A US court has ruled that drug majors AstraZeneca, Bristol-Myers Squibb and Schering-Plough were guilty of grossly inflating the price of their treatments in order to unscrupulously take advantage of the former reimbursement system.

Judge Patti Saris in Boston, Massachusetts found that the three companies were liable for the extra costs piled onto patients and health insurers in Massachusetts as a result of their scheme to keep up the average wholesale price (AWP) of numerous drugs which, from 1997 to 2003 were the basis for reimbursements from Medicare, state governments and private insurers.

The way the scam worked was that the firms offered their treatments to doctors at steep discounts, but encouraged them to say they had paid a higher wholesale price when they claimed reimbursement from Medicare. Doctors would keep the difference and the companies kept the AWP at an artificially high price.

Summing up, Judge Sarris said that the Medicare statute created “a perverse incentive by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry.” This put the “pharmaceutical fox in charge of the reimbursement chicken coop", she added.

'Outrageous prices'

Steve Berman, managing partner of Hagens Berman Sobol Shapiro who led the suit, said his clients are ecstatic that Judge Saris found that defendants "unfairly and deceptively caused false AWPs to be published knowing that payers and the government did not understand the truth and the severity of the markups". He noted that “we are also grateful that she found the biggest victims were the patients who had to pay these outrageous prices out of pocket as a result of the defendants wrongful conduct".

"We found this case to be so disturbing because the pharmaceutical companies were running their business to benefit their bottom line, period," Mr Berman added. "Because of the actions of these companies patients who rely on these drugs, often times to save their lives, have been critically injured through the grossly inflated prices." The worst culprit was B-MS with a 1,131% markup on its chemotherapy drug Vepesid (etoposide), while the other two companies inflated prices by 28% to almost 700%.

The Massachusetts ruling is a test case with trials for the rest of the states to follow and Mr Berman said that he sees some companies like Astra Zeneca facing exposure in the hundreds of millions. "We are looking forward to continuing the prosecution of this case against the remaining defendants who perpetrated similar if not identical wrongs against patients and insurers nationwide," he noted, concluding that "we view this ruling as a big win that should serve notice to all defendants that they will be called to account for their wrongdoing”.

Back to the trial and Judge Saris found that AstraZeneca overcharged for its prostate cancer treatment Zoladex (goserelin) and set damages of nearly $4.5 million for one group of plaintiffs, adding that the court needed additional information to figure damages for the other plaintiffs in the case. B-MS was found guilty of overcharging for a number of cancer drugs including Taxol (paclitaxel), as well as Vepesid, and has been hit by damages of over $183,000 for one group of plaintiffs and the judge found that S-P subsidiary overcharged for its generic asthma drug albuterol sulfate. Damages are pending.

The firms were stunned by the decision and AstraZeneca said the lawsuit's claims are without merit. It is particularly surprised given that it had settled claims involving Medicare beneficiaries four years ago and agreed to pay a $355 million fine. B-MS said the company believes it is not responsible for the AWP reimbursement benchmark used by private insurers and Medicare, and that its own pricing, sales and marketing practices “were fair and reasonable."

S-P said it disagreed with the court's finding of limited liability against Warrick with respect to albuterol sulfate, noting that the plaintiffs' claim for damages for this formulation during 1998 and 1999 totalled less than $100,000. However the court ruled In favour of the firm and dismissed all claims relating to S-P's branded pharmaceutical products and chief executive Fred Hassan said “we are gratified that the hard work of our new management team has resulted in Schering-Plough putting another issue from the past substantially behind us".