Investigations by multiple federal agencies from 1997 to 1999 revealed that drug manufacturers were ‘gaming’ the Medicare system to promote the sale of certain drugs. Later, the PAL coalition represented by consumer protection law firms filed a lawsuit based upon their discovery of a similar fraudulent scheme in 2001 by the drug wholesaler McKesson. PAL responded by recruiting coalition members to bring two class action lawsuits to confront and expose these schemes, and recover the excess costs to consumers and health plans.
In response, two class action lawsuits fostered by PAL have succeeded in exposing these widespread manipulations of the U.S. drug pricing system to increase profits of drug manufacturers, wholesalers, and pharmaceutical retailers.
These two lawsuits have resulted in six settlements and one judgment that returned over $750 million in allegedly fraudulent charges to consumers and insurers. In addition, these lawsuits spotlighted a systemic weaknesses of the U.S. drug pricing system, leading to statutory reforms in 2003 and 2005 intended to insulate public payors like Medicare Part B and state Medicaid programs from falling prey to further ‘gaming’ of the price system by the drug industry.
A settlement in the First DataBank litigation spearheaded by PAL led to an industry wide correction of the listed drug prices for 98% of all brand-name drugs. As a result, forty-eight of the the nation's fifty State Medicaid programs may save $500 million or more through the end of 2010. Unfortunately, the nation's pharmacy benefit manager (PBM) industry has prevented any savings from this nationwide price correction from being realized by health plans in the private sector.
Lawsuits by the federal government and the several states to recover the public costs of this widespread fraud followed these PAL lawsuits.