Medicare Part B has long paid for drugs that are given in a doctor’s office, such as drug treatments for cancer. Until 2005, the price that Medicare paid to doctors for these drugs was based on figures called “Average Wholesale Prices,” or AWP. In 2003, Congress created a new system for reimbursing doctors for these drugs, based on “Average Sales Prices” (“ASP”). ASP is “the weighted average of all of the sales of the drugs to all purchasers.” In 2005, Medicare began paying doctors 106% of the ASP for a drug given in the doctor’s office.

Why did Congress force Medicare to stop using AWP? It became increasingly clear that AWPs were often artificially inflated by drug companies to increase how much doctors earned by prescribing them, and thus to increase sales of those drugs. Several PAL coalition members are plaintiffs in a massive national class action lawsuit alleging that dozens of drug companies did just that. The case is In re Pharmaceutical Industry Average Wholesale Price Litigation, and is before Judge Patti B. Saris in the U.S. District Court for the District of Massachusetts. More on that case can be found here. Judge Saris recently issued a decision finding that Astra Zeneca, Bristol Myers Squibb and Warrick Pharmaceuticals had in fact illegally inflated and manipulated the AWPs of a number of drugs covered by Medicare Part B.

Industry and physician groups predicted that the amount Medicare would pay them for these drugs would be less than what doctors paid for them in the first place. The Office of the Inspector General (“OIG”) recently issued a Report finding that most physician practices that treat cancer patients generally purchase drugs at costs less than the Medicare reimbursement rates.

Despite the predictions of groups like the Community Oncology Alliance, American Society of Clinical Oncology and American Society of Hematologists, the report found that Medicare’s reimbursement rates were generally adequate for the purchase of cancer drugs. The study found that nine of the twelve physicians offices studied were able to buy most of the fifteen cancer drugs examined at or below the Medicare-established reimbursement rate.

One of the arguments that industry and physicians groups had made against the switch was that the rate that Medicare paid doctors for administering the drugs was not enough, and that any “excess” in the reimbursement for the drug itself helped even this imbalance out. So the report also looked at whether physicians’ offices had in place procedures to track how much it actually cost to administer the drugs. The study found that more than 91% of the physicians offices studied (11 out of 12) could not show how much it cost them to administer these drugs. The study pinned the problem on the fact that federal regulations do not require physician practices to track administrative costs. Without knowing how much it costs to administer such drugs, it’s impossible to determine if Medicare is paying doctors enough (or too little, or too much) for these services.

There’ve been anecdotes since this change about doctors not giving these drugs to patients in their offices because the doctors allegedly lose money when they do so, but rather, sending them to hospitals to have the drugs administered. It generally costs Medicare much more to have this done in hospitals rather than doctors’ offices. But unless doctors can demonstrate that they are not being adequately reimbursed for these procedures, their claims will fall on deaf ears.

In sum, the shift from AWP to ASP so far appears to be bringing Medicare’s payments to physicians for drugs administered in their offices in line with what it actually costs physicians to buy those drugs. Whether or not physicians are being paid enough by Medicare for administering those drugs is still an open question – but physicians need to actually document how much it costs to administer them if they want to argue for increased payments from Medicare, and not merely state they are not being paid enough.

A major victory occurred today in the massive Average Wholesale Price lawsuit in the U.S. District Court for the District of Massachusetts. PAL’s press release on this is below. To learn more about this case, go here.

FOR IMMEDIATE RELEASE

June 21, 2007

Contact: Mark Snyder
617-275-2931, msnyder@communitycatalyst.org

Federal Court Rules Against Three Drug Companies in Average Wholesale Price Case
Judge finds Astra Zeneca, Bristol-Myers Squibb and Warrick acted “Unfairly and Deceptively”

BOSTON, MA – Today, Prescription Access Litigation (PAL) and Hagens Berman Sobol Shapiro LLP announced a landmark victory in a prescription drug lawsuit brought by members of PAL and others. Judge Patti Saris, of the U.S. District Court for the District of Massachusetts, found that AstraZeneca (NYSE: AZN), Warrick (a subsidiary of Schering-Plough (NYSE: SGP)) and Bristol-Myers Squibb (NYSE: BMY) violated the Massachusetts consumer protection act, Chapter 93A, by reporting false “Average Wholesale Prices” for a number of prescription drugs, including physician-administered drugs for cancer.

The “Average Wholesale Price,” or AWP, is a benchmark figure reported by drug manufacturers to commercial publications that publish compendia and electronic databases of prescription drug prices. Health plans, government health programs such as Medicaid and other “third party payors” use these AWP figures to determine how much to pay doctors and pharmacies for drugs which are given to their members and insureds.

The lawsuit is part of a much larger case, In re Pharmaceutical Industry Average Wholesale Price Litigation. Dozens of defendants, including the largest drug companies in the U.S., are alleged to have reported inflated and inaccurate AWPs for drugs covered by Medicare Part B, in order to increase sales of their drugs. Until 2003, Medicare reimbursed doctors for these drugs using a formula based on the AWP. However, the amount it cost doctors to purchase these drugs was much lower than the amount Medicare reimbursed them. Doctors profited from the difference, known as the “spread.” The defendants in this suit are alleged to have “marketed the spread” by artificially inflating the AWP so as to increase the amount the doctor would keep as profits by purchasing that company’s drug as opposed to a competitor’s.

Medicare Part B pays 80% of the cost of drugs that are administered in a doctor’s office as well as a small number of self-administered drugs, such as asthma drugs used with a nebulizer. The remaining 20% is paid by individual Medicare recipients or by supplemental insurance, known as “Medigap” plans. Today’s ruling benefits health plans and consumers in Massachusetts who paid part or all of that 20%, as well as health plans that paid for these drugs for patients not enrolled in Medicare.

“Today’s decision rights a great wrong that was done by these three companies against some of our society’s sickest and most vulnerable patients,” said Alex Sugerman-Brozan, director of Prescription Access Litigation. “What could be more outrageous than taking advantage of cancer patients in the name of profits?” One of PAL’s coalition members, Pipefitters Local 537 Trust Fund, is a plaintiff in the case.

The Court found that the three defendants caused the publication of false and inflated Average Wholesale Prices for seven drugs:
• Astra Zeneca: Zoladex
• Bristol Myers Squibb: Taxol, Vepesid, Cytoxan, Blenoxane and Rubex
• Warrick: albuterol sulfate

“Prescription drugs are one of the fastest growing cost drivers in health care,” said John McDonough, Executive Director of Health Care For All, a Massachusetts advocacy group which is a member of the PAL coalition and a plaintiff in another part of the AWP case, “This decision puts drug companies on notice that they can’t get away with burdening the health care system by illegally and artificially increasing those costs.”

Although government programs (including Medicare Part B and Medicaid) are abandoning AWP, virtually all private health plans and insurers still use it. Today’s Court decision and a settlement in another lawsuit will help push these third party payors towards other benchmarks. In October 2006, a separate case brought by two PAL coalition members against First Databank, the main publisher of AWPs, was settled. In that settlement, First Databank agreed to roll back the AWP spreads on hundreds of drugs, and to stop publishing AWP data within two years of the settlement becoming final.

“This Court decision is yet another nail in the coffin of Average Wholesale Price,” said Sugerman-Brozan. “The day is long overdue for our health care system to pay for drugs based on real and accurate data, rather than on fictitious figures made up by drug companies that are more concerned about profits than patients.”

This summer, trials begin in another phase of this massive AWP litigation, with a trial set to begin in July against Bristol Myers Squibb on behalf of a nationwide class of individual Medicare beneficiaries. Steve Berman, lead attorney in the case and managing partner of Hagens Berman Sobol Shapiro LLP, said “We are looking forward to continuing the prosecution of this case against the remaining defendants who perpetrated similar if not identical wrongs against patients and insurers nationwide. We view this ruling as a big win that should serve notice to all defendants that they will be called to account for their wrongdoing.”

To view a copy of today’s decision, go to
www.prescriptionaccess.org/docs/AWP-6-21-07-Order.pdf

About PAL
Prescription Access Litigation (PAL) (www.prescriptionaccess.org) is a nationwide coalition of over 130 state, local, and national senior, labor and consumer health advocacy groups in 35 states and the District of Columbia fighting to make prescription drugs affordable. The organizations in the PAL coalition have a combined membership of over 13 million people. PAL works to end illegal drug industry practices that increase the price of prescription drugs beyond the reach of the American consumer, using class action litigation and public education. Since 2001, PAL members have filed 28 sets of lawsuits targeting such practices. News about PAL’s cases and public education efforts is published regularly on the PAL Blog at www.prescriptionaccess.org/blog

About Hagens Berman Sobol Shapiro LLP
The law firm of Hagens Berman Sobol Shapiro LLP is based in Seattle with offices in Chicago, Cambridge, Los Angeles, Phoenix and San Francisco. Since the firm’s founding in 1993, it has developed a nationally recognized practice in class-action and complex litigation. Among recent successes, HBSS has negotiated a pending $300 million settlement as lead counsel in the DRAM memory antitrust litigation; a $340 million recovery on behalf of Enron employees which is awaiting distribution; a $150 million settlement involving charges of illegally inflated charges for the drug Lupron, and served as co-counsel on the Visa/Mastercard litigation which resulted in a $3 billion settlement, the largest anti-trust settlement to date. HBSS also served as counsel in a $850 million settlement in the Washington Public Power Supply litigation and represented Washington and 12 other states in lawsuits against the tobacco industry that resulted in the largest settlement in the history of litigation. For a complete listing of HBSS cases, visit www.hbsslaw.com.