheme. A lawsuit was filed in January 2005 against 79 drug companies. Alabama v. Abbott Laboratories, No. CV-2005-219 (Montgomery Co., Ala., Cir. Ct.).
“We found out that there was a ton of evidence that they were producing a phony price,” said Miles, noting that the problem mainly involves generic drugs. “I don’t see how they can possibly try these cases with the documents that we’ve seen. The documents are very damaging to the pharmaceutical companies.”
Attorney Betsy Collins of Atlanta’s Alston & Bird, who is representing TAP Pharmaceutical Products Inc., one of many defendants in the Alabama litigation, declined to comment.
Attorneys at Jones Day’s Chicago office, who are representing Abbott Laboratories in numerous lawsuits, including the Alabama suit, did not return calls seeking comment.
Meanwhile, attorney Thomas M. Sobol of the Cambridge, Mass., office of Seattle’s Hagens Berman Sobol Shapiro is preparing to take to trial his highly watched class action in Massachusetts, which targets more than 20 drug companies and has been pending since 2001.
Sobol is trying to recover prescription co-pays that were paid by Medicare recipients and third-party payers, such as insurance companies or the self-insured. As in the state cases, he claims that the drug companies fraudulently inflated their drug prices in industry publications, causing Medicare beneficiaries and third-party payers to overpay for prescriptions.
The first of his five trials is scheduled for September. “There are some people who have incurred thousands of dollars in extra payments for critical, lifesaving drugs,” Sobol said. “The legal concern has been that Medicare beneficiaries have overpaid for critical lifesaving drugs. That’s the real main concern.”