Blue and white pills

Plaintiffs’ Lawyers Tackle Drug Price-Fixing Litigation for States

Plaintiffs’ trial attorneys are taking on a new challenge: representing state attorneys general, health insurance plans and consumer groups in complex pharmaceutical pricing class-action suits.

The suits, which allege fraud in prescription drug pricing by the nation’s major pharmaceutical companies, could result in billions of dollars in damages.

The ongoing litigation heats up this month, with the second federal trial slated to start June 4 in a Boston U.S. District Court.

A federal multi-district litigation consolidated scores of class-action and individual lawsuits filed by consumers, health insurers, Medicare supplemental plans and state Medicaid plans against more than 40 prescription drug manufacturers.

The lawsuits allege that the pharmaceutical companies deliberately marked up the published “average wholesale price” of hundreds of prescription medications. Doctors and pharmacies paid a discounted price, and were then reimbursed by state Medicaid and federal Medicare plans at the higher “average wholesale price.”

The discounts were not passed along, which meant that consumers and health plans were deliberately overcharged for most prescription drugs.

The scheme was allegedly aimed at boosting drug makers’ market share by making the purchase of many prescription drugs more profitable for doctors and pharmacists.

“They were defrauding people because they were publishing a phony number,” said Steve Berman, managing partner at Hagens Berman Sobol Shapiro in Seattle and co-lead plaintiffs’ counsel in the Boston MDL.

So far, the defendants have denied the allegations, except for GlaxoSmithKline, which agreed last August to pay $70 million to cancer patients and health plans who were overcharged for two medications used to ease the side effects of chemotherapy.

The complex litigation has proved a bonanza for attorneys on both sides.

“We’re talking about dozens of drugs and dozens of defendants, and each of them with lawyers billing hundreds of dollars an hour,” said Alex Sugarman-Brozan, director of the Prescription Access Litigation Project, a Boston consumer group that filed suit in 2001 against 19 pharmaceutical companies.

His organization estimates that Medicare, insurance plans and consumers were overcharged more than $800 million in 2000 alone.

The ensuing litigation “could drag on for years,” Sugarman-Brozan said.

Second federal trial to start

The first federal trial, also held in Massachusetts, ended on Jan. 26 after three months of testimony. That case addressed allegations by private insurers providing “Medi-gap” insurance coverage for drugs and private payers that their payments were based on average wholesale price inflated by four companies – AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson and Schering-Plough. Both sides are awaiting a ruling from U.S. District Court Judge Patti B. Saris, who is overseeing the multi-district litigation.

The second federal trial, scheduled to start this week, targets AstraZeneca and will address complaints by individuals who paid co-payments for Medicare Part B drugs.

On July 23, a third trial in the multi-district litigation will consider consumer-class allegations of deliberate drug-price inflation by Bristol-Myers Squibb.

So far, 22 states have filed prescription-pricing lawsuits on behalf of state Medicaid plans. Some of the state suits are part of the Boston MDL, but many have been filed separately in state court.

Pitching litigation know-how

Over the past several years, several plaintiffs’ firms have developed expertise in prescription drug-pricing lawsuits by researching the emerging case law and investigating the impact on consumers and state Medicaid plans. As a result, state attorneys general and health insurers are turning to those firms to handle the complicated average wholesale price litigation.

“This fell hand-in-hand with a lot of consumer work we do,” said W. Dee Miles, head of the consumer fraud group at Beasley Allen, a plaintiffs’ firm in Montgomery, Ala. The firm is representing attorneys general in Alabama, Alaska, Hawaii, Mississippi and South Carolina in average wholesale price lawsuits.

These suits allege that the drug companies sold drugs to physicians and pharmacies at prices well below the reimbursement costs charged to Medicare and Medicaid. The third-party payers then reimbursed pharmacists and doctors based on the inflated price published by the pharmaceutical companies.

“They [the drug makers] artificially inflated their prices, so the druggist would buy their drug and they would gain market share,” Miles said.

“They knew the number was phony, and they were marketing the difference between the published number and what the doctors were paying,” Berman added. “They were marketing the spread to the doctors as a reason to use their drugs.”

A suit filed by Alabama’s attorney general against 73 drug companies is scheduled for trial in Alabama state court in November.

“We initially got involved in the Alabama case because that’s where we’re from,” Miles said. “We read about it, and started researching the law and our Medicaid program and asked our attorney general and governor if we could investigate for them. We did, and we found there were pricing discrepancies.”

After that, Miles met with the governor of Mississippi, and then got a request from another plaintiffs’ lawyer to help on cases in Alaska and Hawaii. South Carolina’s attorney general heard about the firm’s work and sought out Miles.

All the states involved in the average wholesale price cases – except for Texas – have hired outside plaintiffs’ firms to represent them in the complex litigation. Most of the state cases being heard in state court are headed for trial in 2008.

The reason states have turned to private plaintiffs’ firms, according to Miles, is that most state AG offices are simply unequipped to handle such costly and time-consuming litigation.

The cases could potentially generate enormous damages.

Bristol-Myers Squibb, for example, said in a recent Securities Exchange Commission filing that it has set aside reserves of $146 million for liabilities related to its pharmaceutical pricing and marketing practices.

Beasley Allen is also involved in related litigation against pharmacy benefit management companies, and is representing West Virginia’s attorney general in a lawsuit against Medco Health Solutions. (See “No simple Rx for pharmacy benefit litigation,” Lawyers USA, Nov. 6, 2006. Search words for Lawyers USA Archives: PBM and Tooher).

Death knell for pricing scheme

Actions by Congress and a settlement last fall with First DataBank – the primary publisher of prescription drug prices – have combined to phase out the use of average wholesale prices.

In 2005, the federal government stopped using the average wholesale price to determine drug prices for Medicare. And this year, Medicaid is scheduled to eliminate the price as the reimbursement benchmark for Medicaid plans.

But perhaps the biggest blow came when First DataBank agreed last fall to lower the average wholesale price of certain drugs by 4 percent and to stop publishing average wholesale prices within the next several years.

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