Drugmakers Lose AWP Lawsuit
4 CommentsBy Ed Silverman // June 21st, 2007 // 3:57 pm
In another blow to industry over its pricing practices, a federal judge in Boston ruled that three drugmakers - AstraZeneca, Schering-Plough and Bristol-Myers Squibb - engaged in unfair and deceptive trade practices by inflating average wholesale prices, or AWP. As a result, patients, insurers and government agencies overpaid for medications.
In her 183-page ruling, US District Court Judge Patti Saris found that the companies “unscrupulously took advantage” of the AWP reimbursement system “by establishing secret mega-spreads between the fictitious reimbursement price they reported and the actual acquisition costs of doctors and pharmacies.”
The ruling affects patients who paid for eight different drugs from December 1997 to 2003 and have been reimbursed by Medicare, private insurers and those patients making co-insurance payments based on AWP, according to a statement issued by the lawyers representing members of the Prescription Access Litigation Project, an advocacy group.
Most drugs involved in the case include those for cancer and other serious ailments, although the only Schering-Plough drug was actually a generic version of albuterol, an asthma treatment.
Only preliminary damages have been calcuated, but so far, AstraZeneca must pay at least $4.4 million for Zoladex; Bristol-Myers must pay $183,500 for six drugs, and it’s not yet clear what Schering-Plough will have to pay. That’s because there are two tiers involved in the lawsuit, and the judge hasn’t finalized damages for one of the tiers. Johnson & Johnson got off the hook, altogether.
The original filings claim that the published AWPs were fictitious, because they didn’t reflect the true average sales price. The inflation is decided upon by drugmakers to create a spread between the doctor’s acquisition costs and the fictitious AWP, the industry benchmark for determining pricing. This spread ultimately works to gain market share over a competitor.
Ppayers and the government “did not understand the truth and the severity of the markups,” says Steve Berman, the lawyer for the Prescription Access Litigation Project, which filed suit. “We are also grateful that she found the biggest victims were the patients who had to pay these outrageous prices out of pocket as a result of the defendants wrongful conduct.”
The ruling lists several of the markups on commonly prescribed drugs. The largest was a 1131 percent mark up by Bristol-Meyers Squibb on its drug Vepesid. Other companies mark ups ranged from 28 percent to almost 700 percent.
Today’s ruling affects two of the three originally named classes. Third-party payors in Massachusetts that reimburse Medicare beneficiaries for their statutory twenty percent coinsurance are eligible. These individuals fall under Medigap insurance or supplemental insurance.
The second class includes all third-party payors, end-payors, consumers who make coinsurance payments and consumers who have no insurance for these drugs in Massachusetts and pay for the stated drugs based on AWP.
The Massachusetts ruling was a test case with trials for the rest of the states to follow, although AstraZeneca previously settled a separate lawsuit brought by consumer by agreeing to pay $24 million. Glaxo has also settled a similar lawsuit brought by consumers and health plans, and agreed to pay $70 million.
Adam J. Fein
Great coverage. And once again, you found the coolest graphic to illustrate your story!
FYI, I discuss the implications of this ruling over on Drug Channels:
http://www.drugchannels.net/2007/06/comments-on-awp-decision.html
Best,
Adam
Former Pharma Marketer
What should not be overlooked in this entire scenario is the role of the physician. Most of these products were sold directly to physicians at a steeply discounted price. The pricing strategy that was implemented (at least for the brand with which I am familiar) was not an artificial escalation of the AWP, but a quantity-based discount applied to the acquisition cost to the physician. It was the physician who failed to pass on the discount to Medicare and other payors. It was the physician who realized the greatest financial benefit from these pricing scenarios– paying one price for the drug and submiting a significanly higher price for reimbursement, e.g. the “spread”. In actuality, the pharmaceutical manufacturer realized a much lower revenue per unit sold as a result of this pricing strategy.
This pricing strategy was so popular among physicians that individual doctors were banding together to form LLP purchasing entities solely for the purpose of qualifiying for steeper discounts…… and, hence, higher profits (aka Return to Practice). The real crime here is that, owing to the profitability of this transaction, the utilization of some drugs may have been expanded into patient populations for which there was no proven benefit. To extend the financial gains even further, physicians were known to pay for their six-figure drug bill with their personal American Express cards, collect the Membership Rewards points and then cash in the points to fund their Caribbean vacation or their flat screen TV.
So, don’t be too quick to position the pharmaceutical industry as the villain in this story. There is clearly another partner in crime in this story……. the doctor!
Melody
Former Pharma Marketer–
You’ve hit the soft, hidden underbelly of the whole Big Pharma debacle. Legal drugs cannot enter a patient’s body WITHOUT the assistance of a medical professional (usually an M.D.). Until accountability is also required in this quarter, patients are still at risk of harm. Docs can point all the fingers they want at Big Pharma, about what they didn’t know, and weren’t told . . . but as professionals who SHOULD put patient welfare above all else (yes, even above their Caribbean vacation), they are certainly one of the “bad guys” in our current healthcare crisis.
Ed
What happened to free trade?