Judge freezes AWP pricing settlement

ALEXANDRIA, Va. —Chalk up another victory for community pharmacy.

Responding in part to concerns raised by the National Association of Chain Drug Stores, the Food Marketing Institute and other pharmacy advocates, a federal judge rejected proposed settlements of class-action lawsuits brought by a group of employers, unions and other health plan payers against drug-data publishers First DataBank and Medi-Span. The ruling, issued Jan. 22 by Judge Patti Saris of the U.S. District Court for the District of Massachusetts, throws the case back to the parties involved in the settlement with a demand for an alternative plan in two weeks.

At issue in the case was the rate at which union pension funds, teachers unions and other health plan sponsors reimburse pharmacies for drugs dispensed to their members. Historically, that rate has been based on the average wholesale price of a drug, but the health plan payers acting as plaintiffs in the suit charge that the AWP has risen to unrealistic levels that no longer reflect the real differences between what wholesalers pay manufacturers for a drug, and the prices those wholesalers charge their retail pharmacy clients.

In their class action filing, the plaintiffs asserted that health plans are paying too much for drugs, based on AWPs now averaging a 25 percent markup over the wholesale price of the drug. Originally named in the suit was First Data-Bank, which was accused of conspiring with McKesson Corp. to set AWP rates artificially high. But in May 2007, Medi-Span, a division of Wolters Kluwer Health, was named as a defendant in a similar class action involving the publication of AWPs.

“Subsequently, the United States District Court, District of Massachusetts granted preliminary approval to settlements for both First DataBank and Medi-Span,” noted First DataBank president Donald Nielsen.

In agreeing to settle the case, the drug data publishers agreed to reduce the average wholesale price AWP to 120 percent of wholesale acquisition cost [WAC], and to stop publishing AWP prices within two years as a prescription drug pricing benchmark.

NACDS, FMI and other pharmacy groups argued that the proposed settlements were based on faulty economic analysis, and would unfairly hurt retail pharmacies while leaving those responsible for the originally inflated AWP prices virtually unscathed.

“NACDS appreciates Judge Saris’ recognition that community pharmacy should not be treated unfairly by the…proposed settlements,” said NACDS president and chief executive officer Steve Anderson.

NACDS and FMI filed an economic analysis detailing ways in which the cost savings and impact of the settlements were based on “inaccurate economic analysis.” They also testified that, under the proposed settlements, the health plan payers that brought the suit would walk away empty-handed, and innocent non-parties; i.e., pharmacy operators, would bear “the economic brunt of the settlement.”

Opposition to the settlement also united two groups usually found on opposite sides of any issue: the National Community Pharmacists and the Pharmaceutical Care Management Association, representing the pharmacy benefit management industry.

“If the AWP is substantially reduced, independent pharmacies will be forced to dispense hundreds of branded drugs at a significant loss, driving hundreds of pharmacies out of business,” NCPA asserted in a court filing. “The result is inequitable…and harmful to consumers.”