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Attorney General Lockyer Accuses Two Major Drug Companies of Inflating Prices, Cheating California Taxpayers

Tuesday, January 7, 2003
Contact: (415) 703-5837

(LOS ANGELES) – Attorney General Bill Lockyer today accused two major pharmaceutical companies, Abbott Laboratories and Wyeth, of cheating California taxpayers out of millions of dollars by reporting false drug pricing data which is relied upon by the state's Medi-Cal program to set reimbursement rates.

"This prescription drug-pricing fraud took advantage of sick patients and cost California taxpayers tens of millions of dollars in unnecessary health care costs," Lockyer said. "The drug makers hid the true costs of their drugs so that Medi-Cal reimbursements would be artificially inflated. We believe this kind of illegal conduct bloated some drug prices by up to 1,198 percent and contributed to soaring health care costs for needy Californians."

The complaint was filed in Los Angeles Superior Court under California's False Claims Act, which provides treble damages and penalties of up to $10,000 per false claim. Illinois-based Abbott Laboratories manufactures a significant number of the pharmaceutical products approved for usage by Medi-Cal. Wyeth of New Jersey is another major national drug company. In California, health care providers are reimbursed for drugs prescribed to Medi-Cal patients. The reimbursement rates are calculated using pricing data supplied by drug manufacturers. The complaint alleges that the drug makers grossly misrepresented the prices, resulting in inflated costs to the state's $27 billion Medi-Cal program, which provides essential health care to poor, elderly and disabled Californians.

The complaint was prompted by a whistleblower lawsuit filed in California by a small pharmacy, Ven-A-Care, which gathered data on the vast discrepancies between the actual prices that it was paying to manufacturers versus the over-inflated prices reported to Medicaid, which is called Medi-Cal in California. After investigating the pricing practices of more than two dozen pharmaceutical companies participating in the state's Medi-Cal program, the California Attorney General's Office intervened in the case. Lockyer said he expects similar lawsuits will be filed against other pharmaceutical companies.

The complaint notes that in 1996, Abbott reported that a one-gram dose of its antibiotic Vancomycin was priced at $55.59. Relying upon this information, the Medi-Cal program set its reimbursement rate at $55.59. However, the actual cost to Ven-A-Care was $6.29. Medi-Cal was defrauded into paying a 752 percent mark-up.

The small-volume pharmacy similarly paid $11.20 for a 10 milliliter dose of the sedative Ativan, manufactured by Wyeth, while the Medi-Cal program paid $70.19, resulting in a 523 percent mark-up.

"While the number of Medi-Cal patients declined by 15 percent between 1997 and 2001, Medi-Cal's prescription drug costs have doubled," Lockyer said. "We believe one of the reasons is the inflated drug prices reported by pharmaceutical companies."

In addition to the fiscal harm suffered by the state, these illegal marketing schemes may have created a public health risk. For example, Abbott's Vancomycin has been known for over twenty years as the "antibiotic of last resort" for life threatening or severe infections involving bacteria which have developed resistance to other antibiotics.

For years, the Centers for Disease Control and Federal Drug Administration have sponsored educational campaigns encouraging providers to limit their use of Vancomycin and issued strong admonishments that over-utilization of this last line of defense can and already has led to the development of bacteria resistant to Vancomycin. However, Abbott has created a large financial inducement for physicians and pharmacies to prescribe Vancomycin in scenarios where it may not have been necessary.

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