Minnesota Sues Drug Makers Over High Prices
Fri August 29, 2003 04:35 PM ET
By Debra Sherman
CHICAGO (Reuters) - Minnesota has sued two drug makers for allegedly
inflating drug prices charged to Medicare and Medicaid, the latest move by
individual states to take on drug companies.

In a civil suit, the Minnesota attorney general accused Warrick
Pharmaceuticals Corp., a unit of Schering-Plough Corp., and Dey Inc., a unit
of Germany's Merck KGaA, of charging "grossly excessive prices" for
prescription drugs so doctors and pharmacists could get higher
reimbursements from Medicare and Medicaid.

Similar suits have been filed in Texas, Montana, Connecticut, Nevada and
West Virginia, but Minnesota is the first to include Medicare in addition to
Medicaid in its suit, a spokeswoman for the attorney general said.

Medicare and Medicaid, which provide health insurance for the elderly and
low-income, are state-federal programs.

The Minnesota complaint, filed in Hennepin County District Court of
Minneapolis on Wednesday, said the companies inflated prices of inhalant
drugs used to treat asthma, bronchitis and other respiratory diseases,
costing the state and its senior, low-income and disabled citizens millions
of dollars.

"Dey and Warrick's illegal pricing fraud has caused Minnesota consumers and
taxpayers, particularly elderly consumers suffering from asthma and other
respiratory diseases, to pay far too much for their prescription drugs when
drug prices are already at a level that many consumers simply cannot
afford," said Attorney General Mike Hatch said in a statement.

At issue are the prices drugmakers charge government health plans.
Government plans such as Medicaid and Medicare are generally entitled to the
best deal that private insurers and wholesalers get from drugmakers.

In Minnesota, reimbursement to pharmacists and doctors is based on a drug's
"average wholesale price," which is set by an industry guide, allowing
manufacturers to be reimbursed at any price they choose.

Doctors, however, buy the drugs at less than the average wholesale price --
giving them a profit and often persuading them to stick with a particular
company's drugs.

"The defendants knowingly and intentionally created a 'spread' on their
drugs and used the spread to market their drugs to providers, thereby
increasing their own profits," the suit said, noting the cost of
prescription drugs to the Medicare and Medicaid programs has surged 300
percent since 1996.

William O'Donnell, a spokesman for Kenilworth, New Jersey-based
Schering-Plough, said: "It's been well known and widely reported since the
1960s that average wholesale price does not reflect actual prices. If there
is a fault here, it is the continued use of an undefined reference price to
calculate reimbursement rather than the government using some more realistic
price."

A Merck spokeswoman in Darmstadt, Germany, said the company would not have
to make new provisions in addition to charges it announced in May.

(Additional reported by Jed Seltzer in New York and Sitaraman Shankar in
Frankfurt).