HEALTH-SYSTEM EDITION
BUSINESS/MANAGEMENT

Hospital sues drugmakers for Rx overcharges

A charity hospital has filed a federal class action lawsuit in Alabama, alleging that several large pharmaceutical makers overcharged it for medications by abusing a government program designed to give poor and uninsured patients access to drugs.

Central Alabama Comprehensive Healthcare Inc. provides care for uninsured and indigent patients. The suit accuses drug companies of up to $500 million in overcharges. "We intend to prove that these drug companies have boosted their bottom line on the backs of the poor and disadvantaged," said Steve Berman, an attorney with Seattle-based Hagens Berman, the firm representing the hospitals and health centers.

The suit, filed last month, followed a June report from the Inspector General, Department of Health & Human Services (HHS). It uncovered widespread overcharges in the program known as 340B. The report found that health facilities overpaid by $41 million in the single month of September 2002. Total overcharges are thought to span several years and potentially amount to hundreds of millions of dollars.

The program administers manufacturer discounts on an estimated $3.4 billion worth of drugs each year. Qualifying hospitals and health clinics get access to deep manufacturer discounts on drugs for diseases like tuberculosis, black lung, and AIDS and other sexually transmitted diseases as a condition of drugmaker participation in Medicaid. Discounts average up to half off the average wholesale price for drugs, and charity hospitals alone saved about $2 million on outpatient drugs last year.

An official from Pfizer, one of several companies named in the suit, said at press time that lawyers were reviewing the allegations. "Pfizer is committed to access and to responsible pricing of all our medicines," said spokesman Bryant Haskins.

Officials from Eli Lilly and Merck, also named in the suit, did not respond to requests for comment.

The suit, however, angered representatives of the very hospitals who overpaid through 340B. Ted Slafsky, executive director of the 250-member Public Hospital Pharmacy Coalition (PHPC), said his group was "not happy" about the lawsuit because it antagonizes drugmakers and hampers ongoing efforts to recover money outside the courts.

Several attendees at a recent PHPC meeting of 340B entities in Washington, D.C., reported in interviews that they saw lawyers representing Central Alabama Comprehensive Healthcare handing out copies of the case brief in an effort to garner more plaintiffs for the class action suit. Berman, the plaintiffs' lawyer, did not return calls requesting comment on the meeting.

The controversy over the IG's report and what to do about it has reached Capitol Hill. Lawmakers are demanding to know what the Health Resources & Services Administration (HRSA), the HHS agency that runs 340B, is doing to rectify the widespread overcharge problems.

Senate Finance Committee Chair Charles E. Grassley (R, Iowa) sent a letter to HHS Secretary Tommy G. Thompson asking the agency to tell what it knows about the full scope of overcharges and how long they went on. He also demanded to know if HHS would reveal the identities of five manufacturers that investigators said overcharged 340B-covered entities by $6.1 million for sales occurring during the one-year period ending Sept. 30, 1999.

"In light of the pennies-on-the-dollar settlements some drug companies have paid to settle federal government cases in recent years, it seems to me the taxpayers continually are being taken to the cleaners," Grassley said in an accompanying statement. "At some point the federal government needs to say enough is enough and put some real teeth into regulating its drug programs."

George Grob, Deputy Inspector General, HHS, wrote in a June 14 memo accompanying the investigators' report that "the ability to impose fines and civil penalties is essential in ensuring the entities receive the full 340B discount."

But Jim Mitchell, director of HRSA's Office of PharmacyAffairs, told attendees at the Washington 340B meeting that HRSA opposes legislative moves to impose fines. He said in an interview that the agency was "actively considering" several of the IG's recommendations, including more authority to use a single, contracted wholesaler for the 340B program, providing much closer scrutiny of transactions, and better tracking of discounts. "No one has a database of the total transactions that occur. That might be part of the problem," he said.

Todd Zwillich

The author is a healthcare journalist based in Washington, D.C.

Todd Zwillich. Hospital sues drugmakers for Rx overcharges.

Drug Topics

Aug. 23, 2004;148:HSE32.