Drug pricing

A new decision in Pennsylvania's case against drug makers for inflating prices, Commonwealth ex rel. Pappert v. TAP Pharmaceutical Products, Inc., PDF here, 2005 WL 2875116 (Pa. Cmwlth. 2005), rejects the drug companies' arguments (with a minor exception for six drugs) and allows the state's case to proceed.

Pennsylvania's claims are based on allegedly inflated prices charged by the drug companies to various state purchasers, including Medicaid. The state argues that the companies used a published "Average Wholesale Price" (AWP) that was up to hundreds of times what an actual average wholesale price was, and that the state relied on the representation of AWP. State reimbursement rates to physicians are based on the AWP; if there is a difference between the AWP and the price the physician actually pays for the drug, s/he can pocket the difference. Inflated AWP thus provides physicians an incentive to prescribe the drugs with the greatest "spread." In addition, the companies provided free samples to physicians, and the state alleges that the companies knew that physicians were charging the state as if they had paid. The companies are accused of unjust enrichment, misrepresentation or fraud, violations of the Unfair Trade Practice and Consumer Protection Law (UTPCPL), and civil conspiracy. This is one of several similar lawsuits (Pennsylvania has even already settled some of its Medicaid claims).

Yesterday's decision upheld the sufficiency of an amended complaint, which had been amended to satisfy Pennsylvania's pleading requirements for fraud-type claims. Among the arguments of interest: the companies claimed that they never made any representations that the published AWP was factually the average wholesale price. What, they didn't pinky swear that something called the "average wholesale price" was in fact the average wholesale price? The court had little difficulty finding that the complaint sufficiently alleges that "persons for whom this information is relevant would have a reasonable basis to rely on the reported AWP as being something more substantial than a number selected arbitrarily." With respect to the misrepresentation/fraud claims, the companies claimed they had no duty to disclose the fact that the AWP was not the average wholesale price, thus characterizing the state's claim as one for non-disclosure. The court rejected this position, agreeing that the evidence could establish that no one expected AWP to really mean average wholesale price, but finding that the complaint sufficiently alleged that submission of figures called "AWP" to publishers was a representation of something like the actual average wholesale price. Relatedly, though there is evidence that the state should have known that AWP wasn't in fact average, factual disputes exist about whether the state justifiably relied on the published AWPs.

Illustrating some of the differences between the statutory and common-law bases for consumer protection claims, the state's UTPCPL claims differed from simple misrepresentation -- the state alleged, inter alia, false representations of source or sponsorship; advertising goods with intent not to sell them as advertised; and making false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions -- the latter two being specifically prohibited types of conduct. Advertising with intent not to sell as advertised presumably targets "bait and switch" tactics, but on its face covers the allegations here as well. The price reductions provision of the statute presumably targets fake "going out of business" or "50% off" claims.

The court upheld the state's "source confusion" claim on the theory that the companies' conduct "created confusion or misunderstanding as to the source of the drugs, such as when a doctor uses a sample drug he received at no cost to himself and administers the drug to a patient who assumes that 'the source of the drug is Defendants' commercial sales channels.'" I'm not sure how this states a claim, since a causal connection between that confusion and any harm the state suffered when paying patients' claims seems lacking -- and I'm not sure a patient would find the channels of commerce material, either.

Given the amounts at stake, these drug pricing cases are surely far from over.