States Set to Take Court Action Against Drug Companies, Alleging Inflated Prices

Similar to the class action lawsuit state attorneys general filed against the tobacco industry in 1998, at least six states -- Florida, Georgia, Maine, Massachusetts, Nevada and Texas -- plan to take legal action against the pharmaceutical industry to "force [them] to lower prescription prices," Stateline.org reports. According to one anonymous state official, "there's a strong consensus across the country" on the issue. The official added, "I really get the sense there's a lot of energy, mostly from attorney generals' offices. As soon as there's any kind of endorsement from the Health Care Financing Administration, all 50 states are going to jump on it." Serving as the lawsuit's "impetus" is drug companies' practice of inflating average wholesale prices, or the price at which wholesalers sell retailers a given medication, and then selling the drugs to providers for less in order to attract buyers. Medicare and Medicaid use AWPs to calculate reimbursements to pharmacists and doctors, who are able to make profits after buying the drugs for much less. Florida businessman Zachary Bentley, who runs a business that delivers intravenous drugs to patients' homes, blew the whistle on the inflated AWPs after noticing the price discrepancies, is a "catalyst" for state action, Stateline.org reports. The Justice Department has since created a list, released last May, that identifies 479 drugs the department alleges have inflated AWPs. Bentley's efforts also triggered the Justice Department's three-year-old case against Bayer Corp., in which the department alleged the company "falsely inflated" AWPs. The department maintained that by "setting an extremely high AWP and, subsequently, selling the product to doctors at a dramatic discount, Bayer induced physicians to purchase its products rather than those of competitors by enabling doctors to profit from reimbursement paid to them by the government." As part of the $14 million settlement, Bayer agreed to "provide the state and federal governments with the average selling prices of its drugs ... and potentially prices for its competitors' products."

States Take Action
As for the current legal action, Mark Schlein, director of Florida's Medicaid Fraud Control Unit in the state Attorney General's Office, said, "The goal is nothing less than changing the way the industry does business." Some manufacturers say they have already responded to subpoenas from states regarding the suit. In Texas for instance, state Attorney General John Cornyn brought a $79 million lawsuit against Dey Inc., Roxane Laboratories Inc. and Warrick Pharmaceuticals Corp., stating that the companies "knowingly and intentionally made false representations of prices and costs for certain ... inhalation drugs directly and indirectly to the Texas Medicaid program." In addition, Russ Toal, director of Georgia's Department of Community Health, told participants at a Medicaid forum in February that his state believes drug companies are overcharging its Medicaid program and has sent "evidence" to HCFA and the Department of Justice, hoping that "other states are doing the same." Andrew Ketterer, former attorney general for Maine, added that AWPs represent "fertile [ground] for attorneys general to look into. Pharmaceutical companies spend a fair amount of money on research and development for wells that don't have oil and they have to recover from those losses in some way. (A lawsuit) is not out of the range of possibilities that would come on to the radar screen. It's an area that is of great interest to a lot of people" (Guiden, Stateline.org, 4/2).