A Montgomery County jury found Sandoz Pharmaceuticals, Inc., guilty of Medicaid fraud on Feb. 24, and ordered the manufacturer to pay the State of Alabama $28.4 million in compensatory damages and $50 million in punitive damages.

Documents presented in the state’s case against Sandoz indicate a long history of inflating prices on its generic drugs to increase its market share, defrauding the state’s Medicaid system.

During the trial, several critical documents were shown to jurors, which prove Sandoz intentionally defrauded the state.

Inflated Prices

An examination of the Sandoz price list from 2004 demonstrates the difference in the Average Wholesale Price (AWP) and Wholesale Average Cost (WAC), which are the prices provided by the manufacturers for reimbursement, and the actual price or cost of the drug. In some cases the published AWP price was more than 2500 percent higher than the actual price, and the WAC price nearly 600 percent higher.

Sandoz Published Prices vs. Actual Prices

Drug Name Actual Price AWP AWP/Actual
Atenolol $36.72 $969.00 2639%
Glyburide 5 MG $6.00 $77.70 1295%
Ranitidinee 150 MG $13.10 $150.85 1152%
Lovastatin 10 MG $7.38 $80.64 1093%
Lorazepam 2.0 MG $63.36 $594.11 938%

Beasley Allen attorneys W. Daniel “Dee” Miles, III, Jere L. Beasley and Clinton C. Carter represented the State of Alabama. Miles explains, “The inflated price provided by the drug company, in this case Sandoz, is what the state uses to reimburse pharmacists and doctors. The inflated price creates a ‘spread’ for the buyer and thus, the result is the pharmacist gets paid more by the state and he will choose the company with the inflated drug price over other companies. This results in a gain in ‘market share’ for the company providing an inflated price.”

Smoke and Mirrors

In an email obtained by the state’s attorneys, Christopher J. Worrell, vice president of Sales & Marketing for Sandoz, says that “when one talks AWP, WAC, net price, etc. to laymen it is very easy to create smoke and mirrors.” He points out the difference in the prices and says, “You can see how I could speak to either number to create a story of my choosing.”

Worrell sums it ups by saying, “in reality, the AWP and WAC do not always translate into final net price so who cares what the AWP and WAC are!”

“Be greedy and take no prisoners!!”

Documents going further back show this attitude was encouraged from the top levels of Sandoz management. In an internal memo to the sales force dated 2002, Frank Stiefel, Vice President at the head of sales and marketing tells a rep to “Go forward and take the position of a ‘Roman legion’ ie: be greedy and take no prisoners!!” when discussing sales strategy.

And it wasn’t as if Sandoz didn’t realize what they were doing was wrong. In 2000, a wholesale company, AmeriSource Corporation, sent a letter to Tom Axner, a pricing executive with Sandoz (called Geneva at the time), reminding the drug manufacturer of its responsibility in regards to “compliance with Federal and State laws on Medicare and Medicaid.” AmeriSource reminded Sandoz that its “reporting of the prices at which you sell to us should include all discounts and rebates, in whatever form.”

“This is a key document because it shows Geneva (Sandoz) knew in year 2000 what the law was, but they blatantly violated the law and continued to report inflated, undiscounted prices to the states,” Miles said.

About AWP Litigation

Beasley Allen is representing the State of Alabama against a total of 72 pharmaceutical companies in the Average Wholesale Price (AWP) litigation. The companies are accused of using false prices for Medicaid reimbursement. Sandoz is the fourth drug company to go to trial, and represents the fourth verdict in favor of the state.

In the first trial in February 2008, a state court jury awarded Alabama a $215 million verdict against AstraZeneca PLC. The second trial, in July 2008, resulted in a $114 million verdict in favor of the state against GlaxoSmithKline and Novartis.

Settlements have been reached with seven companies and negotiations are ongoing with a number of others. Companies that have settled include Amgen, Inc.; Bayer, Boehringer/Roxane, Bristol-Meyers Squibb Company, Dey, LP; Ethex Corporation and KV Pharmaceutical Company, and Takeda Pharmaceuticals North America, Inc.

Twenty-two other states currently have pending Medicaid fraud suits and Beasley Allen has been selected to represent six other states – Mississippi, South Carolina, Hawaii, Alaska, Utah and Kansas, in their litigation against the drug manufacturers.

Abbot Laboratories, Forest Laboratories, Inc., and Watson Pharmaceuticals Inc. are the next drug companies to face AWP trial in Alabama, with joint litigation over a combination of brand name and generic drugs set to begin June 22.

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