State AGs are in a tizzy over AWP

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Friday, October 31, 2003

ST. PAUL, Minn. - In a series of lawsuits coming out of attorneys’ general offices in several states, pharmaceutical companies are taking the heat for inflated average wholesale prices on prescription drugs, including albuterol and ipratropium bromide.

Recently, Minnesota became the largest state to enter the fray, alleging that Dey and Warrick Pharmaceuticals have cost the state millions of dollars by “grossly inflating” the AWP.

The suit also alleges the companies illegally profited by selling the drugs to pharmacies at lower rates, thus creating a “spread” used to induce pharmacies to buy drugs from them over competitors.

The suit, filed by Minnesota Attorney General Mike Hatch, charges the companies with multiple counts of consumer fraud, Medicaid fraud, fraud on seniors, false advertising and unjust enrichment. Hatch is seeking damages and restitution for the state Medicaid program.

“Dey and Warrick’s illegal pricing fraud has caused Minnesota consumers and taxpayers, particularly elderly consumers suffering from asthma and other respiratory disease, to pay far too much for their prescription drugs when drug prices are already at a level that many consumers can not afford,” Hatch said in a statement.

Some industry insiders, however, disagree with the AG’s motives.

“To blame [Medicaid] overpayment on drug companies is just political grandstanding and does nothing to solve the real issues,” said one man. “If anybody needs to be addressing this problem it is the bureaucrats who have the checkbook. It’s not the AG.

In fact, he said, it is the state’s legislature that is best suited to fix the problem because the reimbursement method for prescription drugs is set by state statute.

“Quite frankly, the people who should address this are the legislators because they are the ones who created the problem,” he said.

According to Minnesota’s Medicaid office, the state’s reimbursement for prescription drugs that are administered by a pharmacy is determined one of three ways:

1. The usual and customary price submitted to the state by the pharmacy;

2. The AWP minus 11.5% plus $3.65; or

3. The maximum allowable cost (MAC) plus $3.65.

Warrick spokesman Bill O’Donnell agreed that any abuse or overcharges is the fault of the government, not the drug companies, according to a story in the Pioneer Press.

“The point is, it has been well-known and widely reported since the 1960s that the average wholesale price does not reflect actual prices,” O’Donnell said. “Contrary to what the suit alleges, the company did not seek to take advantage of the average wholesale price system.”

The AWP system currently is being reviewed by the federal government, which has failed to redo the reimbursement method despite numerous past questions as to its legitimacy. Bills to revise the AWP are being considered in the U.S. House of Representatives and Senate, and CMS also has announced plans to change the system.

Until then, the states have taken the problem into their own hands. Texas, West Virginia, Montana, Nevada, Connecticut and Kentucky each have filed lawsuits against Dey and Warrick, as well as other companies, including Warrick’s parent company Schering-Plough Corp. Dey is a subsidiary of Merck KGaA.

“They made a big deal about this in the press. Is this a lawsuit or are they trying this in the court of public opinion and trying to get people upset with the ‘big, bad drug manufacturer?’” asked one industry professional. “It sure looks more political when the problem could be addressed through normal means [the legislature].”

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