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CVS Dodges Drug Price Inflation Claims

(CN) - A pharmacist's accusation that CVS and others inflated drug prices to force higher reimbursements from the government is not a "new discovery," a federal judge said in a dismissal order.

David Morgan, a licensed pharmacist, filed suit on the government's behalf against eight named and 20 anonymous pharmaceutical industry players, claiming violations of the federal False Claims Act.

Morgan allegedly noticed a disparity between two major publishers' average wholesale prices for drugs sold to retail pharmacies in 2002, while auditing claims processed by Missouri-based pharmacy benefit manager Express Scripts.

Brand-name drug prices published in First Databank's "Blue Book" - data used to calculate reimbursements and often legally required - were consistently 4.16 percent higher than those in Thomson's "Red Book" over several years, Morgan claims.

Later audits allegedly showed that the price differential rose over time, but never included amply regulated prescription narcotics or highly advertised drugs like Viagra and Claritin.

Though First Databank and former subsidiary Medi-Span purportedly used their own stats to calculate prices, Morgan says they actually relied on phony data provided by wholesaler McKesson Corp.

McKesson and other wholesalers - AmerisourceBergen Corp. and Cardinal Health Inc. - profited by secretly inflating thousands of brand-name drug prices, thus upping payments by the government and other third parties to millions of pharmacy customers, the complaint states.

Pharmacy benefit managers at CVS Caremark, Medco Health Solutions and Express Scripts in turn silently exploited the scheme by using only the inflated prices in their contracts with third parties, according to the complaint.

Since at least 2001, billions of false claims for prescription drugs have been and continue to be filed and paid with ever-increasing damage to the government, according to Morgan.

The 30-count third amended complaint asserted claims under federal and state false claims acts, as well as breach of contract, good faith and fair dealing, and fiduciary duty against the pharmacy benefit managers only.

The feds intervened and dismissed its case with respect to McKesson on June 6, 2012, but declined to intervene against the other defendants. Cardinal Health was later dismissed as well.

The Justice Department simultaneously settled with McKesson for over $190 million.

The defendants filed six motions to dismiss for failure to state a claim, arguing that Morgan's claims are prohibited by the False Claims Act's public disclosure bar.

U.S. District Judge Dennis Cavanaugh granted the motions Monday, finding that the alleged price differential "does not appear to be a new discovery," as prices for retailers were historically reported at a 20 or 25 percent markup over manufacturers' prices for wholesalers.

That percentage difference "will always be 4.16 percent," Cavanaugh wrote.

This fact was also disclosed in an Aug. 30, 2004 congressional report, the ruling states.

Because Morgan "did not work for any of the defendants and does not allege facts from which it can be inferred he had access to nonpublic information about the defendants," he is not an "original" or "independent" source of his allegations, according to the ruling.

The judge also found that Morgan added claims against wholesalers only after the New England Carpenters Health Benefits Fund sued First Databank in 2005 and the media publicized the alleged scheme.

Express Scripts, a Fortune 100 company that recently acquired Medco, reported revenues of nearly $94 billion last year. Amerisource and CVS reportedly netted about $100 and $123 billion, respectively.

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