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Drug suit could net millions for state

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Hawaii is expected to recover tens of millions of dollars from out-of-court settlements with drug manufacturers accused of gouging the state for Medicaid prescriptions.

The state sued more than 40 pharmaceutical companies four years ago, alleging that they inflated their prices, resulting in the state overpaying for drugs for tens of thousands of Medicaid patients here.

The amounts the companies will pay have not been disclosed because of an order by Circuit Judge Gary Chang prohibiting the release of those details.

After the state reached a settlement Wednesday with the remaining civil defendant, Merck Sharp & Dohme Corp., the country’s second-largest drug manufacturer, state attorneys asked Chang to lift the order that had been requested by the drug companies. A hearing is scheduled for Friday.

Legal observers indicate that the state will recover tens of millions of dollars, in line with settlements on the mainland in similar lawsuits.

In the Hawaii litigation, one of the early settlements reached in 2007 before the judge issued his order was for $1.15 million from Dey Inc. The state later reached settlements with about 40 other drug makers, including companies larger than Dey.

Honolulu attorney Brook Hart, who worked with mainland lawyers representing major drug manufacturer GlaxoSmithKline, which settled its case, said the state will receive "substantial compensation."

IN SUING 44 pharmaceutical manufacturers in 2006, state attorneys charged that the companies took advantage of a complicated and secretive market in inflating the prices, which helped skyrocket the state’s health care costs.

Hawaii’s Medicaid drug services rose from about $20.7 million in 1997 to $112.5 million in 2004, the state’s lawsuit said.

State attorneys cited an extreme example of an ulcer medication that was available for $27.70, but the amount charged to the Medicaid program was based on the manufacturer’s figure that the average wholesale price of the drug was $1,480.

About 20 other states filed similar lawsuits against the manufacturers in major litigation across the country.

Merck was the only manufacturer to choose to go to trial here.

During the trial, state attorneys maintained that Merck inflated its drug prices by 20 percent to 25 percent, knowing that the state Medicaid program would rely on those figures to pay pharmacies for Merck prescription drugs provided to the patients.

The state paid millions of dollars more than it should have, the state contended.

Merck’s lawyers said the state knew it was paying pharmacies higher prices than what the pharmacies paid for the drugs, but that the state wanted to keep the pharmacies in the Medicaid program, especially in rural areas.

Merck denied it should be held liable, but a jury verdict favorable to the state would have paved the way for state attorneys to ask the judge to add potentially tens of millions of dollars more in civil penalties under the state false claims and unfair practices laws.

The jurors in Chang’s courtroom listened to testimony in the trial that opened Sept. 2 and spanned nearly three weeks.

They reported to court Wednesday morning to hear closing arguments, but state and Merck lawyers disclosed earlier that morning they had reached a settlement. The jurors were dismissed.

"We believe the agreement is in the best interest of the company and it eliminates the uncertainty of ongoing litigation," Merck spokesman Ron Rogers said.

Rogers said the terms of the agreement are confidential, but the company does not admit any "wrongdoing or liability."

Attorney General Mark Bennett said the state presented a "powerful case" and private lawyers retained to handle the litigation did an "excellent job." He said Chang made the correct rulings prior to and during the trial.

Rick Eichor and Kenneth Okamoto of the Honolulu law firm Price, Okamoto, Himeno and Lum and mainland firms represented the state.

Many of Honolulu’s largest law firms along with mainland lawyers represented the drug manufacturers.

Bennett said the private attorneys retained by the state will get 15 percent of any recovery for fees. The rest of the money, minus attorneys’ expenses, will be split roughly equally between the state and federal government, which also covered the Medicaid payments, he said.

In his order, Chang said the "potential for successful alternative dispute resolution" of the remaining litigation here and around the country would be "severely jeopardized" by the disclosure of settlement terms to companies that have not yet settled.

Hart said the confidentiality is important to enable manufacturers to settle "on the merits" in ongoing mainland cases and not because of the settlements here.

In the request filed Thursday asking the judge to lift the order, Eichor disclosed that the companies in the state’s litigation have now all settled.

He argued the public has a "strong interest" in knowing what a public entity — the Attorney General’s Office — recovers in public funds. In addition, there is no suggestion, he said, that disclosures of similar mainland out-of-court agreements had a "negative impact" on settlements.

Eichor said he is not aware of any other similar court order in any of the states involved in the litigation .

He cited other attorneys general releasing settlement amounts. They include Missouri’s $31 million settlement with one of the companies sued in the Hawaii case; Pennsylvania’s $6.95 million settlement with another of the companies; and Kentucky’s $4.5 million settlement with a third company.

All three companies settled with the state in the Hawaii litigation.

He also noted that the 2007 state settlement with Dey was publicly disclosed.


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