Battling Big Pharma

Suing pharmaceutical companies on behalf of consumers is some of the main work of Dee Miles, a partner with the Montgomery-based plaintiff law firm Beasley Allen. 

Miles manages the firm’s Consumer Fraud and Commercial Litigation Section, which counts among its biggest successes litigation against a raft of major pharmaceutical companies on behalf of eight states, including Alabama. Plaintiffs, who recouped $1.5 billion in settlements and judgments, claimed the drug companies ripped off the states’ Medicaid programs by filing false pricing information that set the Average Wholesale Price that Medicaid uses to pay for prescription drugs. Miles summarizes the legal campaign at the end of this interview. 

But first we spoke with him about his preparations to go against big pharma on another controversial practice that spikes drug prices. Critics say drug makers have been gaming federal laws that encourage the manufacture of lower cost generic drugs by filing bogus patent suits that stall the manufacture of generics. They call the practice “pay-for-delay.”

We’ve been hired by two state attorney generals to investigate pay-for-delay claims to determine whether they have good claims and which ones they should bring first. We have not filed a complaint yet. We’ve been investigating for this state about nine months. 

I can give you an idea of what the cases involve, with the caveat that we can’t give you a name of any companies and can’t give you any exact numbers, but I can describe a scenario. A large brand company knows that a generic has filed an Abbreviated New Drug Application. They say we are filing this generic drug for a projected date, plan to introduce it and be the first one in line. The first to file is the first to get a shot at the generic market, and the others have to wait six months. So there is a 180-day period during which the first drug has a sort of a generic monopoly. The brand companies say, “If that’s the system, then we’re going to pay off the first guy, because he’s plugging up the hole. Nobody else can get to market if we stop the first guy. So they’ll pay the first guy to come to market, say $100 million, and they stay out of the market. They file bogus litigation where they sue the generic, and it ties them up in court for a period of time, say three years, and at the end of that period of time they will pay that generic company a settlement and make it look like they are settling a case. But really they were just paying for them to delay coming to market. In the meantime, every Medicaid program in the country is overpaying. The dollars are in the billions. 

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In 2009, there was a case that went up to the U.S. Supreme Court under that very scenario I just described. The Supreme Court in the past had said these look like they are OK and didn’t mess with them. But in 2009, when the defendant Actavis was sued, the Supreme Court said, “We’ll have to look at these, ” and that opinion spurred the current litigation. The courts said maybe it is not a private settlement and it is an anti-trust behavior or market misconduct. The Actavis case was settled, but since then other litigation has developed in the federal district courts. To me it is clear anti-trust violation: fixing prices by blocking generics going to market. 

The reason for all this misconduct is that they have to have a blockbuster drug for every one coming off patent. There is tremendous pressure to have the stock performance that comes from having a blockbuster drug ongoing every so many years. So they are doing things that are improper in pricing, and they are also rushing drugs to market that don’t have adequate testing.

We started representing the states in the AWP (Average Wholesale Price) cases in 2004. Before that there was a whistleblower case that was filed in Miami. Not by us but by another lawyer, representing a pharmacy owner in the Florida Keys. He had discovered there were these huge discrepancies between the average wholesale price and the prices he was actually paying for the drugs. That was known as the Ven-a-care case. That was brought for the federal government to compensate for all these inflated prices. Well, nobody was looking out for the states. And when they unsealed that whistleblower case, we got wind of it, and we decided that the claims they were pursuing didn’t adequately protect the individual state Medicaid programs.

We went to see (former Alabama Attorney General) Troy King and spelled it out. We presented our case to him and filed in January of 2005, working jointly with the Hand Arendall firm. We tried five cases in Alabama and never lost one. We were successful on all of them, and the (Alabama) Supreme Court reversed everything. But, while those appeals (to the Supreme Court) were pending, we recovered $130 million for the state by way of settlements. 

The federal case was brought as a violation of the U.S. False Claims Act. The states usually have their own false claims acts, and some of them have acts specifically for Medicaid. And that’s one of the reasons Alabama was not successful. In Alabama, we don’t have a false claims act. We had to rely on common law fraud, and that’s why the Supreme Court found that we couldn’t prove reliance (on a false claim).

While we were representing Alabama, we were approached by the Mississippi attorney general and also by Louisiana and the states of Kansas, Utah, South Carolina, Alaska, Hawaii — eight states — to handle similar litigation. To date we have recovered over $1 billion in settlements and have had $500 million in verdicts.

We believe that what they reaped in profit was about double what we recovered. We recovered $1.5 billion, and they probably profited about $3 billion from the scheme. What they profited on a nationwide basis was triple that, somewhere in the $15 billion range. Of the eight states we represented, we only have two cases left in Utah and two cases left in Mississippi.

The AWP price measurement is rarely used now. It was a false price. In the Sandoz case, in the Mississippi opinion, there was an 880 percent difference between the reported and the actual price. They set that high price and reported it to a publication agency, and everybody was using it to reimburse pharmacists. They’d take it to CVS, and CVS, in turn, took it to Medicaid and state Medicaid. The state uses the price measurement and pays AWP minus 10 percent, while the pharmacist pays more like AWP minus 1, 000 percent. That was the incentive. The pharmaceutical reps would use a particular drug because the spread between the AWP and the higher priced drug was larger. The pharmacist would fill it with the most profitable drug, marketing the spread. 

Chris McFadyen is the editorial director of Business Alabama. 

Interview by Chris McFadyen

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