Districtcouncil37.com

FOR IMMEDIATE RELEASE
CONTACT: Alison Strock
SETTLEMENT OF CONSPIRACY CASE FORCES
MAJOR RESTRUCTURING OF PRESCRIPTION DRUG-PRICING SYSTEM
Up to $4 Billion in Rx Drug Savings Expected

Boston, MA, October 6 — The Prescription Access Litigation Project (PAL) today announced a
groundbreaking settlement in a nationwide class-action lawsuit brought by PAL members New
England Carpenters Health Benefits Fund and AFSCME District Council 37 Health and Security
Plan against First Databank, Inc., the most widely-used publisher of prescription drug prices in
the United States. The milestone settlement is forecasted to result in a 4 percent rollback of
prices on hundreds of drugs which represent 95 percent of the nation’s retail branded drug sales.
The net impact will be a staggering $4 billion in savings for health plans which have been
overcharged for prescription drugs.
“This settlement is truly remarkable and represents real progress in holding drug industry players
accountable for the countless ways they manipulate the system in order to wring out unjust
profits,” said Alex Sugerman-Brozan, Director of PAL.
The case alleged that from 2002 to 2005, First Databank conspired with leading prescription drug
wholesale provider, McKesson Corp., to arbitrarily increase by 5 percent the markups between
what pharmacies pay wholesalers for prescription drugs and what health plans and insurers
reimburse pharmacies for those prescription drugs. Pharmacies typically purchase drugs from
wholesalers, at a price based on an industry price benchmark called the “Wholesale Acquisition
Cost” (WAC). When pharmacies dispense drugs to consumers, insurance companies and health
plans typically pay the pharmacy a price for the prescription that is based on another benchmark
called “Average Wholesale Price,” or AWP. The difference between what the pharmacy pays
the wholesaler and what the health plan pays the pharmacy is called the “spread,” and it is the
pharmacy’s profit on that prescription.
AWP is a controversial and outdated system, which has created billions of dollars in unnecessary
drug spending every year as reimbursement prices for drugs have far exceeded the market price
of drugs. AWPs are not based on actual sales, making them susceptible to being manipulated.
The plaintiffs alleged that First Databank and McKesson illegally used the increased markups as a
symbiotic business strategy for their respective drug-wholesaling and drug price publication
production. The case claimed that McKesson and First Databank agreed to increase the “spread”
between AWP and WAC from 20% to 25% on hundreds of drugs, to benefit McKesson’s
customers and the purchasers of First Databank’s pricing guides. McKesson was not part of
today’s settlement and remains a defendant in the case.
30 Winter Street/ 10th Floor, Boston, MA 02108 www.prescriptionaccess.org www.communitycatalyst.org Under the settlement, First Databank has agreed to “rollback” the spread from 25% down to 20% on hundreds of the most-commonly prescribed drugs. This rollback will reduce what health plans pay pharmacies for the drugs that represent 95% of the retail branded drug market. This is projected to result in savings of approximately $4 billion at a time when drug costs are consuming an ever-greater portion of the nation’s health care dollar. However, the most important outcome of today’s settlement is First Databank’s agreement to cease publishing AWP data within two years of the Court’s approval of the settlement. First Databank is a primary source of AWP data used by insurers, employers, pharmacies and Pharmacy Benefit Managers (PBMs). First Databank’s ceasing the publishing of AWP data is thus likely to be the end of the AWP system. This is likely to result in a shift to the use of a more transparent and accurate way of paying for drugs, which will have ripple effects throughout the health care system. “AWP is on the ropes. We are hopeful that this settlement will knock it out once and for all and help usher in a new era of transparency in drug-pricing,” PAL’s Sugerman-Brozan emphasized. “The system that replaces AWP can only be an improvement.” The settlement reached today most directly benefits third-party payers, including health insurance plans, union benefit funds and self-insured employers who pay pharmacies for prescription drugs dispensed to their members, but have been forced to pay artificially inflated prices. Mark Erlich, Chair of the New England Carpenters Health Benefits Fund, commented, “We got involved in this case to make real change for working people, and that’s what we’ve achieved today. Our Fund works hard to provide affordable benefits for our union members and their families, but our hands are tied when this kind of price-fixing is going on.” Rosaria R. Esperon, Administrator of AFSCME District Council 37 Health and Security Plan, asserts that the proposed settlement will allow her Plan to continue to provide affordable prescription drug benefits for hard working members and their families. “In the face of double digit annual increases, this lawsuit exposed the systematic upward manipulation of the prices of brand name drugs -- a practice that bled real dollars from our plan and, ultimately, from our members’ pockets.” AFSCME District Council 37 Health and Security Plan and the New England Carpenters Health Benefits Fund are represented in the case by Hagens Berman Sobol Shapiro, one of the most experienced law firms in the country in large-scale public-impact litigation. The settlement agreement filed today awaits approval by the U.S. District Court in Massachusetts, where the case is currently pending. The price rollback is expected to go into effect eight to nine months after final approval of the settlement, resulting in major savings beginning in late 2007. For more information about the First Databank lawsuit and settlement, please visit the PAL website at www.prescriptionaccess.org/index.php?doc_id=996 30 Winter Street/ 10th Floor, Boston, MA 02108 www.prescriptionaccess.org www.communitycatalyst.org The Prescription Access Litigation Project (PAL) (s a project of Boston-
based Community Catalyst. PAL is a nationwide coalition of over 120 state, local, and national senior,
labor and consumer health advocacy groups in 35 states fighting to make prescription drugs affordable. The
organizations in the PAL coalition have a combined membership of over 14 million people. PAL works to
end illegal drug industry practices that increase the price of prescription drugs beyond the reach of the
American consumer, using class action litigation and public education. Since 2001, PAL members have
filed 26 sets of lawsuits targeting such practices.
Community Catalyst ( a Boston-based national advocacy organization
that builds consumer and community participation in the shaping of our health system to ensure quality,
affordable health care for all.
The New England Carpenters Health Benefits Fund (ides comprehensive
health care coverage to some 8,700 families representing 22,000 lives. Member benefits include office
visits, hospitalization and surgery, home health care, prescription drug coverage, mental health and
substance abuse treatment, dental and vision care.
AFSCME District Council 37 Health and Security Plan ides a wide array
of health and welfare benefits, including a prescription drug benefit, for 120,000 represented
municipal employees and retirees of the City of New York, various authorities and cultural
institutions, plus their spouses and dependants for a total of 300,000+ lives.
Hagens Berman Sobol Shapiro, LLP (HBSS) (ne of the premier law firms in the
country in large-scale public-impact litigation. HBSS has earned a special reputation as a nationwide
leader in complex prescription drug litigation. Through its representation of the members of the
Prescription Access Litigation Project , HBSS lawyers have been appointed to a leadership position in
many large-scale prescription drug cases over the last five years. HBSS currently serves as a lead counsel
in In re Pharmaceutical Industry Average Wholesale Price Litigation as well as in major antitrust class
actions involving the drugs TriCor, OxyContin, and Wellbutrin, and deceptive promotion cases involving
the drugs Vioxx, Celebrex, and Nexium. HBSS also served as a lead counsel in In re Lupron Sales and
Marketing Practices in which it obtained $150 million class settlement; In re Relafen Antitrust Litigation,
in which it secured a $75 million settlement for consumers and third-party payors; and many other
significant prescription drug class actions. With offices in Boston, Chicago, Los Angeles, Phoenix, and
Seattle, HBSS is also one of the largest plaintiffs’ class action and multi-party litigation firms in the nation.
30 Winter Street/ 10th Floor, Boston, MA 02108 www.prescriptionaccess.org www.communitycatalyst.org

Source: http://www.districtcouncil37.com/news/newsreleases/2006/PALdrugpricing.pdf