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PEP Nov. 2006
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Public Employee Press

Union lawsuit stops drug price scam

Savings nationwide may hit $ 4 billion

By GREGORY N. HEIRES

The settlement of a major national class-action lawsuit brought by the DC 37 Health & Security Plan, the New England Carpenters Health Benefit Fund and two other unions will end an illegal price fixing scheme that has cost consumers and benefit plans billions of dollars over three years.

The groundbreaking settlement will eliminate a fraudulent pricing benchmark for determining how much health plans and insurers pay for prescription drugs. By leading to a 4 percent rollback in the price of hundreds of drugs that represent 95 percent of the country’s retail brand sales, the settlement will result in an estimated $4 billion in savings.

“We’re proud to have taken a lead role in protecting our members’ vital prescription drug benefit by participating in this lawsuit,” DC 37 Executive Director Lillian Roberts said.

Huge savings for union plan
“This lawsuit exposed the systematic upward manipulation of the prices of brand name drugs, a practice that bled our plan and ultimately bled funds from members’ pockets,” said Rosaria R. Esperon, administrator of the union plan. Esperon estimates that the price rollback could save the plan as much as $1 million a year.

DC 37 and the three unions worked on the lawsuit with the Prescription Access Litigation Project of the Boston-based group Community Catalyst, a nationwide coalition of more than 120 local, state and national senior, labor and consumer health advocacy groups in 35 states fighting to make prescription drugs affordable.

The lawsuit charged that the McKesson Corp., one of the country’s largest drug wholesalers, conspired with First DataBank, the leading publisher of drug prices, to artificially boost medication prices.

First DataBank establishes the “average wholesale price” of prescription drugs, which determines how much insurers and health plans pay for medications. Pharmacies typically buy medications based on the lower “wholesale acquisition cost.”

Within the drug industry, the difference between the AWP and the WAC is known as the “spread,” and it provides pharmacies with the bulk of their profits. By conspiring to increase the spread by 5 percent starting in 2002, First DataBank and McKesson sharply raised the cost of drugs, prompting the lawsuit.

The suit is still being pressed against McKesson. First DataBank, a unit of the publishing powerhouse Hearst Corp., distributes drug price data through electronic and print publications, agreed to settle.

For years, First DataBank claimed to have come up with its average wholesale price by surveying drug wholesalers, but at least since 2002, allegedly relied solely on McKesson. The lawsuit suggests that the two firms set up the price fixing scheme to solidify First DataBank as the leading publisher of drug prices and to curry favor with McKesson’s retail pharmacy clients.

When First DataBank boosted the benchmark in 2002, McKesson projected that pharmacies’ profits would soar. For instance, McKesson said the profit on 90 pills of the cholesterol drug Lipitor would jump from $6.86 to $17.18 and the profit for 100 pills of the allergy medication Allegra would go from $3.97 to $8.16.

In the settlement, First DataBank agreed to stop using the AWP pricing benchmark within two years.
“The lawsuit is very exciting because we did something national in scope to defend working people,” said DC 37 Health and Security Plan attorney Audrey Browne. “This benefits all consumers and certainly protects benefit plans like ours. The lawsuit shows that we are going to aggressively pursue manipulation of prices, which harms the economic interests of our members and retirees.”

The suit ended a publicly unknown method of fraud and deception in the pharmaceutical sector of the economy — long criticized by union and consumer groups for excessive profits, overly aggressive marketing, inordinate lobbying power and multi-million dollar executive pay packages.

 

 

 

 
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