'Average Wholesale Price' Means Lawsuits for Pharma

November 8, 2006
Pharmaceutical Executive

Volume 0, Issue 0

Judge defines term ahead of Medicare fraud trial.

It's the most expensive English lesson that the drug industry has ever taken. In a key ruling last week that may leave pharma open to a barrage of fraud and over-billing cases, a Massachusetts judge determined that "average wholesale price" is the sum of its dictionary parts--no more, no less.

The decision in the Boston courtroom of U.S. District Judge Patti Saris was a stinging rebuke for pharma lawyers arguing that AWP is a "term of art" with a widely understood meaning within the industry. "Determining the plain language meaning of ... the term is a straightforward exercise that begins with the dictionary," Saris' decision read. She then proceeded to cite Webster's Third New International Dictionary of the English Language entries for the words "average," "wholesale," and "price."

This schoolmarmish instruction allowed a national class-action suit against 42 drug makers, filed in 2002, to go forward. The case, which charges the companies with inflating drug prices by reporting AWP as a "sticker price" rather than the average price being charged to wholesalers, opened on Monday in Boston. Saris narrowed the case to AstraZeneca, Johnson & Johnson, Schering-Plough, and Bristol-Myers Squibb.

Medicare uses AWPs provided by the industry to make drug reimbursement decisions. Pharma does not dispute that AWP has come to represent a list price for purposes of Medicare reimbursement. But the defendants argued that Congress knew that AWPs did not represent actual prices, and altered its reimbursement decisions accordingly.

Saris too acknowledged that Congress had "a nagging concern that AWP was no longer a reasonable price" on which to base drug paybacks. But "the court's independent experts pointed out that 'inconsistent and ambiguous information exists even currently concerning what type of price AWP measures. The continuing confusion is real and understandable,'" she wrote. "Therefore the defendants have not shown that the term 'average wholesale price' had an established and settled meaning in the industry as a term of art."

If the term AWP is not a term of art, she continued, then it "will be construed under the plain language doctrine of statutory construction"--and with that, the judge headed straight for Webster's Third.

The ruling could throw a wrench in pharma's defense, depending on whether Saris will still allow the companies to explain the context in which they were reporting AWPs.

An attorney for the plaintiffs was understandably upbeat. "Most of their defense to the Medicare part of the case is gone," said Steve Berman, managing partner at Hagens Berman Sobol Shapiro, which filed the suit. "It's a significant ruling for us." Hagens Berman is suing on behalf of Medicare beneficiaries and third-party Medigap insurance providers that made payments for Medicare Part B or physician-administered drugs.

Drugs covered under Part B include Coumadin (warfarin), Imitrex (sumatriptan), Remicade (infliximab), Taxol (paclitaxel), and others.

The Massachusetts ruling may reverberate in jurisdictions throughout the land. State and federal courts deciding other AWP cases may adopt this first-ever judicial definition of AWP.

In what may be the wave of the future, GlaxoSmithKline in August became the first company to settle out of court, for $70 million.