Insurance Law

Judge Finds Fault in Drug-Price Suit

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A federal judge has ruled three drug companies engaged in unfair and deceptive trade practices by inflating the reported prices of certain drugs.

U.S. District Court Judge Patti Saris said the drug makers inflated average wholesale prices of drugs, known as AWPs, causing injury to insurers that paid higher reimbursements for medicine.

Indeed, Saris said, some physicians described AWP as “ain’t what’s paid.”

The companies are AstraZeneca Plc, Schering-Plough Corp. and Bristol-Myers Squibb Co., the Wall Street Journal (sub. req.) reports. All three companies are considering appeal.

Saris wrote in her opinion that the Medicare system created perverse incentives by pegging reimbursement for drug transactions to a price reported by the drug industry without any oversight. Other insurers also use the system, since abandoned by Medicare.

Pharmaceutical companies took advantage of the system by “establishing secret mega-spreads between the fictitious reimbursement price they reported and the actual acquisition costs of doctors and pharmacies,” she wrote.

Saris decided a portion of the case dealing with Massachusetts law. The decision makes it likely she will certify a class action for claims from other states, the newspaper says.

The Wall Street Journal Law Blog posted the decision in In re Pharmaceutical Industry Average Wholesale Price Litigation, M.D.L. No. 1456 (PDF).

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