Hawaii sues drug wholesaler and drug data publisher for inflated average wholesale prices

posted on:
November 10, 2010

author:
DEPARTMENT OF THE ATTORNEY GENERAL

category:
Fraud

HONOLULU – Attorney General Mark Bennett announced today that the State of Hawai’i has filed a complaint against McKesson Corporation and First DataBank, Inc., as part of an ongoing effort to recover for what the State believes were prescription drug overcharges to the State. The State’s previous related lawsuit recovered (in total) more than $82 million from prescription drug manufacturers.

Defendant McKesson Corporation is a wholesaler of pharmaceutical products. Defendant First DataBank, Inc., compiles and publishes pricing information regarding pharmaceutical products. This information is used by Hawai’i’s Medicaid program, among others.

The State alleges that the defendants violated various statutes and common law in connection with the reporting and publication of average whole prices (AWPs) for certain brand-name pharmaceutical products. Specifically, the State alleges that the defendants entered into a scheme to inflate, and in fact inflated, the AWPs published by First DataBank for certain brand-name pharmaceutical products, despite there being no increase in the actual prices retail providers paid to acquire them. The State alleges that as an intended consequence of the scheme, the State overpaid Medicaid providers when reimbursing them based on these inflated AWPs.

“Manipulation of average wholesale prices has cost Hawai’i and the federal government millions of dollars,” Bennett said. “We are bringing this second phase of this litigation as part of an ongoing effort to recover overcharges and restore transparency and fairness. The first phase of the litigation, against the drug manufacturers, was very successful, and this second phase of the litigation continues our efforts.”

Lillian Koller, Director of the Department of Human Services, said, “We believe the State and federal government have overpaid for Medicaid prescription drugs. We bring this lawsuit to continue our efforts to protect taxpayers and the integrity of our Medicaid program.”

Beasley, Allen, Crow Methvin, Portis & Miles of Montgomery, Ala., Miner Barnhill law firm of Chicago, Ill., and Price Okamoto law firm in Hawaii filed the suit, along with Bennett. Beasley Allen is among the nation’s leading plaintiffs firms. Attorneys working on this case from Beasley Allen are W. Daniel Miles, III, head of the firm’s Consumer Fraud Section, Roman Shaul, and Alison Douillard.

Read the complaint.

Background

The State pays all prescription drug costs for Medicaid patients. In Hawai’i, the cost of prescription drugs in the Medicaid program soared from $45 million in 1999 to $117 million in 2004, an increase of 160 percent.

Drug companies sell drugs to health care providers such as pharmacies, physicians, hospitals, and long-term care facilities that dispense drugs. Hawai’i’s Medicaid Fee-For-Service program reimburses providers based on an estimate of the provider’s acquisition cost of the drug. Hawai’i and most other states use the AWP reported by the drug’s manufacturer to estimate the acquisition cost.

The AWP for a drug is a significant factor in determining the amount of money that Medicaid will pay for a drug. False AWP reporting has the effect of increasing the profitability of an individual drug for the provider and stimulates the demand for that drug, resulting in more sales. Inflated or false AWPs can result in taxpayers, through Medicaid, paying more for pharmaceutical products than they should.

Investigation by the State of Hawai’i, other state attorneys general, and the U.S. Department of Justice revealed that the reported AWP frequently had little relationship to the actual price paid for the drug, and that inflated or false AWPs were widespread in the prescription drug industry.

In April 2006 (and in later amended complaints), the State sued more than 40 drug manufacturers to help stem soaring drug prices and recover inflated costs paid for prescription drugs. The lawsuit alleged that for more than a decade, the drug makers had published inflated prices for prescription drugs, causing the overpayment of millions of dollars in drug costs.  Cash settlement agreements were reached with almost all of the manufacturers.  The manufacturers agreed to pay the State more than $82 million in settlements to resolve claims relating to the marketing and selling of prescription drugs and the manufacturers’ reporting of AWPs.

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