Courts Reject States’ Drug Pricing “Regulation Through Litigation”

Guest Commentary

by Frank Cruz-Alvarez and Jared Sherr, Shook, Hardy & Bacon, L.L.P.*

Over the past several years, states represented by contingency-fee attorneys have sued virtually the entire pharmaceutical industry alleging fraud in the reporting of prices and other information for drugs covered under Medicaid programs.  In recent weeks, two more courts have ruled against states pursuing these types of claims, and in the process have rejected the underlying “regulation through litigation” agenda presented by these types of lawsuits.

In the first case, Sandoz, Inc. v. State of Alabama, 2012 WL 1081402 (Ala. July 13, 2012), the Alabama Supreme Court ruled 7-1 to overturn a verdict against generic drug manufacturer Sandoz, Inc. totaling over $78 million in compensatory and punitive damages.  Sandoz involved almost identical claims as the 2009 Alabama Supreme Court case of AstraZeneca LP v. State of Alabama, 41 So. 3d 15 (Ala. 2009). Specifically, the State of Alabama alleged that it was unaware that Sandoz reported inflated “list prices” to an independent price reporting service that did not include discounts, rebates or other price concessions. The state alleged that it relied on these “list prices” in its Medicaid reimbursement formulas and, as a consequence, over-reimbursed providers and pharmacies.

After a review of the factual record, and an analysis of the 2009 ruling in AstraZeneca, the Alabama Supreme Court concluded that the state could not have reasonably relied on Sandoz’s published prices for two reasons.  First, the state had actual knowledge of the inflated prices reported by Sandoz, a conclusion the court supported by chronicling the history of the Alabama Medicaid Agency’s awareness of the reporting of inflated prices.  Second, the court, reaffirming its holding in AstraZeneca, concluded that the state did not rely on the reported prices because   the state’s reimbursement formulations were the result of independent “conscious and deliberate policy decisions.”  Continue reading “Courts Reject States’ Drug Pricing “Regulation Through Litigation””