States Taking Legal Action to Reduce Prescription Drug Costs

In a front-page story today, the Wall Street Journal examines the increasing number of state prosecutors who are taking legal action to reduce "soaring" prescription drug costs. States prosecutors have launched a "wide range of lawsuits and investigations," and more than 35 states have partnered "in hopes of repeating the success of the nationwide campaigns that led to the $208 billion tobacco-industry settlement and the pursuit of antitrust sanctions against software giant Microsoft Corp." States' Medicaid costs have increased 25% over the past two years, in part because of increased prescription drug costs, and the pharmaceutical industry has "mounted stiff resistance to any legislative effort to impose cost controls." As a result, the Journal reports that states "collectively are looking toward the courtroom" to reduce prescription drug costs. "Strength in numbers allows us to go toe to toe" with pharmaceutical companies, Ohio Attorney General Betty Montgomery (R) said, adding, "By the time we're done we will have an overwhelming majority of the states."

"Much of the state prosecutors' interest" in legal actions -- which include investigations of the Medicaid prices that pharmaceutical companies report to the state for drugs and lawsuits over drug makers' patent extensions on brand-name drugs -- "can be traced" to two federal settlements last year, the Journal reports. In the first case, Bayer Corp., a U.S. subsidiary of Bayer AG, agreed to pay a $14 million fine and "change its pricing behavior" to settle charges that the company inflated the average wholesale price -- which the government uses to set Medicaid reimbursement rates -- of the company's hemophilia and immune disorder treatments. In the second case, TAP Pharmaceutical Products Inc. paid $875 million to the government to settle charges of Medicaid fraud. States received $56.7 million of the TAP settlement to "compensate them for Medicaid overcharges." State prosecutors said that the two cases "exposed price manipulation by drug companies that now point the way for further investigation by state and federal law enforcement officials" (Caffrey et al., Wall Street Journal, 5/21).