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Drug suits fetch state up to $40M

The suits alleged pharmaceutical companies inflated prices the government paid through Medicaid

By Ken Kobayashi

POSTED:
LAST UPDATED: 02:42 a.m. HST, Oct 07, 2010


The state will receive tens of millions of dollars from out-of-court settlements with about 40 pharmaceutical giants and other drug prescription companies accused of gouging Hawaii's Medicaid program.

The total amount of the settlements was more than $82.6 million, but the state should receive between $30 million and $40 million after paying attorney fees and costs and the federal government, which also paid for the Medicaid program, Attorney General Mark Bennett said.

The settlements come from massive litigation started here four years ago when the state sued the drug companies, alleging they fraudulently inflated their prescription drug prices. As a result, the state overpaid for the drugs prescribed for tens of thousands of Medicaid patients, the suit said.

Bennett said the state's cost of prescription drugs in the Medicaid program increased to $117 million in 2004 from $45 million in 1999. He estimated that excess payment was between $20 million and $25 million.

"We feel extremely pleased that the settlements represent money coming in at a good time to us when our coffers could certainly use it," Human Services Director Lillian Koller said.

Bennett said he hopes the settlements discourage others from trying to cheat the state.

PHARMACEUTICAL SETTLEMENT

The out-of-court settlements between the state and pharmaceutical companies accused of overcharging the Medicaid program for prescription drugs:

» Total settlements: $82,654,756

» Attorney fees and costs: $13.9 million

» Recovery for state and federal government: $68.7 million

» State share: About $30 million to $40 million

» Largest settlement: $28 million from Merck Sharp & Dohme Corp.

"If you overcharge the state, if you violate state law doing it, we're going after you," he said.

Bennett said the settlements conclude what may only be a "first phase" of the state's efforts to recover money from what he said were Medicaid prescription drug overcharges. He said his office is "actively considering" another lawsuit and hopes it will be filed before he leaves office in December.

He declined to specify who might be sued and the reasons.

The latest and largest settlement was for $28 million from Merck Sharp & Dohme Corp., which was reached just before a jury was to hear closing arguments in Circuit Judge Gary Chang's courtroom after a trial that spanned several weeks.

Merck, as all the other companies that settled, did not admit any liability or wrongdoing.

Merck spokesman Ron Rogers said at the time, the agreement was in the "best interest of the company and it eliminates the uncertainty of ongoing litigation."

Bennett said the other larger amounts were $10 million from AstraZeneca Pharmaceuticals and four other companies; $8.2 million from Pfizer Inc. and Pharmacia Corp.; $6.5 million from Teva Pharmaceuticals and three other companies; and $5.2 million from Johnson & Johnson and four other companies.

About 20 other states filed similar lawsuits against the pharmaceutical companies, leading to massive litigation around the country. Bennett estimated that the recovery nationwide was in the hundreds of millions of dollars.

The industrywide practice involved a complicated market for prescription drugs that Bennett and others said was going on for some time before it was detected.

Rick Eichor, one of the Honolulu lawyers retained to handle the litigation, said the practice was first reported when a small pharmacy in Florida filed a whistleblower lawsuit in the mid-1990s about the drug prices.

Other suits subsequently followed as state authorities began learning of the allegedly inflated prices.

Hawaii's lawsuit alleged the companies were inflating prices for 13 years before its filing in 2006.

"Quite honestly, I don't think anybody can be proud of the fact that this scheme went on for more than a decade. The feds didn't see it. We didn't see it. It took a while, and that probably is not a great reflection on government," Bennett said.

"On the other hand, we did go after it vigorously, and I think the recovery is a deterrent to this happening again in Hawaii."

Bennett said the state filed the lawsuit not only to recover money, but to "restore transparency and fairness" in the prescription drug market.

"This practice, we believe, is not going on anymore."

The total amount of the settlements is $82,654,756, according to the attorney general's office. Attorney fees of 15 percent account for about $12.4 million and attorney costs, about $1.5 million.

The remainder of about $68.7 million will be shared with the federal government, which paid about 55 percent of the Medicaid prescription drug program. Bennett said there may be deductions to the amount the federal government receives, which could lead to the state recovering $30 million to $40 million.

The exact amount has yet to be determined, Bennett said.

"We did very well," Bennett said. "I think in comparison, we have results we can be proud of. Our taxpayers will come off very well."

Hawaii's share will go to the state general fund.

In its lawsuit, the state sought recovery for the amount it claimed it overpaid, but also asked for three-fold the amount in damages and other penalties based on violations of state false claims and unfair practices laws.

In the Merck case that settled for $28 million, for example, the amount the state claimed it overpaid because of Merck's prices was about $3.5 million, but state attorneys were also was seeking millions of dollars more in penalties.

Bennett said the state settlement is the largest through his tenure as attorney general that began in 2001, but not as huge as litigation against tobacco companies in the 1990s that resulted in hundreds of millions of dollars for the state.

Law firms that worked for the state were Miner, Barnhill & Galland in Wisconsin and Chicago that handled similar lawsuits on the mainland; Beasley, Allen, Crow, Methvin, Portis & Miles of Alabama and Price Okamoto Himeno & Lum of Honolulu. Eichor is with the local law firm.

The settlements were confidential under a court order Judge Chang issued last year at the request of the drug companies. Chang ruled that disclosing the terms might jeopardize continuing settlement negotiations. After the last settlement was reached with Merck last month, Bennett asked Chang to lift his order.

The judge set aside his order yesterday, clearing the way for Bennett's announcement.






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