By Kevin E. Noonan —

Federal District Court Judge Patti Saris handed down her decision in a major class action suit against several pharmaceutical companies, and the pharmaceutical companies cannot be happy with the result.  In re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456, Civil Action No. 01-12257-PBS (D. Mass. 2007).

At issue were payments made by third-party payors that reimburse patients for Medicare co-payments (Class 2 plaintiffs), and all "end-payors," which included patients who make co-payments under private medical insurance (Class 3 plaintiffs).  The defendants included AstraZeneca (for the drug Zoladex for prostate cancer), Bristol-Myers Squibb (for five drugs including taxol for breast cancer), and Schering-Plough’s Warrick subsidiary (for the respiratory drug albuterol sulfate).  Johnson & Johnson was found not to be liable for pricing of its Remicade® drug for Crohn’s disease.

Judge Saris ruled that liability attached due to these companies’ activities relating to the method of determining drug pricing known as "average wholesale pricing (AWP), a practice dating from the 1960’s, and covered both physician-administered and self-administered drugs.  It was also used as a benchmark for Medicare drug pricing used by the Federal government until 2003.  Rather than set drug prices itself, the government left it to the drug industry to set the AWPs.  And although the relevant government agencies had the authority to conduct audits and surveys to interrogate how accurately the AWPs reflected actual drug pricing, Judge Saris found that the agencies had never done so.

Under the AWP method, Judge Saris found that the liable drug companies inflated the price of their drugs to create a "middle" of profitability between the actual price paid by physicians and pharmacies and the AWP.  The Court recognized that a markup of 20-25%, which had been an industry standard, was justifiable to defray administrative and other costs.  In contrast, for the drugs at issue in this litigation, the Court found that the markups ranged from 85.9% to 1131.7%.  These elevated markups occurred more often for drugs facing generic competition, because it conferred countervailing market advantages for these drugs and gave physicians the capacity to benefit financially by their choice of which drug to administer (especially since the terms of the contractual relationships between pharmaceutical companies and doctors were kept confidential).  This was much less of a problem with self-administered drugs, where patient benefits managers played a greater (and cost-cutting) role.

Fortunately for the defendants found liable, damages prior to December, 1997 were banned by the statute of limitations, and further limited by changes in the law enacted by Congress in 2003.  Even so, the Court found AstraZeneca liable to the Class 3 plaintiffs in the amount of $4,451,429.  Bristol-Myers Squibb was found liable in the amount of $183,454 to the Class 3 plaintiffs.  Schering-Plough’s Warrick subsidiary was not found liable to the Class 3 plaintiffs.  However, the Court was unable to determine damages to the Class 2 plaintiffs on the trial record, and requested additional information from all three defendants.  A further bench trial is also a possibility for the Court to be able to make the damages determination as to the Class 2 plaintiffs.  The defendants have indicated they are considering appealing the decision.

For additional information regarding this decision, please see:

• Schering-Plough’s press release