Counties Win Ruling on Discount Drug Program

(CN) - The 9th Circuit reinstated a class action accusing major drug companies of violating pricing contracts by overcharging federally funded medical clinics by millions of dollars a month.

The underlying dispute hinges on a provision of the 1992 Veterans Health Care Act that caps drug prices for federally funded hospitals and clinics. The provision requires the Department of Health and Human Services and drug makers to set a "ceiling price" for drugs - the maximum price that drug companies can charge hospitals and clinics covered by the Act.

Santa Clara County and several county-operated clinics filed a class action over the drug discount program, claiming major drug companies regularly overcharged them -- to the tune of millions of dollars a month. According to an inspector general's report, federally funded clinics overpaid $3.9 million in June 2005 alone.

Drug makers had the case removed to federal court, where they won their motion to dismiss. The county amended its complaint to include claims for breach of contract, breach of implied covenant of good faith and fair dealing, negligence and unjust enrichment.

The district court again dismissed the class action.

On appeal, the San Francisco-based appellate panel agreed with the county that federally funded clinics can pursue their contract claim.

"Although the statute mandating the [pharmaceutical pricing agreement] does not create a federal private cause of action," Judge Raymond Fisher wrote, "allowing Santa Clara's contract claim to go forward is consistent with Congress' intent in enacting the legislative scheme."

The court rejected the drug companies' bid to have the contract claim stayed or dismissed, pending a resolution by the Department of Health and Human Services.

The contract claim "could plausibly be adjudicated without DHHS' expertise," Fisher wrote for the three-judge panel.

The panel issued a separate order withdrawing its August 2008 opinion.

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