PAL’s most important lawsuit and settlement to date wins final approval!

Yesterday, the Massachusetts federal District Court approved class action settlements with publishers First Databank and MediSpan that will require the roll back the illegally inflated prices of over 400 drugs!

PAL coalition members AFSCME District Council 37 Health and Security Plan in New York, and New England Carpenters Health Benefit Fund here in Boston brought the lawsuit against these two publishers, and the pharmaceutical wholesaler McKesson, for their role in unilaterally raising the prices of over 400 drugs through their alleged manipulation of the published “average wholesale price” or AWP. Though the system of pharmaceutical pricing and reimbursement is complex, the AWP is a benchmark that is used by insurers and government programs to reimburse pharmacies. It also effects the cost to cash-paying customers. It is alleged that defendants First Databank, Medispan, and McKesson raised the AWP, while keeping the actual cost (called a ‘wholesale acquisition cost’) the same. This done to give  the large chain and other pharmacies, many of which are McKesson’s customers, an increased return on each of these drugs.

It has been estimated that this 5% increase in the cost of hundreds of drugs by the defendants may have cost consumers, insurers, and government programs over $2 billion in additional drug expenses.

It is estimated that the “rollback” of the price of these 400 drugs could yield between $1.5 Billion or more in future savings on drug costs. Perhaps of even greater importance, this lawsuit, along with other litigation (AWP, Remicade, Lupron) by PAL members, has exposed the weaknesses of the pharmaceutical pricing system that have allowed drug makers and wholesalers to manipulate or “game” the benchmark prices that government programs and insurers use for reimbursement.

The Judge in the case did allow a six month delay before the rollback of the drug prices, ” to alleviate the impact on independent and rural pharmacies.” This addressed the concern raised that small ‘mom and pop’ pharmacies may be forced to bear the full cost of the price rollback if they were unable to renegotiate their supply contracts for drugs with manufacturers and wholesalers.

The settlement also provides $2.7 million to be distributed along with the $350 Million in the preliminary McKesson settlement.

Thanks to PAL members New England Carpenters Health Benefit Fund, and AFSCME District Council 37 Health and Security Plan in New York for their work in bringing this important lawsuit.

Follow these links to see a copy of the Judge’s decision, the First Databank settlement, the Medispan settlement, or the pending McKesson settlement.

PAL members AFSCME District Council 37 Health and Security Plan and New England Carpenters Benefits Fund filed a class action lawsuit against First Databank Inc. and McKesson Corporation (NYSE: MCK) in 2005, alleging that the two companies conspired to add an arbitrary 5% to Average Wholesale Prices of hundreds of prescriptions that were published in First Databank’s drug pricing guides. We’ve covered the case extensively on the PAL blog (archived posts here) and much more information about the case, including court documents, can be found on our website here.

In October 2006, we announced that First Databank had agreed to settle the case against them. McKesson Corporation, one of the three largest pharmaceutical wholesalers in the country, did not agree to settle, and has aggressively fought to get rid of the case ever since. McKesson, a company that is virtually unknown to consumers, is the 18th largest company on the Fortune 500 list, with over $88 Billion in annual gross revenues, with over $750 Million in 2007 profits. They are larger than numerous other corporations that are household words, including Procter & Gamble, AT&T, Boeing, Sears, Pfizer, Target, Dell and Dow Chemical.

Last week, Judge Patti B. Saris of the U.S. District Court for the District of Massachusetts, ordered that the case against McKesson can proceed as a national class action. She certified two national classes: (copy of the Order is here.

Consumer Co-Pay Class
“The Court certifies the following class for a period beginning August 1, 2001 and ending on May 15, 2005 for all purposes:
Class 1, Consumer Purchasers: All individual persons who paid, or incurred a debt enforceable at the time of judgment in this case to pay, a percentage co-payment for the Marked Up Drugs during the Class Period based on AWP, pursuant to a plan, which in turn reimbursed the cost of brand-name pharmaceutical drugs based on AWP. The Marked Up Drugs include all of the drugs identified in Exhibit A to the Third Amended Complaint and consist of certain brand-name drugs only.”

Third Party Payor Class:
“The Court also certifies the following class for a period beginning August 1, 2001 and ending on December 31, 2003 for the purpose of damages, and for a period beginning August 1, 2001 and ending on May 15, 2005 for purposes of liability and equitable relief:
Class 2, Third-Party Payors: All third-party payors (1) the pharmaceutical payments of which were based on AWP during the Class Period; (2) that made reimbursements for drugs based on an AWP that was marked up from 20 to 25% during the term of its contract with its PBM or with another entity involved in drug reimbursement; and (3) that used First DataBank or Medispan for determining the AWP of the marked up drugs. The Marked
Up Drugs are all drugs identified in Exhibit A and consist of brand-name drugs only.”

Hagens Berman Sobol Shapiro, the law firm that is lead plaintiffs counsel in the case, in its press release said that the case “could become the largest class action in the United States, potentially totaling $7 billion in damages for consumers and third-party payers.

The press release also said “damages on behalf of consumers could total from $200 to $800 million and damages on behalf of third-party payers will exceed $5 billion.”

The Judge’s certification of the case as a national class action is enormously important. It allows the case to proceed on behalf of millions of consumers and tens of thousands of health plans, union benefit funds, self-insured employers and other “third party payors.”

The case, and the facts that have come to light as a result, shines further light on the complete lack of accuracy and accountability in how drugs are priced and paid for in the United States. The Average Wholesale Price system handsomely rewards and virtually invites fraud, and is in dire need of replacement. This lawsuit has the potential to compensate the millions of consumers and health plans who were overcharged as a result of McKesson’s and First Databank’s alleged fraud.

Last week, the plaintiffs and First Databank also filed an Amendment Settlement with the Court, attempting to address concerns that Judge Saris raised at the January 2008 “final approval” hearing for the First Databank settlement. Copies of the revised settlement documents are available here. The Judge’s order certifying the classes can be found here.

To receive udpates about the McKesson case, the First databank settlement and other prescription drug pricing and marketing lawsuits and settlements, fill out the form located here.

For information about the settlement with First Databank and also with Medispan, Inc., go here.

n June 2005 and February 2006, members of the PAL coalition AFSCME District Council 37 Health & Security Plan and New England Carpenters Health Benefits Fund filed lawsuits alleging that First Databank and McKesson carried out an illegal scheme from 2002 to 2005 to raise the price of prescription drugs.

The 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 (based on “Wholesale Acquisition Cost” or WAC) and what health plans and insurers reimburse pharmacies for those prescription drugs (based on “Average Wholesale Price,” or AWP). The suit alleges that McKesson used this “5% scheme” to provide a benefit to their large pharmaceutical retail chain clients, who would then earn an extra amount with each prescription, and that First Databank went along with the scheme to ease the burden of establishing accurate spreads and to curry favor with McKesson so that McKesson would use First Databank as the source of drug prices for its customers.

In October 2006, a settlement with First Databank was announced. Under the settlement, First Databank agreed to “roll back” the 5% increase on hundreds of drugs. The plaintiffs’ expert in the case estimated that this rollback would save $4 billion in drug spending in the first year. First Databank also agreed to stop publishing its “Average Wholesale Price” benchmark data within 2 years of the settlement becoming final. McKesson was not a party to the settlement, and the case against it is proceeding

As the Wall Street Journal reported earlier this week, the Judge recently gave tentative approval to an amended settlement and scheduled a date for the “Fairness Hearing” at which the Judge will evaluate the whether the settlement is “fair, reasonable and adequate” and whether it should be finally approved.

The Wall Street Journal article stated:

A federal judge has given preliminary approval to a proposed settlement that could roll back prices on thousands of prescription drugs in a case that could have implications for pharmacy operators.

The matter in U.S. District Court in Boston centers around lists of so-called average wholesale prices for brand-name drugs published by Hearst Corp. unit First Databank.

U.S. District Judge Patti B. Saris this week gave preliminary approval to the recently amended agreement between plaintiffs and First Databank, and scheduled a fairness hearing on a final settlement for Nov. 14.

The settlement could save consumers and insurers billions of dollars in drug costs while providing no monetary damages. First Databank would cut average wholesale prices for thousands of drugs by about 4% and eventually stop publishing the benchmark list.

Progress in the litigation “allows a key risk to the outlook for pharmacy operators to move along,” Morgan Stanley analyst David Veal wrote Friday.

Several retiree and worker funds alleged in the lawsuit against First Databank and major drug distributor McKesson Corp. that the two companies worked together to inflate the markup on numerous prescription drugs.

First Databank, denying wrongdoing, agreed to a settlement that requires it to pay no damages. McKesson denies wrongdoing and has been fighting the lawsuit; the plaintiffs and McKesson recently requested and received postponement of a court mediation conference.

Learn more about the First Databank lawsuit here.