States Consider Suing Drug Companies

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States Consider Suing Drug Companies

Several states may take pharmaceutical companies to court. Modeled on a 1998 class action lawsuit against the tobacco industry, Florida, Georgia, Maine, Massachusetts, Nevada and Texas are considering legal action to force lower prescription drug prices. If the Health Care Financing Administration (HCFA) endorses the action, all 50 states are expected to join the suit.

The potential litigation stems from a government investigation of pharmaceutical companies believed to have falsely inflated reported drug prices to result in higher reimbursements from Medicare and state Medicaid programs. Although Medicare does not cover most prescription drugs, the program does cover some, like those used to treat cancer. The investigation found that Medicare is overcharged by about $447 million per year.

Referred to as the Average Wholesale Price (AWP), pharmaceutical companies are required to report the average price they give to the doctors that administer the drugs. By setting an extremely high AWP and then selling the product to doctors at a big discount, a drug company provides a profit incentive to induce purchase of their product over that of a competitor. The investigation found that Medicaid and Medicare reimburse certain drugs at ten times the cost. Providers thus could make a huge profit.

Name of Drug	USE	AWP as of April 2000	Actual Wholesale
Adriamycin	antibiotic used in cancer treatment	$241.36	$33.43
Topasar	-used to treat testicular and lunch cancer	$28.38	$1.70
Vancomyclin	antibiotic used to treat intestinal infections	$68.77	$8.14

The Bayer Corporation recently agreed to pay $14 million in restitution to the federal government and states to settle allegations that it reported inflated pricing.

Source: `States Mull Suit Against Drug Companies,` Mary Guiden, Stateline.org, 4/2/01. `Bayer to Pay $14 Million to Settle Charges of Causing Inflated Medicaid Claims,` Robert Pear, The New York Times, January 24, 2001. `Study: Govt. Overpays for Drugs,` The Associated Press, September 27, 2000.

To read a related story on our website see:

`Medicare Overpays For Supplies Used In Medical Equipment,`

This article first appeared in Volume 6, Issue 8 of "The Social Security and Medicare Advisor" newsletter (July/August/2001). To receive future editions of "The Advisor" in its special, free e-mail version, please click here.