N.Y. Accuses Big Drug Firms Of Illegal Pricing Scheme

In a bold move, New York State Attorney General Eliot Spitzer filed suit against GlaxoSmithKline (GSK), Pharmacia, and Aventis last month, accusing each of these pharmaceutical companies of “conducting elaborate illegal schemes to inflate the price of prescription drugs for consumers and government health plans.”

In three individual suits, Spitzer is charging the companies with consumer fraud, commercial bribery, and making false statements to government health plans.

The suits focus on the companies’ use of average wholesale price (AWP) and other measures by which the AWP is calculated. Many government health plans use the AWP as a basis for reimbursement of drug costs, including for Medicare and Medicaid in many states.

“New Yorkers face a health care crisis—a crisis driven to large degree by the enormous growth in the cost of prescription drugs,” Spitzer said in a press briefing announcing the filing of the suits. “This cost explosion is eroding individuals’ health care and is a large factor in the massive state deficit. With this action, we are sending a strong signal that the state of New York will use the law to bring health care costs under control.”

The suits allege that the companies each reported inflated AWPs for several drugs in relation to the actual price that was paid for those drugs by pharmacies, physicians, and hospitals. The pharmacies, physicians, and hospitals were then reimbursed by state Medicare and Medicaid programs at rates determined with formulas that use the AWP.

The difference in the amount reimbursed and the amount the provider actually paid for the medication, which Spitzer called the “spread,” would then be “pocketed” by the provider as a profit.

Spitzer said he believes the practice became the basis for an elaborate scheme used by the pharmaceutical companies to “improperly induce doctors to prescribe drugs and thereby increase companies’ market share.”

While Spitzer did not name any specific psychotropic medications as part of the alleged pricing practices, his office has taken on the high cost of psychotropic drugs before.

It was his office that initiated legal action against Mylan Laboratories over illegal pricing schemes for its two generic versions of clorazepate and lorazepam. The cause was taken up by the Federal Trade Commission, and in 2000 that agency forced a $135 million settlement from Mylan (Psychiatric News, August 18, 2000).

In the current legal action, the attorney general’s office cited several examples of inflated pricing, notably chemotherapeutics and antiemetics. The “most egregious” example Spitzer cited was Pharmacia’s anticancer drug, Adriamycin. He alleges that the drug was billed with an average spread of 76.5 percent, resulting in overcharges to Medicare Part B of more than $24 million and nearly $5 million in added out-of-pocket expense for Medicare beneficiaries.

“This means,” Spitzer said at a press briefing, “that a 76 percent savings to Medicare would have resulted if wholesale catalogue prices had been the basis for reimbursement, as opposed to the published average wholesale price reported by the companies.”

As a result, he said, beneficiaries in both government health programs paid “hundreds of millions of dollars” more than they should have for the medications. In some instances, Spitzer noted, the out-of-pocket cost to the consumer was higher than what the doctor paid the pharmaceutical company for the drug.

“We are seeking restitution for consumers and the state and new reforms that will help maintain the integrity of the doctor-patient relationship, by making sure that medical decisions are based on sound clinical guidelines, not on whether a manufacturer’s drug delivers higher compensation to a provider,” Spitzer said.

Pharmacia and Aventis declined to comment on the pending legal action. GSK issued a press release stating, “We are disappointed that the state of New York has chosen litigation in an effort to shift blame for public policy decisions and for budget shortfalls to the pharmaceutical industry.”

The GSK press release further noted that officials with New York’s Medicaid and Elderly Pharmaceutical Insurance Coverage programs as well as the Medicare program “have known for decades that tying reimbursements to the AWP causes the programs to pay doctors and pharmacies more for certain drugs than the doctors and pharmacies paid for the medicines themselves. The federal government has for years urged Medicaid programs not to reimburse for drugs at the AWP (a price calculated and reported by third-party vendors) for that very reason.”

GSK has vowed to “defend itself vigorously” against the suit and to “continue to work with state and federal policymakers to develop reimbursement systems that ensure quality care for patients and are fair to all.”

More information on the legal actions initiated by the New York State Attorney General’s office is posted on the Web at www.oag.state.ny.us. ▪