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Class Accuses Pharma Firms of Price Gouging

PHILADELPHIA (CN) - As early as 1991, 19 drug companies and their subsidiaries conspired to artificially inflate prices of generic prescription drugs, sometimes by more than 8,000 percent, a class of consumers claims in court.

Among those called out in the 105-page complaint for their alleged malfeasance are seven drug companies based in Pennsylvania or New Jersey that the class claims simultaneously raised the average wholesale price, or AWP, of a generic antibiotic from $20 to $1,849 a bottle in six months an 8,281 percent increase.

At about the same time, the class says, Endo International, Sun Pharmaceutical Industries and Par Pharmaceutical Companies teamed up with Teva Pharmaceutical and Dr. Reddy's Laboratories to pump up the price of a migraine pill from $31 to $234, a 736 percent increase.

A drug's AWP is part of a reimbursement formula third party payers use, meaning any increase in AWP corresponds with an increase in what Plumber's Local 690 and other class members pay for that drug, the complaint, which was filed Dec. 31, says.

The plumbers' union cites three main sources of this pricing information in the complaint: Red Book, First Data Bank and Medispan. Drug companies report their drugs' AWPs to these organizations , which do not independently review the data the companies report, according to the complaint.

In cases like the antibiotic and migraine pills, the companies worked together to report AWPs that "bore little relationship" to the actual average wholesale price doctors and pharmacies buy their drugs at, the class claims.

Instead of market forces bringing down the prices of the generic drugs, the companies just set their AWP at 10 percent below that of branded drugs, the complaint says.

"A system that bases its reimbursement rates for drugs on the published AWP is thus dependent on the honesty of drug manufacturers, including the defendants," the complaint says. "The defendants knew they could directly control and fabricate the AWP for their drugs at any time by forwarding to the publishers a false AWP. The defendants also knew that actual transactional price data - the amounts charged to medical providers and others for their drugs - was not publically available, and they kept this information (on which AWPs should have been calculated) highly confidential and secret."

The class claims the price increases affect all types of patients, from those on Medicare or Medicaid to those with union-provided private insurance plans to people without any insurance who have to pay cash for the drugs they need.

While the exponential price increases pinch the groups that have to reimburse the cost of prescription drugs or those who have to buy them out-of-pocket, they help fill the coffers of drug companies and health care professionals who write prescriptions, the class claims.

Doctors buy drugs from wholesalers or manufacturers before reselling them to patients, and a doctor who prescribes a certain drug to a patient with some form of health insurance then bills the plan using the listed AWP, according to the complaint.

In situations where the listed AWP is artificially high, the doctor therefore pockets any difference between the price he or she paid for the drug and the reimbursement amount, the class claims in the 98-page complaint.

"These price increases by multiple defendants in the same amounts, for the same drugs, over the same narrow time period, represent the sort of parallel pricing actions that do not typically occur in a competitive market where commodity products, like generic prescription drugs, are sold," the plumbers claim in the complaint. "Instead, they are believed, and therefore averred to be the product of coordination and/or concerted action on the parts of defendants."

The same can be said for pharmacies, which use the listed AWPs to set their drug prices, either through the amount they charge a prescription drug plan or how much people must pay outside of a health plan, according to the complaint.

"It's not the average, it's not the wholesale, it's not the price," said Donald Haviland, a Pennsylvania attorney representing the class about what his firm's investigation of the case revealed.

Beyond this price fixing, the class also claims the companies incentivized doctors and pharmacies to buy their drugs by ensuring the difference between the AWP and the actual cost of the drug was large, therefore guaranteeing a large profit for the customers through a practice known as spread promotion, according to the complaint.

The companies also gave out free goods other incentives to convince doctors and pharmacies to buy their drugs, according to the complaint.

"The Defendants' failure to properly disclose their wrongful conduct, especially the AWP inflation and spread promotion acts and practices alleged herein, was and is willful, intentional, wanton, malicious and outrageous," the class claims in the complaint.

In 2014, Sen. Bernie Sanders, the Vermont Independent currently making a bid for the White House as a Democrat, launched an investigation into the skyrocketing prices of generic drugs. S

anders invited the CEOs of Lannett, Teva Pharmaceutical Industries and Marathon Pharmaceuticals to testify at the hearings but none agreed to appear, the complaint sayd.

The class names as defendants Actavis Group, Apotex Corp., Dr. Reddy's Laboratories, Endo International, Forest Laboratories, Heritage Pharmaceuticals, K-V Pharmaceutical Company, Lannett Company, Marathon Pharmaceuticals, Par Pharmaceutical Companies, Ranbaxy Laboratories, Sandoz, Sun Pharmaceutical Industries, Teva Pharmaceutical Industries, Watson Pharmaceuticals, West-Ward Pharmaceutical Corp. and Zydus Pharmaceuticals USA.

It claims these drug companies, many of which are based in Pennsylvania or New Jersey, violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law and engaged in fraud and civil conspiracy.

The class consists of "all purchasers in Pennsylvania of generic drugs whose AWPs were inflated and who paid for all or a portion of those drugs based upon such inflated AWP as a pricing standard," according to the complaint.

Haviland speculated the damages stemming from the case could run into the hundreds of millions of dollars.

Endo International declined to comment on the ongoing litigation.

None of the other companies returned email or phone messages requesting comment on the suit.

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