Judge: preliminarily, drug decision fair

PHILADELPHIA --A proposed legal settlement that would roll back the price markup on thousands of prescription drugs has received a federal judge's preliminary finding of fairness.

The case in U.S. District Court in Boston centers around lists of so-called average wholesale prices for branded drugs published by Hearst Corp. unit First Databank.

If approved, the settlement could save consumers and insurers billions of dollars. The agreement has prompted some concern in the market over potential consequences in the drug supply chain, particularly for pharmacies and pharmaceutical benefit managers.

First DataBank denies wrongdoing and would pay no damages under the agreement.

In an order dated Tuesday, U.S. District Judge Patti B. Saris wrote that "on a preliminary basis, the settlement is fair."

The judge has not yet entered an order granting preliminary approval of the settlement, as she asked lawyers to provide further information related to certification of the class of plaintiffs in the case, plaintiffs' attorney Thomas Sobol said via e-mail Thursday.

Under the settlement, First DataBank would cut average wholesale prices for thousands of drugs on its benchmark list by about 4 percent and eventually stop publishing the average wholesale price. Consumers and third-party payers would receive no monetary damages but could save an estimated $4 billion in drug costs in one year under the settlement.

Several retiree and worker funds filed the lawsuit against First DataBank and McKesson Corp., a major drug wholesaler, alleging they worked together to inflate the markup on numerous prescription drugs.

In 2002, First DataBank suddenly raised prices on its "average wholesale price" list, a benchmark used in setting prices for prescription medicines. Where previously many but not all average wholesale prices had a 20 percent markup from the wholesale acquisition cost, most drugs on the average-wholesale-price list soon brought a 25 percent markup, according to The Wall Street Journal.

Court documents suggest that McKesson played a key role in the rise of the benchmark prices that First DataBank published, but McKesson, of San Francisco, has denied wrongdoing and is defending itself against the lawsuit.

Separately, pharmacy benefit manager Express Scripts Inc., which is not a party to the case, wrote to the judge this week expressing concern about the timing in the proposed change to the average wholesale prices.

The company expressed concern about what it called a discrepancy between the settlement agreement and plaintiffs' briefs as to when the adjustment would occur.

Plaintiffs have told the court the change would occur 60 days after the effective date of the agreement or 270 days after entry of a preliminary approval order, whichever is later, Express Scripts said. The agreement itself, however, indicates the change "may occur at any moment," the company said.

Express Scripts asked the court to clarify, in any preliminary approval of the settlement, that the change would occur in the timeframe that the plaintiffs detailed to the court.

Several companies have sought to allay market concerns that the proposed settlement could financially pressure pharmacy benefit managers and drug stores.

Express Scripts and other PBMs have said their contracts with most clients include provisions to mitigate the effects of a change in published average wholesale prices. Medco Health Solutions Inc. said a lowering of average wholesale prices should have no effect on that PBM's short-term or long-term profitability.

CVS Corp., a major drug store chain, has said it would renegotiate the reimbursement terms of its commercial contracts if average wholesale prices were suddenly cut in a material way. Benefit plans typically reimburse drug stores based on a formula that uses average wholesale price for a drug minus a negotiated discount plus a dispensing fee. A big change in the average wholesale price would mean renegotiating the discount or dispensing fee, CVS said last month.

"From my perspective, the impact of this case has been overblown," Adam J. Fein, president of Pembroke Consulting, a pharmaceutical supply-chain industry consulting firm, said Thursday, predicting minimal effect from a one-time adjustment to average wholesale prices.

(First DataBank parent Hearst is a partner with Dow Jones & Co., publisher of The Wall Street Journal and Dow Jones Newswires, in publishing SmartMoney magazine.)