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Pharma companies win significant drug pricing case in California

Pharma Compliance Alert, August 9, 2006

AstraZeneca and several other pharmaceutical companies won a significant victory in a California drug pricing case late last month. Santa Clara County alleged that drug companies overcharged 340B entities, providers such as hospitals and clinics that are entitled to discounted drug prices. Among the causes of action were fraud and breach of contract.

However, a judge dismissed the case, saying that the county lacked the standing to sue on behalf of the 340B entities. According to Robert Litt, a partner at Arnold & Porter who argued the case on behalf of the drug companies, the decision is significant because it narrows the statute.

"It suggests that the primary enforcement of the 340B program should come from the federal government, rather than individual 340B entities filing lawsuits," Litt tells Pharma Compliance Alert.

The 340B statute requires any drug company that wants to have its products reimbursed through Medicaid to sign a contract with the United States government that obligates it to offer special prices to 340B entities. The California decision supported the defense's argument that individual 340B entities could not sue under the statute.

Furthermore, the judge pointed out that the cases of overcharging were very small and did not seem to be systematic.

"It's far more likely that this is a complicated and a confusing program," Litt said.

Indeed, an OIG review of the overall 340B program issued just days before the judge's decision found that although there was some overcharging, overpayments were mostly modest. Instead of fraud, the OIG found inaccuracies in the Health Resources and Services Administration's ceiling prices, which the OIG said limit the administration's ability to monitor 340B program compliance.

Read the entire OIG report on its Web site.

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