Medicaid rebate policy under scrutiny in Arizona consumer fraud case

PHOENIX (CN) — A federal judge considered Tuesday whether a pharmaceutical company can discontinue a life-saving product to avoid Medicaid rebate payments under the Arizona Consumer Fraud Act.

Grand Canyon State Attorney General Kris Mayes sued GlaxoSmithKline in February — one year after the company discontinued Flovent, the most popular brand of asthma inhaler in the U.S., and replaced it with a chemically identical but generic product not covered by popular Medicaid plans.

Mayes says the move, intended to avoid paying high rebates back to Medicaid, left thousands of Arizonans without coverage and caused increased asthma-related emergency room visits and deaths.

In a Tuesday morning hearing in Phoenix, U.S. District Judge Michael Liburdi appeared skeptical that a private business deciding to change its product could constitute any sort of deception or fraud, hinting at granting GlaxoSmithKline’s motion to dismiss by Labor Day.

“There’s no boundaries of what an unfair practice is,” Liburdi said of the state’s argument. “It seems like the attorney general could just start suing any business she wants. That’s un-American to me.”

Liburdi, a Donald Trump appointee, asked whether the attorney general would deem it illegal for the company to stop selling the product all together.

“What it’s about is the harm to consumers,” state attorney Daniel Ferri told Liburdi. “They knew people were gonna lose coverage. They did lose coverage. Children lost coverage. People were hospitalized. People died.”

To sell drugs to Medicaid, manufacturers agree to pay rebates to the government in part based on price increase, as required by the Medicaid Drug Rebate Program. If the price of a drug rises faster than inflation, the manufacturer is to pay back the difference between the new price and the inflation-adjusted product launch price.

Because GlaxoSmithKline raised the Flovent inhaler price so aggressively — the average market price is now more than $250 — it faced the prospect of paying a rebate larger than the price of the product, losing money on every prescription.

Instead, the company replaced the branded inhaler with an authorized generic that most insurance plans didn’t include. Mayes says the more than 16 patents placed on the same product prevented the production of other generic alternatives, leaving Medicaid members to choose between paying out of pocket and going without lifesaving medicine.

Mayes says the switch, she calls the “Flovent Renaming Scheme,” deceived and defrauded Arizona consumers.

Tuesday, defense attorney Cole Carter said the state can’t rely only on violation of federal public policy to make an Arizona Consumer Fraud Act claim. He paints the state’s sole claim for relief as based only on the Medicaid Drug Rebate Program, compliance with which can only be policed by the Department of Health and Human Services.

He argued that the company didn’t cause any actual consumer harm because “the consumer chooses whether to buy the product at the market price. The consumer can simply not buy the product,” if their insurance doesn’t cover alternatives.

Ferri said the claim doesn’t hinge on a violation of the Medicaid Drug Rebate Program, but instead consumer harm and the question of fairness, which he argues is a question better suited for state court. The attorney general’s office filed its own motion to send the case back down after GlaxoSmithKline requested it be removed from Maricopa County Superior Court to Arizona’s federal division.

Ferris said the Medicaid Drug Rebate Program is not an “overriding federal issue” to the question of whether Arizona asthma patients were treated fairly.

“When GSK pulled this trick, people lost coverage because the authorized generic was not on their insurance,” he said.

Jay Lefkowitz, also representing the pharmaceutical company, retorted that “the only reason he can describe it as a trick is because they claim that it violates the policy of the MDRP.”

Otherwise, Lefkowitz argued, there’s no remaining legal issue.

“There is no independent state law claim that you’re not selling a product I want,” he said.

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