Healthy Skepticism Library item: 5787
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Publication type: news
Smith T.
Drug companies sued in overpricing case : Taxpayers 'cheated' out of $40 million, state says
The Greenville News 2006 Aug 4
http://greenvilleonline.com/apps/pbcs.dll/article?AID=/20060804/NEWS01/608040325/1004/NEWS01
Full text:
Drug companies sued in overpricing case
Taxpayers ‘cheated’ out of $40 million, state says
Published: Friday, August 4, 2006 – 6:00 am
By Tim Smith
CAPITAL BUREAU
tcsmith@greenvillenews.com
COLUMBIA — State Attorney General Henry McMaster on Thursday filed a $40 million lawsuit against five major drug companies, alleging the companies inflated prices since 1991 for drugs covered by the state’s Medicaid and state health plans.
“The taxpayers of South Carolina have been cheated,” he said.
The lawsuit is similar to suits brought by at least 21 other states in recent years alleging that dozens of pharmaceutical firms had inflated prices for government health plans. The attorney general for Texas has thus far recovered $55 million in that state’s action, McMaster said.
The suit names five drug firms, but others are likely to be added, McMaster said. Named by McMaster as defendants are Abbott Laboratories Inc., Baxter International Inc., Dey LP, Boehringer Ingelheim Roxane Inc. and Schering-Plough Corp.
Dey issued a statement saying it “unequivocally denies any wrongdoing” and would “vigorously” defend itself.
“Dey believes, as do many independent critics and government officials, that in spite of their well-intentioned purposes, these reimbursement systems are seriously flawed,” the company said in a prepared statement.
“For years, the states as well as the federal government have known — and accepted — that the published Average Wholesale Price of a drug represents something more akin to a “sticker price” than the actual price of the drug. Dey’s pricing practices have been consistent with all federal and state laws.”
A spokeswoman for Schering said the firm had not yet seen the suit and had no comment. The other three firms did not provide any comment about the suit.
Because of the size and scope of the lawsuit, McMaster said the case will be handled by 13 private lawyers, including members of two out-of-state firms, on a contingency fee basis. That means they will not be paid anything unless the drug firms settle or the state receives an award in court.
McMaster said the lawyers assigned to the case brought the matter to him.
While the Attorney General’s Office has 163 employees, McMaster said the lawsuit is too large and complicated to handle in house.
“It is a massive paper case,” he said.
South Carolina Medicaid and the State Health Plan are the two largest health plans in the state, covering 1.1 million people, or 30 percent of the state’s population, McMaster said. The two plans have processed $5 billion in prescription medicine since 1997, he said, and have paid $400 million for drugs from the companies named in the suit.
McMaster said the suit alleges the companies “intentionally” misreported the average wholesale price of selected drugs, causing an increase in reimbursements paid by Medicaid and the State Health Plan to pharmacies.
Some prices, he said, were inflated as much as 400 percent.
The inflated prices, McMaster alleged, provided greater incentives for pharmacies to buy and sell the drugs and provided higher sales revenue for the companies as well as greater volume and market share for the firms.
“There’s nothing wrong with companies making a healthy profit,” McMaster said. “But companies that conceal actual prices and manipulate records to improperly increase profits at the expense of taxpayers must be held accountable.”
Since 2000, South Carolina Medicaid expenditures on prescription drugs have doubled to approximately $669 million, McMaster said.
The litigation may take years to complete, he said. The private lawyers representing the case will advance all expenses and be reimbursed only if the state recovers money.
The lawyers’ fees, according to the contract used with each lawyer, can range from 4 percent to 23 percent, depending on the amount recovered.
If the state collects $40 million, the firms would split approximately $4 million, according to McMaster’s scale.
The state must receive at least 77 percent of any settlement or award, after expenses, and McMaster’s office will retain 10 percent of any of the lawyers’ fees, according to a copy of the contract, which McMaster called one of the strictest in the nation.
Trey Walker, a spokesman for McMaster, said many states suing drug companies are using private lawyers, just as they did with the tobacco settlement litigation. He said Thursday’s suit marks the first time McMaster has hired private lawyers on a contingency basis.
McMaster said the lawyers contracted by South Carolina to handle the case include members of the McCutchen, Blanton, Johnson and Barnette firm in Columbia; D. Michael Kelly; J. Preston “Pete” Strom, a former U.S. attorney; and the firm of Schmutz & Schmutz in Charleston.
Most of the South Carolina lawyers are past campaign contributors to McMaster, he said, but he said the donations had no influence on his decision to approve the lawsuit or the lawyers who will litigate it.
He said his office will control the litigation and that he can terminate any of the private lawyers from the case at any time.
