Federal and Consumer Agencies probe drug pricing

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Agencies probe drug pricing

Makers are accused of fraud and kickbacks to doctors. Some have allegedly inflated U.S. reimbursement rates.

By Susan Warner



While President Bush unveiled plans last week for Medicare pharmacy-discount cards, government prosecutors and private lawyers were also pursuing drug-price cuts.

Not with cards, but with courts.

The U.S. Department of Justice, the Federal Trade Commission, state attorneys general, class-action lawyers, and health-care whistle-blowers are all lining up to pursue dozens of pricing cases against the pharmaceutical industry.

Companies are accused of fraud and kickback schemes, including inflating federal drug-reimbursement rates. Doctors are accused of selling free samples and switching patients to drugs with more profitable reimbursements. Even generic drugmakers, usually fierce competitors to the big research-based companies, are accused of collaborating with the enemy to keep prices high.

As a result, companies and health-care providers could face costly fines and sweeping nonmonetary settlements that could force changes in profitable business practices. In some cases, prosecutors say, criminal charges are also possible.

"It's the replacement for the defense-industry scandals of the '80s and early '90s. It clearly is the new frontier for enforcement," said Frank Rapoport, a Devon-based partner in the Washington law firm McKenna & Cuneo.

Spokesmen for the drug companies, for their part, are reluctant to comment on the wave of investigations and litigation. But one suggested that it was fueled by frustration over the lack of a Medicare prescription-drug benefit.

"The failure to enact a meaningful drug benefit for seniors has led to an environment hostile to the branded pharmaceutical industry. It's that kind of environment that has fed this kind of litigation," said Rachel Bloom-Baglin, a spokeswoman for AstraZeneca, which has U.S. headquarters in Wilmington.

With a growth rate of 15 to 18 percent in the last few years, the pharmaceutical industry is the fastest-growing segment of health care.

The pressure to shake fraud out of the drug industry is particularly acute with the possibility of a prescription-drug benefit for Medicare recipients. Investigators say they want to stamp out abuse before Medicare grows any larger.

"If we're going to have a Medicare benefit, we ought to build safeguards in up front, so the taxpayer doesn't pay more and we don't have to fix it later," said Lew Morris, deputy chief counsel to the Inspector General in the U.S. Department of Health and Human Services.

Most of the pricing investigations and court cases follow two themes:

One centers on alleged fraud involving doctors who treat patients with the handful of drugs now covered under Medicare, which chiefly involve complicated regimens that must be administered by a doctor.

The other main area of investigation is into alleged collusion between brand-name pharmaceutical companies and generic manufacturers to delay or halt the introduction of generic medications that could drive down prices for consumers.

In the first type of case, drug salespeople have been accused of using financial schemes to entice doctors to switch patients to their employers' medications from competitors' products.

Prosecutors say the salespeople sometimes lure doctors into taking advantage of the spread between what the doctor actually pays for the drug and the so-called average wholesale price - a sometimes inflated figure set by the manufacturer that the doctor then uses when filing for government reimbursement.

Investigators say the financial lures go well beyond the traditional drug-company offers of free dinners, theater tickets, and educational trips to the Bahamas.

"I'm not sure any doctor would change prescribing patterns because he got to see Cats," said Morris, of the Health and Human Services inspector general's office. "But the dollar value of those sorts of incentives pales in comparison" to what a doctor can make by stocking a drug at a discounted price and seeking reimbursement based on the fictitious average wholesale price, he said.

A January report issued by Morris' office found the government could have saved $761 million a year if it reimbursed for the 24 top-selling Medicare drugs in 1999 at a true average wholesale price. And it would have saved $1.6 billion if it had paid what the Veterans Administration does through a competitive bidding process.

The U.S. Attorney's Office in Boston and state attorneys general are reportedly investigating up to 20 companies for programs in which doctors were encouraged to pocket the spread between what they really paid for their patients' drugs and the government reimbursement.

Also under scrutiny are pricing and reimbursements under Medicaid, the federally funded program that provides health care and prescription drugs to the poor.

GlaxoSmithKline, which has U.S. headquarters in Center City, has confirmed that it received subpoenas from the U.S. Attorney's Office in Boston seeking information back to 1991 regarding Medicaid pricing.

The company also disclosed that it had received subpoenas from the U.S. Department of Health and Human Services' Office of the Inspector General, the U.S. Department of Justice, and the states of Texas, California and Nevada in connection with the pricing of certain drugs and the way Medicare and Medicaid reimburse for those drugs.

The company had no additional comment on the investigations.

Bristol-Myers Squibb has also received subpoenas from Boston and is cooperating with investigators.

And AstraZeneca has acknowledged that it is cooperating with investigators at the U.S. Attorney's Office in Wilmington, which is looking into similar allegations.

In the generic-drug investigations, the biggest enforcer is the Federal Trade Commission, the U.S. agency responsible for protecting consumers and businesses by assuring fair competition.

So far, the FTC has been involved in at least five cases in which brand-name companies and generic drugmakers allegedly entered into agreements to stall the introduction of generic versions of brand-name medicines. Generics typically save consumers about 50 to 80 percent in prescription costs.

In addition, the agency is seeking information from 100 companies in a sweeping investigation of the generic pharmaceutical industry expected to be completed by the end of this year.

"Based on the complaints we issued, we've identified some potentially anticompetitive practices being employed . . . to delay the entry of generics onto the market," said Mitchell Katz, an FTC spokesman.

Katz said the agency's initial cases indicate that agreements between brand-name and generic drug manufacturers have cost consumers hundreds of millions of dollars.

In addition to the two main types of investigations, the U.S. Attorney's Office in Philadelphia is looking into the relationships between drug companies and pharmaceutical-benefit managers, which run prescription-drug programs for employers. Merck-Medco, Merck & Co.'s pharmacy-benefit subsidiary, has disclosed it is cooperating with the investigation, which is also looking at other similar companies.

Along with the federal investigations, drug manufacturers face dozens of related suits in state courts filed by attorneys general and consumers who allege they were injured by the companies' marketing practices.

"In the last three years, the issue of access and affordability has come to the top of the list of many consumer and community groups around the country," said Kim Shellenberger, director of the Prescription Access Litigation Project in Boston.

She said some consumer groups are dealing with the drug-pricing issue by arranging bus trips to Canada, where drugs are generally cheaper. Others are working for state laws that lower drug prices.

Her group is suing. It has filed suits on behalf of 51 consumer and community groups around the country, including Citizens for Consumer Justice in Philadelphia.

"That's what we hope will change the behavior in the future," Shellenberger said.

In the class-action drug-pricing cases, attorneys - many of them with experience trying product-liability cases against drug companies - allege the manufacturers are now injuring consumers financially.

Jeffrey Kodroff, a Philadelphia lawyer with class-action suits filed involving Lupron, a prostate-cancer drug, and K-Dur 20, a potassium supplement, said his focus is on winning financial compensation for people who were victims of unfair business practices.

"When the government does an investigation, they're looking more at how the government was defrauded or looking at preventive practices. They don't always - if ever - go for a redistribution of the damages the fraud caused people."


Susan Warner's e-mail address is [email protected].

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