Pennsylvania Attorney General Jerry Pappert filed suit against 13 pharmaceutical giants, alleging that they conspired to perpetuate a price inflation scheme in which medical providers paid artificially low prices for prescription drugs and in turn overcharged government health programs, insurers and individual consumers for those drugs.
Litigation in the matter will be handled in conjunction with Kline & Specter, which will foot the bill for expenses incurred -- including discovery costs, which Pappert said are expected to run into the millions.
The main defendants named in the consumer fraud suit are TAP Pharmaceutical Products Inc., AstraZeneca PLC, Bayer AG, GlaxoSmithKline PLC, Pfizer Inc., Amgen Inc., Schering-Plough Corp., Bristol-Myers Squibb Co., Johnson & Johnson, Baxter International Inc., Aventis Pharmaceuticals Inc., Boehringer Ingelheim Corp. and Dey Inc. Seven of the defendants have either pleaded guilty to or settled federal criminal charges of unlawful marketing and sales practices,
According to a 43-page civil complaint, which Pappert filed with the Commonwealth Court, "the commonwealth has not been fully compensated for the harm caused by the admittedly wrongful conduct of these companies in the criminal actions, and no Pennsylvania consumers have been compensated."
Moreover, the complaint alleges, the six remaining defendants also participated in the types of schemes detailed in the federal criminal cases.
Pappert said that settlements with Bayer, GlaxoSmithKline and other companies had resulted in payments of roughly $12 million to the state's Medicaid program but that his office is "seeking to recover in the hundreds of millions of dollars."
At issue, according to the complaint, is the promotion by the defendants of what are known as "spreads." Most pharmaceutical companies set "average wholesale prices" for their drugs. The AWPs are made known to the public and private sectors via trade publications such as Red Book and First Data Bank; medical providers, such as doctors and pharmacies, then charge patients for the drugs they are prescribed according to the AWPs.
However, rather than being charged the AWP for a given drug, medical providers would pay the defendants far lower acquisition costs, the complaint states.
Kline & Specter attorney Donald Haviland Jr. said that the acquisition costs, which are typically set in direct agreement contracts reached between a pharmaceutical company and its medical provider clients and are not disclosed to the public, are known in the industry as "list prices" or "wholesale acquisition costs."
The spread represents the difference between what the medical providers pay for a drug and what the consumers and state health agencies are billed for it, according to the complaint. Furthermore, Pappert said, it has often been the case that the higher a drug's AWP, the greater its share of the market.
The complaint points to the example of Lupron, a TAP drug used to treat prostate cancer in men, endometriosis and infertility in women, and central precocious puberty in children. Despite having a higher AWP than other prostate cancer drugs, Lupron was a sales leader throughout the 1990s.
Thus, the more the consumer was charged, the greater the incentive for the medical provider to prescribe the drug, the complaint alleges.
The complaint also calls attention to other deceptive sales practices allegedly employed by the defendants. The companies would often give medical providers free samples of drugs, either knowing that consumers would be charged for them by the providers or as a means of further driving down the acquisition cost and creating a greater spread through "buy 10 get one free deals."
In addition, the defendants offered medical providers trips, consulting opportunities, gifts, meals and cash payments as incentives for prescribing their drugs, according to the complaint.
The complaint includes counts of unjust enrichment, misrepresentation and fraud, civil conspiracy, and violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law. Pappert is seeking, in addition to compensatory damages, $1,000 per violation per defendant for each violation of the UTPCPL and $3,000 per violation involving victims 60 years of age or older.
Pappert said that while about 13 other states had filed similar suits against pharmaceutical companies, his office's is the "broadest to date." He said that medical providers, to his knowledge, had so far escaped litigation related to AWPs.
"This entire scheme was concocted and orchestrated by the drug companies," Pappert said, "and what we want to do is stop this practice at its highest level."
The complaint requests that attorney fees and investigation costs be paid by the defendants. Haviland said that if the suit prevails, Kline & Specter's fees would be set by whatever court has jurisdiction over the case at the time.
Kline & Specter has been heavily involved in AWP suits in recent years, Haviland said, and was recently named national class counsel in a North Carolina case against TAP involving price inflation of Lupron.
Pappert said that outside law firms had been involved in suits filed by his office in the past, especially when costs were expected to be high.
"This is a case we could not have handled without outside counsel," Pappert said. He said that Kline & Specter was chosen because of its expertise in the area.
Haviland said that the Kline & Specter team working on the case would be led by himself, Shanin Specter and Louis C. Ricciardi.
Two of the named defendants have subsidiaries whose principal places of business are local: AstraZeneca in Wayne, Pa. and GlaxoSmithKline in Philadelphia.
AstraZeneca spokeswoman Rachel Bloom-Baglin said that her office had not received notification of the suit from Pappert's office and would not comment on press reports.
Calls to GlaxoSmithKline seeking comment were not immediately returned.