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September 10, 2009 7:52 PM

LITIGATION DAILY: First Circuit Approves Average Wholesale Price Settlement over Objections by Pharmacies

Posted by Drew Combs

This story was originally published by The Am Law Litigation Daily.

The old saying about lies, damned lies, and statistics was apparently never truer than in regard to the Average Wholesale Price index for pharmaceuticals, which has spawned a cottage industry of litigation in which all kinds of defendants have been accused of artificially inflating the AWP to increase revenue to drug suppliers, at the expense of consumers, insurers, and everyone else who pays for pharmaceuticals. One segment of the sprawling litigation came closer to an end last week, when the U.S. Court of Appeals for the First Circuit rebuffed an attempt by pharmacy groups to toss class action settlements with two companies that publish drug price data. Here's the appellate court's 32-page ruling.

The average wholesale price is a benchmark price for every drug based on its wholesale cost. Typically, as drugs move down the supply chain to consumers, their cost is marked up based on a multiplier of their average wholesale price, with a standard markup of 20-25 percent. But beginning in about 2005, groups that pay for drugs--such as union health care funds, insurers, and consumers--began to allege that the AWP index was inflated, resulting in their overpayment for pharmaceuticals. In addition to suing drug wholesalers for the supposed overpayment scheme, they filed a class action against the companies that published the average wholesale prices, accusing them of being part of the conspiracy.

In 2006 two pricing data publishers, First DataBank and Medi-Span, a division of Wolters Kluwer Health, agreed to contribute $2.1 million and $600,000, respectively, to a fund for class members. First DataBank also agreed to roll back markups on 1,400 drugs. (McKesson Corp., a drug wholesaler targeted in the same class action as the publishers, settled with plaintiffs for $350 million.)

But individual pharmacies and organizations representing the pharmacy industry challenged the settlements with the publishers, first at the trial level and then at the appellate court, claiming that FirstData's rollback of published average wholesale prices would reduce the payments they receive from drug purchasers in violation of their due process rights as nonparties to the litigation.

The First Circuit panel, however, found that the pharmacy industry appellants did not have standing simply because their interests are impacted by the outcome. (The appeals court didn't address the substance of the industry's challenge, which it said could be asserted by other parties with proper standing.)

"The important part is that the matter is settled," said Shelia Birnbaum of Skadden, Arps, Slate, Meagher & Flom, who represented First Databank. "The settlement has now been approved by the First Circuit. The parties will now implement the prongs of the settlement agreement." Lead counsel for the pharmacy industry was Daniel Savrin of Bingham McCutchen.

"We have maintained, and continue to maintain, that pharmacies and patient care should not be harmed by legal proceedings in which pharmacies were not originally involved," the industry group said in a statement responding to the First Circuit ruling. "That is what occurred when First DataBank and Medi-Span reached a settlement related to the publishing of reduced AWPs."

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