n June 2005 and February 2006, members of the PAL coalition AFSCME District Council 37 Health & Security Plan and New England Carpenters Health Benefits Fund filed lawsuits alleging that First Databank and McKesson carried out an illegal scheme from 2002 to 2005 to raise the price of prescription drugs.

The case alleged that from 2002 to 2005, First Databank conspired with leading prescription drug wholesale provider, McKesson Corp., to arbitrarily increase by 5 percent the markups between what pharmacies pay wholesalers for prescription drugs (based on “Wholesale Acquisition Cost” or WAC) and what health plans and insurers reimburse pharmacies for those prescription drugs (based on “Average Wholesale Price,” or AWP). The suit alleges that McKesson used this “5% scheme” to provide a benefit to their large pharmaceutical retail chain clients, who would then earn an extra amount with each prescription, and that First Databank went along with the scheme to ease the burden of establishing accurate spreads and to curry favor with McKesson so that McKesson would use First Databank as the source of drug prices for its customers.

In October 2006, a settlement with First Databank was announced. Under the settlement, First Databank agreed to “roll back” the 5% increase on hundreds of drugs. The plaintiffs’ expert in the case estimated that this rollback would save $4 billion in drug spending in the first year. First Databank also agreed to stop publishing its “Average Wholesale Price” benchmark data within 2 years of the settlement becoming final. McKesson was not a party to the settlement, and the case against it is proceeding

As the Wall Street Journal reported earlier this week, the Judge recently gave tentative approval to an amended settlement and scheduled a date for the “Fairness Hearing” at which the Judge will evaluate the whether the settlement is “fair, reasonable and adequate” and whether it should be finally approved.

The Wall Street Journal article stated:

A federal judge has given preliminary approval to a proposed settlement that could roll back prices on thousands of prescription drugs in a case that could have implications for pharmacy operators.

The matter in U.S. District Court in Boston centers around lists of so-called average wholesale prices for brand-name drugs published by Hearst Corp. unit First Databank.

U.S. District Judge Patti B. Saris this week gave preliminary approval to the recently amended agreement between plaintiffs and First Databank, and scheduled a fairness hearing on a final settlement for Nov. 14.

The settlement could save consumers and insurers billions of dollars in drug costs while providing no monetary damages. First Databank would cut average wholesale prices for thousands of drugs by about 4% and eventually stop publishing the benchmark list.

Progress in the litigation “allows a key risk to the outlook for pharmacy operators to move along,” Morgan Stanley analyst David Veal wrote Friday.

Several retiree and worker funds alleged in the lawsuit against First Databank and major drug distributor McKesson Corp. that the two companies worked together to inflate the markup on numerous prescription drugs.

First Databank, denying wrongdoing, agreed to a settlement that requires it to pay no damages. McKesson denies wrongdoing and has been fighting the lawsuit; the plaintiffs and McKesson recently requested and received postponement of a court mediation conference.

Learn more about the First Databank lawsuit here.