Hawaii sues drug makers for price fraud
At least 20 other states have filed for the cost to Medicare
The state is suing 44 drug companies for allegedly defrauding Hawaii taxpayers and Medicare beneficiaries out of tens of millions of dollars with inflated prices for prescription drugs.
The lawsuit was filed yesterday in state court. It is similar to lawsuits filed by at least 20 other states in the past few years, including California, Texas, Illinois and New York.
State Attorney General Mark Bennett said the companies overstate their average wholesale prices on which the state bases its Medicaid and Medicare drug reimbursement. They then charge pharmacies, hospitals and doctors who dispense and administer the drugs at a much lower price, to give them windfall profits and incentive to continue using their drugs over those of competitors.
However, no providers are named in the lawsuit.
"Our belief is that the architects of the scheme are the pharmaceutical companies -- the drug manufacturers -- and that the windfall profits are being reaped at the drug-company level," Bennett said.
The drug companies hide the true average wholesale prices of their products by giving providers secret rebates, discounts, free products and phony grants, Bennett said.
In one case, a drug company published an average wholesale price of $1,480 for 150 mg of Ranitidine, a drug used to treat ulcers and acid reflux. However, based on information discovered in lawsuits filed in other states and research by the U.S. Department of Justice, the actual average wholesale price was $27.70, according to the Hawaii lawsuit.
"Do not mistake this at all: The taxpayers of Hawaii have been swindled by certain drug manufacturers falsely inflating prices in our Medicaid program and to Medicare beneficiaries," said Lillian Koller, state Department of Human Services director.
The 44 companies named in the lawsuit are not the only ones selling pharmaceuticals in Hawaii. Koller said more companies can be added as the state sees fit.
Koller's department runs the state Medicaid program for Hawaii's aged and disabled citizens, and Quest, the state's Medicare plan for low-income residents. The state pays 80 percent of prescription drug costs for Quest members and 100 percent for Medicaid recipients.
In 1999, the state paid $45 million for Medicaid drug services, Bennett said. By 2004, prescription drug costs had risen to $117 million, a 160 percent increase.
Over that same period, the number of Medicaid recipients increased just 19 percent, to 43,000 from 36,000, Bennett said.
He said one of the main reasons for the drastic increase in the state's Medicaid prescription drug costs is the drug companies' manipulation of their average wholesale prices.
The state has hired three law firms to handle the case, on a 15 percent contingency fee basis. Two of the law firms are based on the mainland and are involved in the lawsuits of other states.
"We are prepared for litigation that may resemble all-out war," Bennett said.
Charles Barnhill, one of the mainland attorneys, said the pricing schemes by drug companies have been going on since 1992.
The state wants to recover what it has been overpaying, plus punitive damages and an injunction to stop the drug companies from continuing their scheme.