March 19, 2009
Final settlement of two conspiracy lawsuits rolls back prices on hundreds of drugs
Up to $1 Billion in Rx Drug Savings Expected
Boston — Prescription Access Litigation (PAL) claimed a great victory for prescription drug consumers, as a Massachusetts federal court approved two class-action settlements that will significantly lower the costs of over 400 drugs in six months. The March 17th approval marks the final chapter of a series of groundbreaking class-action lawsuits that were brought by plaintiffs Boston-based New England Carpenters Health Benefits Fund and AFSCME District Council 37 Health and Security Plan, two member unions of the consumer watchdog group that recruited them for the case. The plaintiffs alleged that First Databank, Inc. and Medispan, the most widely-used publishers of prescription drug prices in the United States, had fraudulently increased the published price and inflated the costs of nearly all the most widely used retail prescription drugs by 5 percent since 2002.
Tuesday’s settlement rolls back the Average Wholesale Price (AWP) of over 400 drugs by five percent in 180 days time, a change that will affect nearly all of the top selling drugs from Allegra to Zocor, and hundreds of others. This change should reduce what health plans pay pharmacies for these 400 drugs, resulting in projected savings of approximately $1 billion.
“This settlement is truly remarkable not only for holding the drug industry players accountable for their blatant manipulation of the drug pricing system, but also for its future savings at a time of such economic hardship for consumers. Skyrocketing health care costs must be dealt with if we want to fix our health care system, and fraudulent pricing cannot be tolerated,” said Wells Wilkinson, Staff Attorney of PAL. The 130-member PAL coalition led by Community Catalyst has played a major role in several illegal pharmaceutical pricing cases.
The lawsuits alleged that from 2002 to 2005, First Databank and Medispan conspired with leading prescription drug wholesale provider, McKesson Corp., to arbitrarily increase by five percent the markups between what pharmacies pay wholesalers for prescription drugs, based on an industry benchmark called the “Wholesale Acquisition Cost” (WAC), and what health plans and insurers reimburse pharmacies for them, based on another benchmark called “Average Wholesale Price” (AWP). The difference between what the pharmacy pays the wholesaler and what the health plan pays the pharmacy is called the “spread,” and it is the pharmacy’s profit on that prescription. The lawsuits allege that McKesson colluded with these two publishers to inflate these prices, in order to raise profits for pharmacies, many of which were McKesson customers.
AWP is a controversial and outdated system, which has created billions of dollars in unnecessary drug spending every year as reimbursement prices for drugs have far exceeded the market price of drugs. AWPs are not based on actual sales, making them susceptible to being manipulated. As a result, Congress removed AWP as the benchmark for drug pricing under Medicare in 2003 and other federal programs in 2005. But pharmacies have stalled the implementation of this provision through a challenge in the courts.
Both First Databank and Medispan agreed to stop publishing AWP data within two years of yesterday’s final approval of the settlement. Because the two companies are the primary sources of AWP data used by insurers, employers, pharmacies and Pharmacy Benefit Managers (PBMs), the stop is likely to end reliance on this corruption-ridden system of drug pricing and make way for a more transparent pricing system.
The consumer watchdog group Prescription Access Litigation has also recruited its coalition members to lead earlier litigation challenging drug manufacturers’ inflation of the AWP for doctor-administered drugs in the In re Pharmaceutical Industry Average Wholesale Price Litigation class action lawsuit, which resulted in over $220 million in settlements with over 11 of the country’s largest drug makers.
The settlements will directly benefit third-party payers, including health insurance plans, union benefit funds and self-insured employers who pay pharmacies for prescription drugs dispensed to their members, but have been forced to pay artificially inflated prices. Consumers who pay out of pocket or a percentage co-payment will also benefit from the future savings.
“Our Fund works hard to provide affordable benefits for our union members and their families,” said Mark Erlich, Chair of the New England Carpenters Health Benefits Fund. “We got involved in this case to make real change for working people, and that’s what rolling back this price inflation will do for consumers nationwide. But we also need better regulation and accountability to prevent this kind of price-fixing in the future.”
“This settlement is a great benefit to self insured plans everywhere, as well as consumers, who are struggling to pay for rising drug costs,” said Cynthia Chin-Marshall, Administrator of AFSCME District Council 37 Health and Security Plan (New York). “But we need to make sure these schemes don’t happen in the future. We need a reliable benchmark for what drugs really cost, and government oversight too.”
The New England Carpenters Health Benefits Fund and AFSCME District Council 37 Health and Security Plan are represented in the case by Hagens Berman Sobol Shapiro, one of the most experienced law firms in the country in large-scale public-impact litigation.
For more information about the First Databank, Medispan, and McKesson lawsuits and settlements, please visit the PAL website.
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About The Prescription Access Litigation Project
The Prescription Access Litigation Project (PAL) is a project of Boston-based Community Catalyst. PAL is a nationwide coalition of over 130 state, local, and national senior, labor and consumer health advocacy groups in 36 states fighting to make prescription drugs affordable. The organizations in the PAL coalition have a combined membership of over 14 million people. PAL works to end illegal drug industry practices that increase the price of prescription drugs beyond the reach of the American consumer, using class action litigation and public education. Since 2001, PAL members have filed 32 sets of lawsuits targeting such practices. www.prescriptionaccess.org
About Community Catalyst
Community Catalyst is a Boston-based national advocacy organization that builds consumer and community participation in the shaping of our health system to ensure quality, affordable health care for all. www.communitycatalyst.org