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Some related articles : Rising Drug Costs a Powerful Issue for National and State Politicians |
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States Go to Court in Effort To Rein In Costs of Medicine
The beleaguered pharmaceutical industry faces a new assault from a growing number of state prosecutors who are exploring action to bring down soaring drug costs. The industry is already wrestling with a wide range of lawsuits and investigations by states reeling from the cost of Medicaid, the joint state-federal health-insurance program for the poor and disabled. Now more than 35 states are working together in hopes of repeating the success of the nationwide campaigns that led to the $208 billion tobacco-industry settlement and the pursuit of antitrust sanctions against software giant Microsoft Corp. Officials from the states have been exchanging tactics and took part in a conference call two weeks ago to organize a drug-pricing task force. Mounting Pressures The threat of a coordinated legal attack comes as the drug industry faces mounting pressures over prices. In Washington, a group of big companies and governors are lobbying Congress to help generic drug makers compete against brand-name rivals. In Boston and Philadelphia, federal prosecutors appear to be broadening investigations of pharmaceutical makers' pricing practices. The drug companies also face class-action suits from a coalition of consumer groups alleging that the companies engaged in deceptive and illegal acts to drive up medicine prices.
Medicaid costs to states have shot up more than 25% over the last two years, partly because of drug-price increases. But the drug industry has mounted stiff resistance to any legislative effort to impose tighter cost controls. That's why states collectively are looking more toward the courtroom. "Strength in numbers allows us to go toe to toe" with drug companies, says Ohio Attorney General Betty Montgomery, chairwoman of the new task force. "By the time we're done we will have an overwhelming majority of the states." In a case scheduled for trial next year, Texas has charged three drug makers with falsely reporting wholesale prices to the state, leading to overcharges to Medicaid. California is contemplating similar legal action. On another front, states are targeting efforts by brand-name makers to extend patents on their blockbuster drugs and keep generic versions off the market. In December, 29 states sued Bristol-Myers Squibb Co., alleging the company made false statements to federal regulators to extend its patent on the antianxiety drug Buspar. Bristol-Myers declined to comment. Broader Aim Earlier this year, Nevada and Montana took even broader aim at the industry. The two states, helped by a private law firm that successfully sued the tobacco industry, allege that at least 17 drug makers and their affiliates defrauded consumers by abusing a system designed to guarantee Medicaid the lowest drug prices available. Wyeth, named in the Montana and Nevada suits, said it couldn't comment specifically on litigation but that it "will vigorously defend itself in these cases." Many of the companies already targeted in lawsuits and investigations won't comment on specific legal matters, other than to say they will cooperate with the investigations and defend themselves against any charges that result. In general, though, the industry has maintained that the government pricing rules that they are accused of violating are vague and that states hadn't previously contested their varying interpretations of these rules. If there are problems with the rules, says drug-industry defense lawyer Paul Kalb, the solution should be legislation, not legal action.
More cases are in the works. Pfizer
Inc. last week disclosed that several state attorneys general are studying
its marketing of a $1.75 billion epilepsy drug. Pfizer says it is
cooperating with the investigation. Eli
Lilly & Co. recently reported in a regulatory filing that
Massachusetts had subpoenaed it in an investigation of alleged
Much of the state prosecutors' interest can be traced to two cases brought by federal prosecutors. Early last year, Bayer Corp., the U.S. arm of Germany's Bayer AG, settled federal charges that the company falsely inflated the average wholesale prices, or so-called AWP, it reported to the government of drugs for hemophilia and immune disorders. By inflating average wholesale prices and then selling drugs to doctors at a deep discount, prosecutors said, Bayer boosted the reimbursement doctors got from Medicaid and thereby encouraged them to use the company's medicines. The government alleged the actions caused Medicaid programs to overpay for medicines. Bayer also settled allegations that by failing to account for discounts made to some customers, the company underpaid Medicaid programs rebates they were owed. Attention Getter Bayer agreed to pay a $14 million fine, but the settlement caught the interest of attorneys general for another reason: The company agreed to change its pricing behavior. Bayer signed a five-year "corporate integrity agreement" under which the company pledged to report the actual average selling price of its drugs to help the government set fair reimbursement rates. At the time of the settlement, Bayer said it believed its pricing practices "were consistent with industry standards" and that its reporting of prices to the government were truthful and in compliance with the law. Bayer added that it was "the only one of some two dozen pharmaceutical manufacturers under investigation to work cooperatively" with federal and state officials to "improve the Medicaid reimbursement system." Another milestone came in October, when TAP Pharmaceuticals Products Inc. paid $875 million in federal fines for fraud and overcharges, mostly to Medicare, the federal health-care program for the elderly . The settlement by TAP, a joint venture of Abbott Laboratories and Takeda Chemical Industries Ltd. of Japan, was the largest ever for health-care fraud. In that case, brought by the U.S. attorney in Boston, states saw how much money could be recouped: the $875 million in fines paid by the company, which involved just its cancer drug, Lupron, included $56.7 million to be divided among 50 states to compensate them for Medicaid overcharges. TAP also agreed to report actual average prices paid for its products rather than the AWP. At the time, TAP admitted it had wrongly given free drug samples to doctors knowing they would seek government reimbursement for them. But TAP officials said the company "consistently complied with pricing laws and regulations." Both the Bayer and TAP cases involved tips from whistleblowers, who shared some of the proceeds from the settlements. Prosecutors say both exposed price manipulation by drug companies that now point the way for further investigation by state and federal law-enforcement officials. James Sheehan, a federal health-care prosecutor in Philadelphia, says there's a lot more public data on drug-industry practices that "attorneys general could take a hard look at" than there were three or four years ago. In March, Schering-Plough Corp. disclosed that Mr. Sheehan's office subpoenaed several employees to appear before a grand jury. The investigation, the company said in a regulatory filing, appears to focus on cut-rate services Schering-Plough provided to managed-care companies as inducements for them to keep certain drugs on their "preferred" lists. The investigation may be examining whether those inducements were really kickbacks or disguised discounts that led Medicaid to pay too much for drugs, the company said. Schering-Plough says it has been cooperating with the investigation. Mr. Sheehan declines to comment on the matter. A case filed in September 2000 in state court in Travis County, Texas, provides a rough blueprint of how prosecutors believe this alleged price manipulation could work. As in the Bayer case, Texas lawyers claim three companies -- Dey Inc., Roxane Laboratories Inc., a unit of Germany's Boehringer Ingelheim GmbH, and Warrick Pharmaceutical Corp., a unit of Schering-Plough -- took advantage of complex Medicaid reimbursement rules to create a financial incentive for pharmacists to choose their asthma inhalers over competitors'. Texas says the companies reported inflated average wholesale prices to Medicaid while charging other bulk purchasers of the inhalers considerably less. Since Texas Medicaid reimbursed based on the reported price, prosecutors say pharmacists pocketed the substantial difference. Texas alleges that that made it more lucrative for them to fill prescriptions with the three companies' products. The state is seeking a total of $78.3 million from the companies. Sticker Price Attorneys for the companies deny the charges. AWP is a "sticker price" subject to negotiations, says Warrick attorney C. Michael Moore. "Everyone in the industry knows that ... It's not a big secret, and it's not a big conspiracy." Still, the case already has caused Warrick to lose business. After a state audit prompted by the affair, Texas cut Warrick's inhaler reimbursement rates to $6.26 from $16.79 per unit. The company's share of the state Medicaid market for a popular size of asthma inhalers dropped to 42% from 71% in less than two years, according to an affidavit by Martha McNeill, head of Texas Medicaid's drug program. California is pursuing a similar case. In November, attorneys in the Texas case got a letter from California Deputy Attorney General William Schneider that said his state was "conducting an extensive investigation into possible fraud and other wrongdoing by various pharmaceutical companies through price manipulation." California officials decline to elaborate. Earlier this year, in one of the broadest actions yet, Nevada filed two suits naming a total of 17 companies and affiliates and reserving space at the defendants' table for future targets, now known only as John Does "1 through 100." Nevada accuses the companies, which include such brand-name makers as GlaxoSmithKline PLC and AstraZeneca PLC, both based in Britain, of using the same illegal sales practices as in the Bayer and TAP cases. A GlaxoSmithKline spokeswoman says the company's pricing practices are "legal" and have been "well-known and accepted" by the government, insurers and other private payers for years, and that the company will "defend against these charges." AstraZeneca officials weren't available for comment. The Nevada suits go well beyond Medicaid fraud and antitrust claims. The state contends the companies employed "deceptive practices" that constituted a consumer fraud that hurt all Nevada residents. Moreover, Nevada says the drug makers, through a pattern of behavior, operated a racketeering "enterprise." "We're trying to assert every possible claim of relief," says Tim Terry, chief of the Nevada Medicaid fraud unit. A broad legal attack by states would be difficult for drug makers to defend against. That's partly because the companies wouldn't be able to join forces as easily as their adversaries in state government because of antitrust strictures. The industry's powerful trade group, the Pharmaceutical Research and Manufacturers of America, which is orchestrating the industry's counterattack on its legislative foes, is forbidden from rising to its members' defense on pricing matters. One defense would focus on the role of the AWP, which is calculated by the industry. Drug companies say it has been widely known for years that the AWP doesn't reflect the actual market price. Mr. Kalb, a partner in the Washington office of law firm Sidley Austin Brown & Wood, who represented Bayer in its settlement with the government, says "government officials cannot credibly claim to be shocked" by the fact that a drug's AWP is typically much higher than the drug's market price. But he adds: "The pressure from so many sources is significant," and says he envisions "an increasing number of manufacturers agreeing to work creatively with federal and state governments toward a reasonable solution." 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overcharging
of the state's Medicaid program. Lilly says it is cooperating in the
investigations and believes its practices have been lawful.