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Calif. sues 39 drug makers for price gouging

California’s attorney general said Thursday the state has filed a lawsuit accusing 37 more pharmaceutical companies of bilking the state’s Medicaid program of hundreds of millions of dollars by inflating drug prices.
/ Source: Reuters

California’s attorney general said Thursday the state has filed a lawsuit accusing 37 more pharmaceutical companies of bilking the state’s Medicaid program of hundreds of millions of dollars by inflating drug prices.

Attorney General Bill Lockyer said he has added companies including Amgen Inc. and GlaxoSmithKline Plc to a 2003 complaint accusing Abbott Laboratories and Wyeth of hiding the true costs of their drugs so that payments from Medi-Cal would be artificially inflated.

Medi-Cal is the name for California’s Medicaid program for the indigent, which is financed by the state and federal governments.

“We’re dragging these drug companies into the court of law because they’re gouging the public on basic life necessities,” Lockyer said during a press conference held here.

The action was prompted by a whistle-blower lawsuit filed by a small pharmacy, Ven-A-Care, alleging that drug manufacturers reported “average wholesale prices” to the government health insurance program that were much higher than the actual cost to the pharmacy.

The state pays pharmacies and doctors based on prices supplied by the drug companies. California charges that the company-reported prices effectively created higher profits for pharmacies, doctors and clinics.

By defrauding the state into paying higher reimbursement rates, the drug makers created a financial incentive for drug dispensers to use their products, the lawsuit alleges.

A spokeswoman for Abbott, Elizabeth Hoff, said the company ”has consistently complied with all laws and regulations and we intend to vigorously defend against this lawsuit.”

Bristol-Myers is “in full compliance with the law, guidelines and contracts,” company spokesman Brian Henry said.

Amgen was named in the complaint because of its 2002 acquisition of Immunex Corp., and the suit does not involve any drugs now sold by Amgen, company spokeswoman Mary Klem said.

Officials at Wyeth and Mylan Laboratories Inc., another defendant, could not be immediately reached.

Other investigations
The state attorney general estimated that each company named in the lawsuit could be liable for up to $40 million. They are accused of violating California’s False Claims Act.

About a dozen other states have filed similar lawsuits, and the cases have been consolidated at a federal court in Boston.

Steve Brozak, an analyst with WBB Securities, said the California probe could prompt the federal government to broaden and intensify its own ongoing probes into whether drugmakers are overcharging for drugs taken by Medicaid patients.

He noted that the federal government next year will begin reimbursing patients for prescription drugs taken by patients in the separate Medicare insurance program for seniors.

“The California action increases the perception that drugmakers are gouging the government, even as the federal government prepares next year to become the single biggest payer for drugs in the country’s history,” Brozak said. “The danger is that perception could eventually energize the U.S. government to protect itself by imposing price controls on prescription drugs.”

Many states and the federal government in recent years have launched a number of investigations into whether U.S. and European drugmakers have overcharged for their products by side-stepping requirements that Medicaid clients receive their lowest prices.