In final days, outgoing IL A/G announces $135M settlement with drugmaker Teva over drug prices

By D.M. Herra | Jan 16, 2019

A $135 million settlement with Teva Pharmaceuticals USA Inc. ticks another defendant off the list of 47 drug companies sued by the state of Illinois over alleged inflated drug prices.

In 2005, Attorney General Lisa Madigan sued the drug makers for using deceptive practices to conceal the true wholesale cost of prescription drugs, causing Medicaid, Medicare and private insurers to issue providers reimbursements higher than the price actually paid for the drug.

Prescription drug pricing is a complex and opaque system. Drug companies do not publicly release their pricing data, claiming it is proprietary. Third-party data companies survey drug wholesalers to calculate the average wholesale price of more than 60,000 drugs and provides that information to the state and private insurers. When a drug is purchased by an end consumer, Medicaid then reimburses the provider for the wholesale cost plus a dispensing fee.

According to the lawsuit, drug companies commonly sell prescriptions to wholesalers at grossly inflated prices. At the same time, they negotiate much lower prices with providers. The wholesaler sells the drug to the provider at the agreed-upon provider price and then bills the drug company for the difference. The provider’s insurance reimbursement is based on the phony inflated price, and they are able to pocket the difference.

Drug companies use this tactic to encourage providers to prescribe and sell their products over their competitors’. According to the lawsuit, one drug maker sued a third-party data company for publishing the actual wholesale price of a drug instead of the phony inflated price, claiming it put them at a competitive disadvantage.

Madigan estimated the state has overpaid prescription benefits by the hundreds of millions. In addition, Medicaid Part B beneficiaries and the uninsured have paid out of their own pockets millions more than their drugs actually cost.

The lawsuit gave several examples of allegedly deceptive pricing uncovered by state and federal investigators over the roughly 20 years since the practice first came under scrutiny. In one case, the lawsuit stated, investigators discovered Medicaid had paid a $740 reimbursement for a chemotherapy drug that had a true cost of just $7.50. In addition, the patient in that case paid a $148 co-pay. When a drug company executive testifying before Congress was asked why the company engaged in deceptive practices, he replied that the way the system was set up, if his company were to stop offering providers a price spread they would simply not buy that company’s products, the lawsuit said.

In addition to making drugs unnecessarily expensive, Madigan claimed the financial incentive might result in doctors and pharmacists prescribing or recommending the drugs that yield them the greatest profits rather than the drug that is likely to have the best outcome for the patient. A doctor might prescribe an unnecessary drug or a less-effective version, and a pharmacist might urge use of a brand-name drug over a generic.

The settlement with Teva leaves only nine manufacturers still fighting Madigan’s lawsuit. To date, the state has recovered more than $436 million in settlement awards from the lawsuit, according to the attorney general’s office.

On Monday, Jan. 14, Madigan was replaced by Kwame Raoul as the state’s attorney general, when Raoul took the oath of office following his November win over Republican nominee Erika Harold.

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Illinois Attorney General Teva Pharmaceuticals USA, Inc.

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