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Medicare Drug Program News
Drug Prices May Drop $4 Billion Due to Settlement in
Industry Conspiracy Case
Action Alliance of Senior Citizens says it shows
how system is manipulated
October 12, 2006 – What is described as a
"groundbreaking settlement," will result in a four percent rollback of
prices on hundreds of drugs, which represent 95 percent of the nation's
retail branded drug sales. The net impact will be a staggering $4
billion in savings for health plans, which have been overcharged for
prescription drugs, according to the Action Alliance of Senior Citizens
(AASC) and the Prescription Access Litigation Project (PAL).
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Two members of PAL were the lead plaintiffs who
filed the nationwide class-action lawsuit brought against First
Databank, Inc., the most widely-used publisher of prescription drug
prices in the United States.
“This settlement is truly remarkable and represents
real progress in holding drug industry players accountable for the
countless ways they manipulate the system in order to wring out unjust
profits,” said Mamie E. Wiggins, Board Treasurer of the AASC.
The Pennsylvania senior citizen group is a member
of the Prescription Access Litigation Project (PAL), the only national
consumer coalition devoted to challenging high drug prices. Although
Action Alliance was not a plaintiff in this lawsuit, two other members
of PAL (New England Carpenters Health Benefits Fund and AFSCME District
Counsel 37 Health and Security Plan) served as lead plaintiffs in the
lawsuit.
AASC is a plaintiff in the suit filed against the
Centers for Medicare & Medicaid Services that has stopped the agencies
efforts to regain $50 million in Medicare drug plan premiums that were
mistakenly returned to seniors. The trial is set for January.
This case alleged that from 2002 to 2005, First
Databank conspired with leading prescription drug wholesale provider,
McKesson Corp., to arbitrarily increase by 5 percent the markups between
what pharmacies pay wholesalers for prescription drugs and what health
plans and insurers reimburse pharmacies for those prescription drugs.
Pharmacies typically purchase drugs from
wholesalers, at a price based on an industry price benchmark called the
“Wholesale Acquisition Cost” (WAC).
When pharmacies dispense drugs to consumers,
insurance companies and health plans typically pay the pharmacy a price
for the prescription that is based on another benchmark called “Average
Wholesale Price,” or AWP.
The difference between what the pharmacy pays the
wholesaler and what the health plan pays the pharmacy is called the
“spread,” and it is the pharmacy’s profit on that prescription.
"AWP is a controversial and outdated system," says
the news release from AASC, "which has created billions of dollars in
unnecessary drug spending every year as reimbursement prices for drugs
have far exceeded the market price of drugs."
AWPs are not based on actual sales, making them
susceptible to being manipulated. The plaintiffs alleged that First
Databank and McKesson illegally used the increased markups as a
symbiotic business strategy for their respective drug-wholesaling and
drug price publication production.
The case claimed that McKesson and First Databank
agreed to increase the “spread” between AWP and WAC from 20% to 25% on
hundreds of drugs, to benefit McKesson’s customers and the purchasers of
First Databank’s pricing guides.
McKesson was not part of today’s settlement and
remains a defendant in the case.
Under the settlement, First Databank has agreed to
“rollback” the spread from 25% down to 20% on hundreds of the
most-commonly prescribed drugs.
This rollback will reduce what health plans pay
pharmacies for the drugs that represent 95% of the retail branded drug
market. This is projected to result in savings of approximately $4
billion at a time when drug costs are consuming an ever-greater portion
of the nation’s health care dollar.
However, the most important outcome of today’s
settlement, according to AASC, is First Databank’s agreement to cease
publishing AWP data within two years of the Court’s approval of the
settlement. First Databank is a primary source of AWP data used by
insurers, employers, pharmacies and Pharmacy Benefit Managers (PBMs).
First Databank’s ceasing the publishing of AWP data
is thus likely to be the end of the AWP system. This is likely to result
in a shift to the use of a more transparent and accurate way of paying
for drugs, which will have ripple effects throughout the health care
system.
“AWP is on the ropes. We are hopeful that this
settlement will knock it out once and for all and help usher in a new
era of transparency in drug- pricing,” Wiggins emphasized. “The system
that replaces AWP can only be an improvement.”
The Action Alliance continues to monitor the
affordability of medications for seniors and calls on Congress to, among
other things, allow the Medicare program directly negotiate with drug
companies to take advantage of bulk purchasing power to bring prices
down for all.
Participation in PAL is key to using the court
system to uncover illegal activities on part of drug makers and
intermediaries.
The PAL members in the case were represented by
Hagens Berman Sobol Shapiro, one of the most experienced law firms in
the country in large-scale public-impact litigation. The settlement
agreement filed today awaits approval by the U.S. District Court in
Massachusetts, where the case is currently pending.
The price rollback is expected to go into effect
eight to nine months after final approval of the settlement, resulting
in major savings beginning in late 2007.
For more information about the First Databank
lawsuit and settlement, please visit the Action Alliance website at
www.actionseniors.org or the PAL website at
www.prescriptionaccess.org/index
Editor's Notes: The Action Alliance of Senior
Citizens is a membership-based organization organizing seniors in
Pennsylvania for 33 years. "We work to improve conditions for all
seniors in retirement," it says. The group is a plaintiff in the suit
against Medicare that has put on hold efforts by CMS to recoup $50
million in Medicare drug program premiums that were mistakenly returned
to senior citizens.
The Prescription Access Litigation Project (PAL)
(www.prescriptionaccess.org) is a project of Boston- based Community
Catalyst. PAL is a nationwide coalition of over 120 state, local, and
national senior, labor and consumer health advocacy groups in 35 states
"fighting to make prescription drugs affordable."
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