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Alabama Sues Drug Firms For Overcharging

January 31, 2005
Alabama Attorney General Troy King has filed suit against 79 pharmaceutical companies, charging massive overcharges to the Alabama Medicaid Agency over a period of many years as a result of the companies misreporting and inflating the prices charged for prescription drugs. The lawsuit was filed in Montgomery County Circuit Court.

"The suit was filed because the defendants have manipulated the prices of prescription drugs paid for by Alabama Medicaid," said King.

"The result of their actions has been to increase their market share at the expense of those who can least afford it. This practice has unfairly and artificially raised the cost of drugs to Alabama Medicaid, thereby diverting scarce resources and limiting access to life-saving medicines and other services for some of the neediest in our state."

King was joined by Medicaid Commissioner Carol Herrmann at a news conference to announce the lawsuit.

"I bring this suit not because the prices of prescription drugs are high, but because the prices of prescription drugs have been intentionally and willfully manipulated by drug manufacturers. The actions of these companies have worked to the detriment of our state and, specifically, to those Alabamians who can least afford it-our seniors, our poor, and our children," King said.

The Attorney General explained the practices involved in what is known as the "average wholesale pricing" scheme. Pharmaceutical companies report information purported to be the average wholesale price for drugs, and that data is used by state Medicaid offices and others to determine the prices paid to doctors and drugstores as reimbursement for medicines prescribed to clients.

By manipulating the data to present an average wholesale price that is substantially higher than what doctors and pharmacies actually have to pay for the drugs, a "spread" is created, which is the difference between the purported price and the significantly lower direct price that health care providers actually pay for the drugs.

The misleading "spread" means that Medicaid reimburses health care providers at a higher price that what the providers had to pay for the drugs.

"It is this scheme that brings us here today," said King. "Alabama Medicaid is a state-funded program that receives matching funds from the federal government. In 1990, Alabama Medicaid spent approximately $60 million on prescription drugs. Last year, Alabama Medicaid spent almost $600 million on prescription drugs. That is a ten-fold increase in 14 years. Some of these escalating costs are the direct result of the fraudulent activities of these companies that I just described."

Medicaid Commissioner Carol Herrmann said, "Even at conservative estimates, we believe Medicaid has lost hundreds of millions of dollars over the last ten years due to the pricing scheme just described by the Attorney General."

King is asking the Court to prohibit the defendant companies from continuing their fraudulent actions; to award the State compensatory and punitive damages, to obtain a full accounting of profits derived from the fraudulent actions, to take away the dishonestly-gained profits, and to award court costs and interest.

"This case is not a silver bullet," King said. "It will not automatically lower the soaring cost of drugs. It will not solve the Medicaid crisis. What it will do, is hold responsible those who have manipulated prices for their own benefit, causing Alabama Medicaid to expend scarce resources that would have otherwise been available to help, and in many cases, to save lives in our state."

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