Major Rollback of Pharmaceutical Bench Mark Prices Approved by Federal Court of Appeals,...

Thu Sep 10, 2009 2:53pm EDT

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Major Rollback of Pharmaceutical Bench Mark Prices Approved by Federal Court
of Appeals, Hagens Berman Announces

BOSTON, Sept. 10 /PRNewswire/ -- Purchasers of pharmaceutical drugs including
consumers and health plans will soon enjoy a rollback of benchmark prices of
some of the most common prescription medications after a Federal Appeals Court
last week affirmed the approval of a settlement with two leading drug-pricing
publishers, First DataBank, Inc. and Medi-Span, a division of Wolters Kluwer
Health, Inc.


The court's approval clears the way for the pricing rollback to go into effect
on Sept. 26, 2009, and could save consumers and other purchasers hundreds of
millions of dollars. 

The settlement stems from a 2005 class-action lawsuit brought on behalf of
health benefit plans and consumers against First DataBank (FDB) and McKesson
Corporation, a large pharmaceutical wholesaler. According to the suit filed by
Hagens Berman Sobol Shapiro, plaintiffs claimed that the majority of brand
name drugs are reimbursed based on a pricing benchmark known as the "average
wholesale price" or AWP, a benchmark that the suit claimed was manipulated by
the defendants to boost profits. 

District Judge Patti Saris of the District of Massachusetts summarized the
allegations in her approval order, "[t]ypically, a drug's wholesale
acquisition cost or 'WAC' was understood as the price wholesalers paid to
purchase a drug from the manufacturer; the WAC was then marked up by a fixed
percentage to derive the AWP. Beginning in 2001, FDB and McKesson reached a
secret agreement to raise the markup between WAC and AWP from its standard 20
percent to 25 percent for more than 400 drugs. The scheme resulted in higher
profits for retail pharmacies that purchased drugs on the basis of WAC but are
reimbursed on the basis of AWP."

On June 6, 2007, HBSS settled claims with FDB, a subsidiary of Hearst
Corporation. Under the agreement, FDB agreed to rollback pricing by five basis
points, from 1.25 to 1.20. The markup over WAC was used to calculate the AWP,
the reimbursement benchmark for most widely used prescription drugs, which, in
turn, would reduce the price of most medications by four percent. In a later
lawsuit, the other large supplier of electronic data files, Medi-Span, agreed
to a similar rollback.  

First DataBank and Medi-Span have indicated that in addition to the drugs
included in the settlement, they also intend to independently rollback the AWP
benchmark price of other drugs not covered by the settlement, which should
create cost-savings on a much broader range of prescription medications.  

An alphabet soup of associations representing the pharmacies and pharmacy
benefit managers fought the proposed rollback before federal trial and
appellate courts. The National Association of Chain Drugstores, the
Pharmaceutical Management Association, the National Community of Pharmacists
Association, and others claimed either that small pharmacies would be put out
of business through implementation of the rollback, or that the savings to the
health plans and consumers would not be large enough to justify the

The courts rejected these claims and in a ruling on Sept. 4, 2009, affirmed
the approval of the settlement. The First Circuit Court of Appeals stated: 

                "In principle, the rollback makes some sense:  it
                should -- to the extent that process remain above
                some hypothetical market level -- wash out any
                remaining inflation for the future; and, to the
                extent it forces prices temporarily below the market
                level, it will take back some of the windfall profits
                obtained (even if innocently through another's fraud)
                and give some compensation for past overcharges. The
                market forces that eroded excess gains in the past
                should also in the future redress unduly low
                reimbursement; and to the extent that those forces
                operate symmetrically, the gains and the losses may
                even tend to balance out."

Separately, Massachusetts Federal Judge Patti J. Saris approved the settlement
with the second defendant, McKesson, for $350 million on behalf of the health
benefit plans and consumers nationwide.  

"The impact of this settlement is very significant for all who have paid for
brand name drugs," said Steve Berman, a lead counsel and managing partner at
Hagens Berman Sobol Shapiro.  

"The First DataBank and Medi-Span settlement shows all payers that the markup
differences between WAC and AWP are entirely artificial and thus should be
adjusted to ensure the lowest payment for prescription drugs," said Thomas M.
Sobol, a lead attorney and managing partner of the Cambridge office of Hagens
Berman Sobol Shapiro.

For more information on this case and to sign up as a consumer or third-party
payer you can visit Hagens Berman website at

About Hagens Berman Sobol Shapiro
Hagens Berman Sobol Shapiro is a nationally recognized class-action and
complex-litigation law firm based in Seattle with offices in Chicago, Boston,
Los Angeles, Phoenix and San Francisco. Among recent successes, HBSS
negotiated a $300 million settlement in the DRAM memory antitrust litigation,
the largest antitrust settlement in U.S. history, recovered $340 million on
behalf of Enron employees, and was part of the leadership team in the $3
billion Visa/MasterCard settlement. In pharmaceutical litigation, the firm's
recent successes include a $350 million settlement with McKesson, more than
$200 million with other parties in drug-pricing litigation, and a $150 million
settlement regarding Lupron. HBSS represented Washington and 12 other states
against the tobacco industry that resulted in the largest settlement in
history. For a complete listing of HBSS cases, visit 

    Media Contact:
    Mark Firmani (206) 443-9357
    Firmani + Associates

SOURCE  Hagens Berman Sobol Shapiro

Mark Firmani of Firmani + Associates, +1-206-443-9357,, for
Hagens Berman Sobol Shapiro
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