Attorney General alleges that pharmaceutical companies inflated drug prices, resulting in millions of dollars in increased Medicaid reimbursement costs paid by taxpayers.

Drugs.com | October 9, 2007

DES MOINES, Iowa, Oct. 9, 2007-Iowa Attorney General Tom Miller sued seventy-eight drug companies today, alleging they unlawfully inflate drug costs paid by Iowa taxpayers through the Medicaid program.

The lawsuit alleges that the pharmaceutical companies deliberately misreported drug price information in order to increase reimbursements made by the state Medicaid program. Medicaid is the state-federal health care program for the poor.

“We allege that Iowa has lost millions of dollars as a result of the practice,” Miller said.

“We allege that the drug manufacturers deliberately inflate the reported Average Wholesale Price, or AWP, and other wholesale prices for their drugs in order to increase market share for their products,” he said. “This is a grotesque abuse of the Medicaid reimbursement system.”

Miller said Iowa’s Medicaid program has spent millions of dollars more for prescription drugs than it would have spent if the drug companies had provided accurate pricing information as required by law. “Our lawsuit seeks to recover this money and stop this deceptive practice.”

Miller said: “It makes me angry that Iowa taxpayers are forced to pay more to finance record drug industry profits because the defendant drug companies do not honor their obligations under law to deal honestly with the government. The companies’ false price reporting is all the more offensive because it undercuts Medicaid, the publicly-funded entitlement program created to assist those who are among our state’s most vulnerable citizens -- the poor and infirm.”

According to Iowa’s lawsuit, the Iowa Medicaid Program spent over $1.6 billion for the defendant companies’ drugs between 1992 and 2005 alone. The lawsuit alleges that the price for a drug paid by the state, based on a fraudulently-reported Average Wholesale Price (AWP) and other price indicators, often bears no relationship to the true price and can exceed 100%, 200% or even more of the true price.

In one example, GlaxoSmithKline reported an AWP for Zantac (25 mg/ml vial) of $39.90, yet sold the same drug to retail pharmacists for $9.80 – a “spread” of 307%.

In another example, Pfizer reported an AWP for Alprazolam (2 mg tablet) of $169.36, yet sold the same drug to retail pharmacists for $10.10 – a “spread” of 1,576%.

The difference between the reimbursement amount and the acquisition cost is the “spread.” Miller said that one of the reasons drug companies report false and inflated AWPs and other wholesale prices is to create a spread between the reimbursement amount Medicaid pays (which is based on these reported prices) and the actual acquisition cost the pharmacy-provider pays to obtain the drug. The suit alleges that the defendant companies encourage Medicaid providers (and others in the private sector) to buy or give preferential treatment to their products based on the size of this spread -- increasing the drug companies’ market share.

Miller said the unlawful conduct by the drug manufacturers results in dramatically steeper drug costs for Medicaid and State health plans. Ironically, Medicaid often pays more for drugs than any other payor because of this practice, he said. “This is the opposite of what Iowa Medicaid seeks to do. Iowa Medicaid seeks to reimburse at the providers’ estimated acquisition cost or ‘EAC,’ and defendants know that. By reporting false prices, defendants prevent Iowa Medicaid from achieving its statutory mandate of reimbursing at EAC,” he said.

“Drug companies want Medicaid to reimburse for their drugs,” Miller said. “They are under an absolute obligation to participate in this system with integrity and honesty.”

Miller added that transparency and accuracy in the price reporting system would strengthen competition and lower prices throughout the prescription drug industry.

Miller said that other states have brought similar lawsuits. The state of Texas has successfully recovered $55.1 million in its case so far. The federal government has also been investigating drug manufacturer pricing practices.

Iowa’s 167-page Complaint was filed Tuesday, October 9, in Federal District Court for the Southern District of Iowa, in Des Moines. It accuses the defendants of violating the federal Medicaid statute, breach of contract, violating the Iowa Consumer Fraud Act, fraud, and unjust enrichment. The suit asks the court to permanently prohibit the alleged illegal practices, and it seeks recovery of damages, penalties, and costs. The state is being represented in this matter by the New York City law firm of Kirby McInerney LLP because of their experience and specialized expertise in this area of law.

Defendants in the lawsuit include: Abbott Laboratories, Inc., Agouron Pharmaceuticals, Inc., Alpharma, Inc., Alza Corporation, Amgen, Inc., Astrazeneca LP, Astrazeneca Pharmaceuticals, LP, Aventis Behring LLC, Barr Laboratories, Inc., Baxter International, Inc., Baxter Healthcare Corporation, Bayer Corporation, Bayer Pharmaceuticals Corporation, Ben Venue Laboratories, Inc., Boehringer Ingelheim Corporation, Boehringer Ingelheim Pharmaceuticals, Inc., Bristol-Myers Squibb Company, Centocor, Inc., Chiron Corporation, Dermik Laboratories, Inc., Dey, Inc., Dey, LP, Eli Lilly and Company, EMD, Inc., Endo Pharmaceuticals, Inc., Ethex Corporation, Ethicon, Inc., Forest Laboratories, Inc., Forest Pharmaceuticals, Inc., Geneva Pharmaceuticals, Glaxosmithkline, PLC, Glaxowellcome, Inc., Greenstone, Ltd., Hoechest Marion Roiussel, Inc., Hoffman-Laroche, Inc., Immunex Corporation, Ivax Corporation, Ivax Pharmaceuticals, Inc., Janssen Pharmaceutica Products, LP, Johnson & Johnson, King Pharmaceuticals, Inc., King Research and Development, McNeil-PPC, Inc., Medimmune, Inc., Merck & Co., Inc., Monarch Pharmaceuticals, Inc., Mylan Laboratories, Inc., Mylan Pharmaceuticals, Inc., Novartis Pharmaceuticals Corporation, Novopharm Usa, Inc., Oncology Therapeutics Network Corp., Ortho-McNeil Pharmaceutical, Inc., Ortho-biotech Products, LP, Par Pharmaceutical, Inc., Par Pharmaceutical Companies, Inc., Pfizer, Inc., Pharmacia Corporation, Purdue Pharma, LP, Purepac Pharmaceutical Co., Roche Laboratories, Inc., Roxane Laboratories, Inc., Sandoz, Inc., Sanofi-Aventis Schering Corporation, Schering-plough Corp., Sicor, Inc., Smithklinebeecham d/b/a Glaxosmithkline, Tap Pharmaceutical Products, Inc., Teva Pharmaceuticals Industries, Ltd., Teva Pharmaceutical USA, The Purdue Frederick Company, The Purdue Pharma Company, UDL Laboratories, Inc., Warrick Pharmaceuticals Corporation, Watson Pharma, Inc., Watson Pharmaceuticals, Inc., Wyeth, and Wyeth Pharmaceuticals, Inc.