October 6, 2011—A whistleblower who once led the trade association for drug wholesalers and health care product distributors has accused 13 brand-name drug manufacturers in a federal lawsuit of artificially lowering their drugs’ average manufacturer prices (AMPs) by misreporting fees they pay to wholesalers.
The lawsuit, which was filed under seal three years ago and made public Oct. 3, alleges that Allergan, Amgen, AstraZeneca, Biogen Idec, Bradley Pharmaceuticals, Cephalon, Eisai, Genzyme, Mallinckrodt, Novo Nordisk, Reliant Pharmaceuticals, Sepracor and Upsher-Smith “purposefully and materially” understated their AMPs to avoid paying rebates to state Medicaid agencies. It claims that the misreporting began in 2004 and continues to the present.
The complaint was filed on behalf of the federal government, 24 states and the District of Columbia by Ronald J. Streck, the former executive director of the Healthcare Distribution Management Association, whose members include national drug wholesalers. Streck is also the former president and chief executive of Rx Distribution Network, a consortium of regional drug wholesalers. The federal government and the states have declined to intervene in the case, U.S. ex rel. Streck v. Allergan et al., C.A. No. 08-5135 (U.S.D.C. E.D. Pa.)
The complaint alleges that, beginning in 2004, the drug manufacturers began paying fees to wholesalers in exchange for certain services and then either improperly excluded the fees from their AMP calculations or included them and then improperly offset certain price increases on their products against those fees.
“In addition to zealously advocating our client’s claims on behalf of the cash-strapped federal and state governments, we intend to continue investigating the industry’s reporting of pricing data to ensure full compliance with the law,” Streck’s attorney Jacob Goldberg said in a prepared statement. “Now that this case is public, we encourage individuals with knowledge of this allegedly wrongful conduct to contact us.”
The complaint alleges no violations of the manufacturers’ obligations under their 340B pharmaceutical pricing agreements with the U.S. Secretary of Health and Human Services. A drug’s 340B ceiling price is based in part on its AMP. Generally speaking, when a drug’s AMP declines, so does its 340B price. The main exception is when a company’s pricing practices cause a drug’s unit rebate amount (URA) to increase by more than the reduction in the drug’s AMP. This can happen if a manufacturer sets a new best price for a brand-name drug or if the drug’s price rises faster than the cost of living. In those instances, 340B covered entities and state Medicaid programs are entitled to increased discounts and rebates, respectively.
Earlier this year, several studies concluded that brand-name drug prices have been outpacing inflation by a wide margin while generic drugs prices have been either falling or holding steady.