posted by Damozel |
This sort of thing is more in The Crux's line than mine, but aspects of this case are really troubling me.
Applying Massachusetts state law, U.S. District Court Judge Patti B. Saris---who has evidently become "fed up" with the imaginative marketing schemes of Big Pharma--- held three companies liable in a nationwide class action lawsuit. According to Judge Saris, Astra-Zeneca, Schering-Plough Corp., and Bristol-Myers Squibb Company "engaged in unfair and deceptive trade practices regarding some of their drug prices," (Wall Street Journal) resulting in substantial injuries to patients, insurers, and the government. (Wall Street Journal2) [She determined that the conduct of the fourth defendant, Johnson & Johnson, though "troubling", was not sufficiently egregious to violate Massachusetts law. (Bloomberg.com) ] As to the remaining three, ""The different pharmaceutical companies unfairly took advantage of the system by setting sky-high prices with no relation to the marketplace,''" Saris wrote. (The New York Times)
The plaintiffs' lawyer, Steve Berman, stated: "We found this case to be so disturbing because the pharmaceutical companies were running their business to benefit their bottom line, period," said Berman. "Because of the actions of these companies patients who rely on these drugs, often times to save their lives, have been critically injured through the grossly inflated prices." (Wall Street Journal2)
The original complaint states that the prices published by the companies and relied on by insurers didn't actually reflect the true sales price of the drugs to doctors and pharmacies.(Wall Street Journal2) "The inflation is decided upon by drug companies to create a spread between the doctor's acquisition costs and the fictitious AWP, the industry benchmark for determining drug pricing. This spread ultimately works to gain market share over a competitor."Wall Street Journal2)
It's also incidentally beneficial to any doctor who acquires these drugs from the company at the much lower actual sales prices and then charges the insurer the actual wholesale price, as the original complaint alleges the companies "secretly" encouraged them to do. (The New York Times) To quote The Washington Post, "When their drugs faced competition, companies used spreads to make their drugs more attractive to doctors, who could pocket excess cash resulting from the scheme." (The Washington Post)
"But surely," I hear you protest, "no dedicated physician would ever dream of such a thing, knowing full well that his or her ill or dying patient or the patient's survivors
would have to pay an inflated copayment for the medications? Because
only a thoroughly contemptible person would ever exploit the dire
necessities of the ill or dying. After all, you're talking about doctors."
No, you're talking about doctors; I'm talking about the drug companies. And part of their argument goes like this, if I understand it correctly: They didn't deceive anyone because everyone knows that the wholesale prices they publish aren't the actual prices at which they sell them and that these prices are in fact merely fictional and therefore Medicare and the insurers shouldn't have been using the AWP as a benchmark for the price of these drugs. "Lawyers for the companies argued that almost all market
participants understood that the term ``average wholesale
prices,'' or AWP, doesn't refer to prices actually paid by
wholesalers and that there was no attempt to deceive."" (Bloomberg.com) In short, private insurers and Medicare either knew or ought to have known that the "average wholesale price" isn't really the average price paid by wholesalers. If they chose to use the so-called AWP as a benchmark, that's their problem, not the drug companies.'
Bristol-Myers spokeswoman Laura Hortas said the company believes it ``is not responsible for the average wholesale price reimbursement benchmark used by private insurers and Medicare and that its own pricing, sales and marketing practices were fair and reasonable.''...(Bloomberg.com)
Bristol-Myers plans to appeal the damages awarded against it, she said. (The New York Times) Well, sure. I see her point. After all, they don't actually seem to have sold the stuff at the inflated rates. This AWP is apparently an aspirational amount, a wishful thinking amount, perhaps reflecting what the companies believe their life-saving or -prolonging drugs are intrinsically worth and wish they could get, but are too public-spirited or realistic to charge. The reactions of the drug companies to the Massachusetts decision are set out in this article.
Okay. So there are a couple of things I still don't understand.
QUESTION: Why did Medicare and the other insurers rely---and continue to rely---on the published AWP? After all, Judge Saris determined that: "Bristol-Myers inflated AWP for five medications, including Taxol, a cancer drug that had spreads of as much as 500 percent. Schering-Plough's Warrick unit inflated the price for the generic asthma drug albuterol sulfate by much as 800 percent...." (The New York Times) And "Johnson & Johnson's Remicade, used to treat Crohn's disease and rheumatoid arthritis, was listed in the independent publication Red Book in 2001 at $665.65 a dose, court records show, while the New Brunswick, New Jersey-based company charged doctors about a third of that, according to Prescription Access Litigation, a Boston-based consumer advocacy group." Bloomberg.com
So the use of the AWP by the insurers (and, till 2004, by Medicare) was just weird if--as the defendants apparently argued---they knew that these weren't actual sales prices. To my knowledge, there is nothing that insurers like less than paying out more than they have to. The drug companies seem to think that everyone in the industry knew that the AWP wasn't, let us say, closely related, to the actual "acquisition cost"/sales price. How, then, did insurers end up taking this purely fictive amount for the actual price of the drugs and therefore a basis for patient reimbursements?
ANSWER: Apparently because the Medicare statute made the average wholesale price of medications the benchmark for prescription drug reimbursements. Judge Saris: ""“The Medicare statute itself created a perverse incentive by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry, thus putting the proverbial pharmaceutical fox in charge of the reimbursement chicken coop."" Apparently the Medicare statute set this benchmark and the insurance industry just followed suit. I guess I am just wondering how it was that it took Medicare from 1997 to 2003 to notice and how it is that some companies apparently still continue to use this amount as a basis for determining reimbursements. Wouldn't they have noticed at some point that the actual amount reported by doctors and pharmacies as the cost to the patient was much less than the so-called AWP?
And so I am still haunted by these statements: "The plaintiffs argued that the drug makers had sold medications to doctors at steep discounts to the “average wholesale price” that Medicare and pension funds paid, while secretly encouraging them to claim full reimbursement from insurers." (The New York Times) "When their drugs faced competition, companies used spreads to make their drugs more attractive to doctors, who could pocket excess cash resulting from the scheme." (The Washington Post) Can such things be?
No! No, I'm not going there. I refuse to believe it. As far as I'm concerned, the situation's a mystery wrapped in an enigma and one that I'll have to refer to my colleague, The Crux ("No offense, Damozel, but just how naive are you?" is ever her cry) for elucidation.
BIBLIOGRAPHY
Lisa Beartlein. U.S. Judge Levies Damages in Drug-Pricing Cases (The Washington Post)
(Wall Street Journal Press Release) Judge Rules Against Drug Companies in AWP Case
Bloomberg News, 3 Drug Makers Are Convicted in Reimbursement Overcharges (New York Times)
Cary O'Reilly, AstraZeneca, Bristol Overcharged on Drugs, Judge Says (Update3) (Bloomberg.com)
See also:
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