Yesterday, the Massachusetts Attorney-General’s office announced a $24 million dollar settlement resulting from an investigation of pricing fraud in state programs by fourteen different drug makers. This settlement follows a ground-breaking lawsuits filed by members of the Prescription Access Litigation project at Community Catalyst in 2001,  including Health Care For All, Mass Senior Action, MassPIRG, and eleven other consumer groups nationwide representing the interests of consumers.

Drug industry pricing fraud became widespread in the mid-1990s, when high but fictitious list prices were used as an incentive to sell products. Doctors or pharmacies made more money using a drug whose actual cost was far less than the amount they were paid by Medicare and Medicaid. This fraud led to the PAL member class action lawsuit and a ground-breaking 2007 trial on behalf of Massachusetts consumers and private sector insurers. It was found that AstraZeneca, Bristol-Myers Squibb and Warrick (a subsidiary of Schering-Plough, which was bought by Merck in 2009) had violated consumer protection laws through their deceptive pricing tactics. This victory ultimately convinced 28 different drugmakers to pay over $360 million to settle claims with the private sector health plans and consumers. (See more here.)

And now, on behalf of public programs here in Massachusetts, the Attorney-General has recovered funds from a number of these companies for the same kind of unfair and deceptive pricing. For example, manufacturer Warrick sold an albuterol drug from 1995 to 2003, all the while reporting a list price that was nearly seven-times the actual sales price. The State’s trial in 2010 found that Warrick had cost Massachusetts $4,563,328, and had made 28 false statements in violation of the state’s False Claims Act. After treble damages, 12 percent interest, and legal fees, a $24 million settlement looked like a good deal to Warwick’s new owner, Merck. 

How can Massachusetts better protect its public programs from deceptive pricing in the future?

Currently, Massachusetts uses industry-published list prices as a basis to reimburse pharmacies. One option is to adopt the Average Acquisition Cost (AAC) method of paying pharmacies for the drugs MassHealth purchases for its members. The AAC method does not use easily manipulated manufacturer “list” prices (at issue in the court case). Instead, pharmacies are paid based on their actual cost of acquiring the drug from the manufacturer, plus a dispensing fee, thereby reducing overpayment and saving money for MassHealth. This evidence-based pricing method has been adopted by Alabama and Oregon, and it has been recommended by Medicaid headquarters in Washington D.C. And like Alabama and Oregon, Massachusetts could make these regularly-audited drug prices available to the public, so that private insurance plans could also adopt this method and save money, hopefully reducing premium costs. Community Catalyst describes more about AAC in its new Medicaid Report Card.

– Wells Wilkinson, Director, Prescription Access Litigaton, and Marcia Hams, Director of Prescription Access and Quality, Community Catalyst