Massachusetts Approves Settlement in Inflated Drug Price Lawsuit

Companies inflated prices without economic justification

By Jon Hood
ConsumerAffairs.com

April 24, 2009
A federal court in Massachusetts has preliminarily approved a settlement in a case alleging that a drug wholesaler inflated drug prices, and targeted consumers stand to get some of their money back. The total settlement of the suit is $350 million.

The suit alleges that defendant corporations McKesson and FirstDataBank inflated the average wholesale price (AWP) of prescription drugs. The AWP is a pricing benchmark used to calculate the amount that insurance companies will reimburse consumers for wholesale prescription drugs.

Typically, the AWP is set by the manufacturer, and becomes effective on a given date. According to the suit, the defendants inflated a "mark-up factor" used to calculate the AWP of over 400 drugs.

Specifically, FirstData, a publisher of drug data, told the pharmaceutical industry that it derived the AWP from "a survey" of wholesalers in an attempt to verify the prices reported by the manufacturer. In reality, however, McKesson was the only wholesaler that FirstData actually surveyed. The two companies increased the AWP markup from 20 to 25 percent for over 400 drugs, without any economic justification. To conceal the scheme, the companies only increased the markup when another price announcement was made by a drug manufacturer.

Although the defendants deny wrongdoing, they have agreed to reimburse eligible consumers. McKesson, a Fortune 500 health care services company, has agreed to pay $350 million into a settlement fund. Sixty million of this will go directly to consumers; the rest is allotted to be paid to "non-governmental third parties."

The suit alleged counts under the Racketeer Influenced and Corrupt Organizations Act (RICO), since the defendants used interstate mail to perpetuate the fraudulent scheme; untrue and misleading advertising; unfair competition; negligent misrepresentation; civil conspiracy; and the California Consumer Legal Remedies Act, which prohibits the use of deceptive acts in an attempt to sell a product.

Eligible class members include anyone who paid a co-payment for one of the settlement drugs between August 1, 2001 and March 15, 2005, and uninsured or underinsured consumers who paid the full value of one of the drugs between August 1, 2001 and January 23, 2009.

The plaintiffs' attorney, Steve W. Berman of Hagens Berman Sobol Shapiro, said that eligible class members would "receive some money back in the near future if they file a claim."

McKesson's Web site describes the corporation as "the oldest and largest health care services company," and asserts that the company "is helping transform the health care industry into a modern, efficient, and quality-driven system."

Consumers who think they may be eligible to recover should fill out a claim form, available at the official settlement Web site.

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