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Alabama Supreme Court ruling validates Eric Gaier's testimony regarding pharmaceutical pricing

June 2, 2010

The Alabama Supreme Court recently overturned three jury verdicts totaling nearly $275 million against pharmaceutical manufacturers AstraZeneca, GlaxoSmithKline, and Novartis Pharmaceuticals Corporation. The ruling cites many arguments presented by Dr. Eric Gaier, who provided deposition testimony on behalf of all three defendants and testified at trial on behalf of AstraZeneca.

The three verdicts are part of the pharmaceutical Average Wholesale Price (AWP) litigation, in which the state of Alabama alleges that more than 70 pharmaceutical manufacturers violated state fraud laws by inflating publicly reported benchmark prices of over 8,000 drugs during a 15-year period. The state claims that the Alabama Medicaid Agency relied on these allegedly inflated prices in its payments to pharmacies, thereby causing it to overpay for prescription drugs. Dr. Gaier’s testimony included analysis demonstrating that, among other things, Alabama’s Medicaid Agency:

  1. had extensive information at its disposal to know, and indeed was well aware, that publicly reported drug prices did not reflect actual pharmacy costs, and
  2. intentionally paid pharmacies more than their drug acquisition costs to offset other unpaid costs and to provide a financial incentive to participate in the Medicaid program.

The Alabama Supreme Court ruling confirmed Dr. Gaier’s opinions, stating that:

The State’s claim that it did not know the publicly reported prices “were merely suggested – or list – prices… is untenable in light of the correspondence and internal memoranda involved in the State’s formulation of its reimbursement methodology.”

Had AWP represented actual pharmacy cost as Alabama Medicaid claimed it believed, “reimbursing Alabama providers at approximately 90% of their actual cost would drive them from, and, perhaps effectively terminate, Alabama’s Medicaid program.”

…the reimbursement methodology adopted by the AMA is the product of a conscious and deliberate policy decision, which seeks to “balance (i) the amount [it] reimburse[s] pharmacies that dispense drugs to Medicaid patients, and (ii) the requirement – established by federal law – to set reimbursement sufficiently high to ensure participation in the Medicaid program by retail pharmacies.”

The National Council Community Pharmacists Association (NCPA) also filed an amicus brief citing Dr. Gaier’s analysis of the drug payments that Plaintiffs argued Alabama Medicaid should have made to pharmacies. The NCPA argued that, “allowing the State to argue that it overpaid these pharmacies because they should be reimbursed at a level 9% below their alleged costs of purchasing prescription drugs would have grave consequences for these pharmacies and the low-income patients they currently serve.”

As these particular cases conclude with rulings in favor of the defendants, AWP litigation continues in Alabama and in other states. In Alabama, trials are currently pending for several remaining defendants, while the Alabama Supreme Court considers a related verdict and damages award of $87 million against Sandoz. Additional AWP cases have been brought or are currently ongoing in more than 20 other states.

Since 2004, Bates White has analyzed the economic issues underlying AWP claims on behalf of numerous pharmaceutical companies in lawsuits that span a variety of jurisdictions and include allegations brought by classes of private payors, attorneys general in numerous states, and the U.S. Department of Justice. Through this work, our team has developed a mastery of healthcare markets, pharmaceutical distribution and sales, brand name and generic drug pricing strategies, and Medicare, Medicaid, and third-party payor policies.