More controversy on drug pricing

It’s minutiae time again!
That is, if pricing in a $216 billion industry is minutiae.
Readers interested in pharmaceutical pricing may recall the court case 18 months ago wherein pharma pricing publisher First Databank was accused of intentionally inflating drug prices. (FDB’s version of AWP results in prices that are about 5% higher than those provided by the other sources.)
There’s a new lawsuit alleging drug distributor McKesson illegally manipulated brand name drug pricing by increasing the spread between WAC (wholesale acquisition cost) and AWP (average wholesale price) – a practice that increased the prices paid by insurers, consumers, and employers.
The suit was filed by the City of San Francisco in US District Court in Boston – the same court that heard the 2006 case.
The 2006 case involved FDB’s selection of McKesson as the sole source of drug pricing data. FDB’s AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it ‘simpler to administer pricing internally’. (this is the same allegation referenced in the most recent suit)
The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability – profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement.
Surprise! The settlement is not yet final, thus FDB continues to publish its version of AWP, the version that inflates payer drug costs by 5%.
Both suits, along with a number of other legal actions, have been filed by the Prescription Access Litigation Project, a Boston-based group funded by several foundations and charitable organizations.
The PAL folks are tenacious, well-funded, and allied with, among other heavy hitters, AARP. While tiny, their ability to win cases, highlight possible illegal activity and focus attention on their cause is impressive.
What does this mean for you?
At a time when more Americans than ever are taking drugs regularly, every penny matters. Watch PAL and their progress carefully – their work will likely have a significant impact on pharmaceutical pricing methodologies.
Thanks to California HealthLine for the tip.