Consumers Stand to Benefit From the Demise of the Average Wholesale Price

Boston, MA, August 10, 2006. In a move that could mark the beginning of the end of unfair pricing for millions of consumers throughout the United States, the Prescription Access Litigation Project announced today that GlaxoSmithKline (NYSE:GSK) will pay $70 million in a nationwide class-action settlement to cancer patients and health plans who were overcharged for vital medications Kytril and Zofran. Kytril and Zofran are drugs commonly used to ease the side effects associated with cancer treatments.

The agreement is seen as a victory against the use of the Average Wholesale Price (AWP), a system by which drug companies set prices for almost all prescription drug sales in the U.S.  The system, which has come under scrutiny in recent years, is being eliminated from use in nearly all federal programs that pay for prescription drugs. In 2005, the federal government stopped using this system to determine drug prices as part of the legislation that created the Medicare drug plan.  Similarly, in 2007, Medicaid is set to do away with AWP as the reimbursement benchmark.  Currently, private sector health insurance companies are the primary users of AWP. The manipulation of AWP results in hundreds of millions of dollars every year in unnecessary drug costs. 

“Without a doubt, this case is the most important challenge to drug company greed going on in the United States today,” said Renée Markus Hodin, Associate Director of the Prescription Access Litigation Project (PAL), the only national consumer coalition devoted to challenging high drug prices and making prescription drugs affordable for everyone. “Today’s settlement represents a nail in the coffin of AWP and a move toward a more transparent system that will prevent drug companies from charging inflated prices that have no relation to the actual cost of a drug.”

“This settlement would not have happened but for the commitment of plaintiffs” lawyers, working together with Attorneys General from around the country, to tackle this illegal scheme on behalf of consumers nationwide,” added Hodin.  Steve Berman of Hagens Berman Sobol Shapiro served as lead counsel in the case.  Attorneys General from New York, Connecticut, Arizona, Montana and Nevada were also actively involved in securing today’s landmark settlement.  

In recent years, there has been a growing consensus that the AWP is a fictitious price that has no direct relation to the actual average price charged for prescription drugs in this country.  Drug companies routinely give physicians and pharmacies discounts, greatly reducing the actual amount that the physician or provider pays for the drugs they administer to their patients, but these discounts are neither reflected in the published price nor passed along to consumers. 

The settlement reached today will provide reimbursement to both patients and third-party payers, such as union benefit funds and health plans, who pay for drugs on behalf of their members.

“Today’s settlement is a real victory for working people and for the small health plans that serve them,” said Charles Hannaford, Administrator of the Pipefitters Local 537 Trust Funds, a PAL member and lead plaintiff in this case.  “Price-fixing seriously compromises our ability to pay for the critical medicines our members and their families so desperately need.”

Melissa Shannon, Director of Government Affairs at Health Care For All, also a member of PAL and plaintiff in the lawsuit, added, “this settlement represents a much-needed dose of accountability in the fight for fair prescription drug prices.”

The GlaxoSmithKline settlement is part of a larger AWP case currently before the U.S. District Court in Massachusetts.  In December of 2001, members of PAL and others filed the lawsuit, which contends that there is an industry-wide scheme to defraud consumers by charging inflated prices for critical medications. There are 19 groups of pharmaceutical companies named as defendants in the suit, representing most of the major players in the American drug industry.  GlaxoSmithKline was one of the named defendants.  Currently, the case focuses on Medicare beneficiaries and third-party payers who paid for certain drugs that treat serious conditions such as cancer, asthma, rheumatoid arthritis and emphysema. 

“This case is about holding drug companies responsible for defrauding millions of very sick and elderly U.S. consumers” said Steve Berman, managing partner at Hagens Berman Sobol Shapiro.  “Today’s settlement with GlaxoSmithKline brings us one step closer toward eliminating those systems that allow this kind of fraud to continue.”

In a trial set for November 2006, Mr. Berman will be leading the plaintiffs’ case against four other major drug manufacturer defendants:  Bristol Myers Squibb (NYSE: BMY), Johnson & Johnson (NYSE: JNJ), AstraZeneca (NYSE: AZN) and Schering-Plough (NYSE: SGP).