Supreme Court Deals a Blow to Pharmaceutical Companies; Enriches Private Plaintiff Attorneys Hired by State

The Wisconsin Supreme Court has issued a decision that will negatively affect pharmaceutical companies doing business in Wisconsin. In the process, the Court enriched outside plaintiff attorneys hired by the State by awarding large attorney fees.

The Court’s decision, State of Wisconsin v. Abbot Laboratories, et al., 2012 WI 62, is the latest in a number of cases pending in state and federal courts involving allegations that pharmaceutical companies reported inflated drug prices, causing states to overpay for Medicaid recipients’ prescription drugs.

In a 4-0 decision authored by Justice Michael Gableman and joined by Chief Justice Shirley Abrahamson and Justices Patience Roggensack and Annette Ziegler, the Court upheld the lower court’s verdict finding the company in this specific case, Pharmacia Corporation, liable for violating Wisconsin’s Deceptive Trade Practices Act (DTPA) and the Medicaid fraud statute. Justices Patrick Crooks, David Prosser, and Ann Walsh Bradley did not participate.

The decision is notable because in 2009 the Alabama Supreme Court overwhelmingly (8-1) rejected a similar lawsuit brought by Alabama Attorney General Troy King and the privately retained attorneys hired by the State.[i]

Background

This case is the latest in a number of lawsuits filed by states, usually represented by contingency fee lawyers, suing virtually the entire pharmaceutical industry alleging fraud in the reporting of prices for prescription drugs covered by Medicaid programs. The State of Wisconsin – similar to other State Medicaid agencies – reimburse providers, such as physicians and retail pharmacies, for the costs of prescription drugs disbursed to individuals covered by the state programs. The lawsuit was originated by former Attorney General Peg Lautenschlager and was continued by her successor, and current Attorney General, J.B. Van Hollen. In 2007 Gov. Jim Doyle and General Van Hollen hired outside counsel to continue the litigation against the pharmaceutical companies.

For decades, throughout the country and in Wisconsin, Medicaid agencies have reimbursed pharmacists for prescription drugs dispensed to Medicaid recipients based on a formula established by the legislature and approved by the Governor. One component of the formula is a figure known as “average wholesale price,” or “AWP,” which is supplied by manufacturers to an independent price reporting service (known as “First DataBank”).

The State of Wisconsin, similar to other states, alleged it was unaware that the listed AWPs did not represent the actual average price sold to pharmacies. Therefore, the State of Wisconsin sued the pharmaceutical companies for alleged fraud.

Pharmacia argued that AWPs have always been a “benchmark” and were never intended to reflect the actual prices for their drugs or their averages. In fact, Pharmacia noted throughout the case that the legislature, and therefore the State of Wisconsin, was well aware that AWPs did not reflect the actual costs of their drugs but continued to use AWP nonetheless.

For example, the federal Office of the Inspector General in a letter told Wisconsin officials that “on average, pharmacies buy drugs for 15.5 percent below AWP. We continue to believe that AWP is not a meaningful payment level and that it should not be used for making reimbursements.” Moreover, evidence showed that Wisconsin considered basing reimbursement on actual acquisition costs, but rejected this alternative because it would be “[m]ost unacceptable to providers.”

Based on this information, Wisconsin continued to use the AWP but reduced reimbursement for brand drugs to AWP minus 10 percent, rather than the 15.5 percent as recommended by the federal government. Despite this evidence that the State of Wisconsin was well aware that AWPs did not accurately reflect the actual prices for drugs, and the fact that the State chose to reduce reimbursement by a certain percentage below the AWPs to reflect the generally inflated rate, the State nonetheless sued numerous pharmaceutical companies alleging fraud.

Trial Court Decision

The lawsuit was filed in Dane County Circuit Court, which found in favor of the State. The jury found Pharmacia liable under the State’s DTPA and Medicaid fraud statute. The trial court awarded $9 million in damages. The jury originally concluded that Pharmacia violated the Medicaid statute 1,440,000 times, but the trial judge lowered the amount to 4,578 violations, imposing a $1,000 forfeiture for each violation, totaling $4,578,000. The trial court also awarded over $8 million in attorney fees and litigation costs to the plaintiff attorneys hired by the State.

Wisconsin Supreme Court Decision

Justice Gableman, writing for the majority, upheld the trial court’s decision in its entirety despite the fact that there was considerable evidence in the record suggesting that the State of Wisconsin knew that the AWPs were not the actual average prices. According to the Court:

The evidence at trial unequivocally revealed that, at all times relevant to the case, Medicaid paid pharmacies AWP minus a specific percentage for brand name drugs. The parties and their witnesses likewise agreed that Pharmacia reported AWPs that did not track the actual prices pharmacies were paying wholesalers for drugs. The dispute is over how reimbursement rates would have changed, if at all, had accurate prices been conveyed to Medicaid. As the following discussion demonstrates, the jury was presented with sufficient credible evidence to support a reasonable inference that reimbursement rates would have been reduced to reflect actual wholesale prices, had they been provided. Accordingly, we conclude that the jury did not impermissibly speculate in reaching its damage award with respect to brand name drugs.

Wisconsin Supreme Court Conflicts with Alabama Supreme Court

In a similar lawsuit involving almost identical facts, the Alabama Supreme Court overwhelmingly rejected the argument that the State of Alabama relied on the AWPs published by First DataBank as the actual prices and that it reimbursed providers on the basis of that belief. According to the Alabama Supreme Court, the State’s argument that it relied on the published AWPs to represent the actual average prices was “untenable.” According to the Court:

On the contrary, it is clear beyond cavil that the reimbursement methodology by the [Alabama Medicaid Agency] is the product of a conscious and deliberate policy decision, which seeks to “balance (i) the amount [it] reimburses 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 Alabama Supreme Court further noted that lawsuit was simply an attempt by the State “to use tort law to re-define [the Alabama Medicaid Agency’s] reimbursement obligations.”

Enriching Outside Plaintiff Attorneys Hired by the State

Another troubling component of this case was the decision by Attorney General J.B. Van Hollen and former Gov. Jim Doyle to hire outside plaintiff attorneys to aid the State in suing pharmaceutical companies lawfully doing business in the State of Wisconsin.

According to the briefs filed with the Wisconsin Supreme Court, the State and the plaintiff attorneys hired by the State were awarded $6.5 million in attorney fees and another $300,000 in litigation costs. This is on top of the over $13 million in damages awarded to the State.

Impact on Future Wisconsin Cases

This decision could have significant ramifications beyond just the single pharmaceutical company in this case. The original lawsuit filed by the State in 2004 was against dozens of other pharmaceutical companies. Pharmacia was the first company to go to trial. Moreover, the Wisconsin Supreme Court’s decision could open the door for plaintiff attorneys to cash in on future cases.

In fact, former Attorney General Peg Lautenschlager recently filed a qui tam lawsuit in Dane County Circuit Court alleging similar violations as in this case against even more pharmaceutical companies. (Reminder: former General Lautenschlager filed the original lawsuit in this case against Pharmacia and other pharmaceutical companies). A qui tam law allows a plaintiff attorney (as a “relator”) to file a case on behalf of the State and obtain significant attorney fees.


[i] AstraZeneca LP v. State of Alabama, 2009 WL 3335904 (ALA. Oct. 16, 2009).

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