Healthy Skepticism Library item: 7241

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Publication type: news

O'Reilly C.
Drug giants on trial in reimbursement scheme
Bloomberg News 2006 Nov 7
http://www.northjersey.com/page.php?qstr=eXJpcnk3ZjczN2Y3dnFlZUVFeXkyOSZmZ2JlbDdmN3ZxZWVFRXl5NzAxNjAyOSZ5cmlyeTdmNzE3Zjd2cWVlRUV5eTI=

Abstract:

Johnson & Johnson, Bristol-Myers Squibb Co., AstraZeneca PLC and Schering-Plough Corp. abused the system of reimbursing doctors for drug costs, says a lawyer for pension funds and their insurers suing the companies.

Pension funds and the insurers they used, including Blue Cross and Blue Shield of Massachusetts, claim that the drug makers sold medicine to doctors at steep discounts while secretly encouraging the physicians to claim reimbursement at the higher Average Wholesale Price, used as an insurance industry standard, and pocket the difference.

Insurers who paid for drugs using AWP “did not have any knowledge of the inflation scheme, did not know they were the targets,” plaintiffs’ attorney Steve Berman said in opening arguments Monday at a trial before U.S. District Judge Patti B. Saris in Boston. “No defendant ever informed the providers about what the actual discounts were.”

The case stems from the government practice of using AWP, as reported by pharmaceutical manufacturers, to set reimbursement rates for medicines used by health programs such as Medicare. While Medicare has moved away from the practice, third-party insurers still use AWP to set rates. They claim the drug makers abused the system to artificially inflate prices, costing insurers hundreds of millions of dollars.

The average wholesale price for J&J’s Remicade, used to treat Crohn’s disease and rheumatoid arthritis, was listed in the independent publication Red Book in 2001 at $665.65 a dose, court records show, while the New Brunswick-based company was actually charging doctors about a third of that price, according to Community Catalyst, a Boston-based advocacy group.

The companies urged doctors who bought drugs at a discount to bill insurers for the full AWP price and keep the difference, according to Berman, of Seattle-based Hagens Berman Sobol Shapiro. The plaintiffs are seeking undisclosed monetary damages.

The non-jury trial, which is expected to last six weeks, is considered a test case for the plaintiffs’ theories on liability in AWP pricing. The litigation may become a model for suits contemplated in other states and Washington, D.C., lawyers said.

Saris narrowed the trial to focus only on five companies — the four plaintiffs plus GlaxoSmithKline PLC — and only on medicine such as cancer drugs that doctors administer themselves, supplied in Massachusetts. A broader suit against dozens of companies and other types of drugs priced according to AWP nationwide is scheduled for trial in her court later this year.

Glaxo, Europe’s biggest pharmaceutical house, agreed to pay $70 million in August to settle claims over its charges for drugs under AWP.

The four remaining defendants argued that all market participants understood that the term “Average Wholesale Prices” does not refer the prices actually paid by wholesalers and that there was no attempt to deceive the government or the insurers.