BOSTON – Today a group of plaintiffs won a major victory in a case involving major drug companies and how they price medication.

The named defendants, AstraZeneca (NYSE: AZN), Schering-Plough (NYSE: SGP) and Bristol-Myers Squib (NYSE: BMY) have engaged in unfair and deceptive trade practices that are in violation of Massachusetts general laws, the ruling states.

The suit, led by attorney Steve W. Berman, managing partner of Seattle-based Hagens Berman Sobol Shapiro LLP, targets the companies' practice of inflating the average wholesale prices (AWP) that the companies reported through publications for certain drugs, including costly chemotherapy agents.

Berman said his clients are ecstatic that Judge Saris found that defendants "unfairly and deceptively caused false AWPs to be published knowing that payers and the government did not understand the truth and the severity of the markups."

"We are also grateful that she found the biggest victims were the patients who had to pay these outrageous prices out of pocket as a result of the defendants wrongful conduct," Berman went on to say.

After considering hundreds of documents and the testimony of nearly 40 witnesses, including industry experts, the court ruled that the companies "unscrupulously took advantage" of the AWP reimbursement system "by establishing secret mega-spreads between the fictitious reimbursement price they reported and the actual acquisition costs of doctors and pharmacies."

The ruling affects patients who paid for prescription medication from December 1997 to 2003 and have been reimbursed by Medicare, private insurers and those patients making coinsurance payments based on AWP. Most drugs involved in the case include those for cancer and other serious ailments.

The original filings claim that the defendants' published AWPs are fictitious because they do not reflect the true average sales price. The inflation is decided upon by drug companies to create a spread between the doctor's acquisition costs and the fictitious AWP, the industry benchmark for determining drug pricing. This spread ultimately works to gain market share over a competitor.

"We found this case to be so disturbing because the pharmaceutical companies were running their business to benefit their bottom line, period," said Berman. "Because of the actions of these companies patients who rely on these drugs, often times to save their lives, have been critically injured through the grossly inflated prices."

The ruling lists several of the markups on commonly prescribed drugs and the results are egregious. The most severe culprit being Bristol-Meyers Squibb with an 1131 percent markup on its drug Vepesid. Other companies mark ups range from 28 percent to almost 700.

Today's ruling affects two of the three originally named classes. Third-party payors in Massachusetts that reimburse Medicare beneficiaries for their statutory twenty percent coinsurance are eligible. These individuals fall under Medigap insurance or supplemental insurance.

The second class includes all third-party payors, end-payors, consumers who make coinsurance payments and consumers who have no insurance for these drugs in Massachusetts and pay for the stated drugs based on AWP.

The Massachusetts ruling was a test case with trials for the rest of the states to follow. Berman sees some companies like Astra Zeneca facing exposure in the hundreds of millions.

"We are looking forward to continuing the prosecution of this case against the remaining defendants who perpetrated similar if not identical wrongs against patients and insurers nationwide," said Berman. "We view this ruling as a big win that should serve notice to all defendants that they will be called to account for their wrongdoing."

In 2003 Congress finally took notice of the AWP problem and moved to a reimbursement program that isn't based on AWP, the result was the Medicare Prescription Drug, Improvement and Modernization Act.

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About Hagens Berman
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with offices in nine cities. The firm has been named to the National Law Journal’s Plaintiffs’ Hot List seven times. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at@ClassActionLaw.

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