Kentucky Court: No Evidence for $30 Million Verdicts Against Drugmakers

Oct 12, 2012

A Kentucky appeals court on Friday threw out $30 million in verdicts against two drug makers, concluding that there wasn't any evidence to back claims that the pair inflated prescription drug prices to boost profits from Medicaid.

Writing for a three-judge panel, Judge James A. Lambert ordered the cases against Sandoz Inc., and AstraZeneca sent back to Franklin Circuit Court with instructions to enter judgments for the two companies.

"The result reached by the jury was clearly unreasonable," Lambert wrote in a 12-page decision. The ruling came two years after Kentucky Attorney General Jack Conway sued Sandoz, the generic-drugs division of pharmaceutical giant Novartis, and AstraZeneca, claiming each company inflated their average wholesale prices. The state's Medicaid program calculates its drug reimbursement rates based on published average wholesale prices.

A jury awarded the state $16 million from Sandoz and $14.7 million from AstraZeneca. Appeals in the two cases were consolidated because of the similarity of the issues involved.

Don DeGolyer, president of Sandoz US and head of commercial operations for North America, said the company was pleased with the court's decision.

"It confirms our belief that these allegations are without merit," DeGolyer said.

Allison Gardner Martin, a spokeswoman for the Attorney General's office, described officials as "disappointed" and said the Kentucky Supreme Court will be asked to review the case.

The Kentucky Medicaid program relies on published average wholesale prices to calculate Medicaid drug-reimbursement rates. At trial, attorneys for Kentucky told jurors that Sandoz published significantly inflated average wholesale prices for its drugs that bore no relationship to any prices that Sandoz actually charged its customers. In some cases the published average wholesale price was 70 times greater than the actual price.

The Kentucky attorneys made a similar case against AstraZeneca.

Lambert wrote that Sandoz and AstraZeneca did indeed submit average wholesale prices in a "false, misleading or deceptive manner," but Kentucky officials had commissioned a study that showed the practice was ongoing. Kentucky officials could have cut Medicaid reimbursements "significantly" and pharmacists and the companies would still make a profit off the program.

The companies pushing the generic drugs would artificially keep the average wholesale prices high, even when the actual prices of the drugs fell, creating a larger profit for the companies and the pharmacies, Lambert wrote.

Kentucky officials declined to cut the reimbursements and, at times, worked to keep reimbursements high out of fear that pharmacies would stop filling Medicaid prescriptions if the profit margin wasn't high enough, Lambert wrote.

Because the state knew of how the pricing worked, it is "wholly untenable" for state officials to claim millions of dollars in damages caused by false or fraudulent reporting of the average wholesale prices, Lambert wrote in an opinion joined by Judges Sara Combs and Joy Moore.

"Frankly, it is appalling that the Commonwealth had actual knowledge of this `shell game' method of pricing employed by the drug companies, the wholesalers, and the pharmacists," Lambert wrote. "... The Commonwealth was entirely complicit in this system of pricing."