The Prescription Access Litigation Project today announced a groundbreaking settlement in a nationwide class-action lawsuit brought against First Databank, Inc., the most widely-used publisher of prescription drug prices in the United States. The milestone settlement is forecast to result in a 4 percent rollback of prices on hundreds of drugs which represent 95 percent of the nation’s retail branded drug sales.
The net impact will be a staggering $4 billion in savings for health plans which have been overcharged for prescription drugs.
“This settlement is truly remarkable and represents real progress in holding drug industry players accountable for the countless ways they manipulate the system in order to wring out unjust profits. The Prescription Access Litigation Project (PAL) is the only national consumer coalition devoted to challenging high drug prices and making prescription drugs affordable for everyone.
Two members of PAL (New England Carpenters Health Benefits Fund and AFSCME District Counsel 37 Health and Security Plan) served as lead plaintiffs in the lawsuit. The case alleged that from 2002 to 2005, First Databank conspired with leading prescription drug wholesale provider, McKesson Corp., to arbitrarily increase by 5 percent the markups between what pharmacies pay wholesalers for prescription drugs and what health plans and insurers reimburse pharmacies for those prescription drugs. Pharmacies typically purchase drugs from wholesalers, at a price based on an industry price benchmark called the “Wholesale Acquisition Cost” (WAC).
When pharmacies dispense drugs to consumers, insurance companies and health plans typically pay the pharmacy a price for the prescription that is based on another benchmark called “Average Wholesale Price,” or AWP. The difference between what the pharmacy pays the wholesaler and what the health plan pays the pharmacy is called the “spread,” and it is the pharmacy’s profit on that prescription. AWP is a controversial and outdated system, which has created billions of dollars in unnecessary drug spending every year as reimbursement prices for drugs have far exceeded the market price of drugs.
AWPs are not based on actual sales, making them susceptible to being manipulated. The plaintiffs alleged that First Databank and McKesson illegally used the increased markups as a symbiotic business strategy for their respective drug-wholesaling and drug price publication production.
The case claimed that McKesson and First Databank agreed to increase the “spread” between AWP and WAC from 20% to 25% on hundreds of drugs, to benefit McKesson’s customers and the purchasers of First Databank’s pricing guides. McKesson was not part of today’s settlement and remains a defendant in the case.
Under the settlement, First Databank has agreed to “rollback” the spread from 25% down to 20% on hundreds of the most-commonly prescribed drugs. This rollback will reduce what health plans pay pharmacies for the drugs that represent 95% of the retail branded drug market.
This is projected to result in savings of approximately $4 billion at a time when drug costs are consuming an ever-greater portion of the nation’s health care dollar.
However, the most important outcome of today’s settlement is First Databank’s agreement to cease publishing AWP data within two years of the Court’s approval of the settlement. First Databank is a primary source of AWP data used by insurers, employers, pharmacies and Pharmacy Benefit Managers (PBMs).
First Databank’s ceasing the publishing of AWP data is thus likely to be the end of the AWP system. This is likely to result in a shift to the use of a more transparent and accurate way of paying for drugs, which will have ripple effects throughout the health care system. The PAL members in the case were represented by Hagens Berman Sobol Shapiro, one of the most experienced law firms in the country in large-scale public-impact litigation.
The settlement agreement filed today awaits approval by the U.S. District Court in Massachusetts, where the case is currently pending. The price rollback is expected to go into effect eight to nine months after final approval of the settlement, resulting in major savings beginning in late 2007. For more information about the First Databank lawsuit and settlement, please visit the PAL website at www.prescriptionaccess.org/index.php?doc_id=996
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