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First Databank McKesson Medispan
About First Databank and McKesson
Pharmacies usually buy drugs from a wholesaler and then sell them to consumers. Most consumers do not pay the full price of a prescription, but instead pay a co-payment. The bulk of the cost of a prescription is usually paid by an insurance company (such as an HMO) or a government program (such as Medicaid). This payment to the pharmacy is called a “reimbursement.” It is not based on what the pharmacy actually paid for the drug, but instead is based on what is supposed to be an estimate of what pharmacies generally pay for that drug.
The reimbursement that pharmacies receive from insurance companies is usually based on a price benchmark called the “Average Wholesale Price,” or “AWP.” The pharmacy's profit is the difference between what they pay to the wholesaler (based on WAC) and what they are paid by the insurance company or government (based on AWP). This amount is called the “WAC-to-AWP spread.”
Like the WAC, the AWP is self-reported by drug companies to publishing companies, including First Databank. AWP is not based on any actual prices paid by anyone. Nearly every insurance company that pays for drugs uses the AWP to decide how much to pay for drugs. Historically, the AWP was calculated by adding either 20% or 25% to WAC. Once the “markup” was chosen, it generally stayed the same over time.
PAL Member Litigation
The lawsuits claim that in 2002, McKesson and First Databank began arbitrarily raising the WAC-to-AWP spread to 25% for over 400 brand-name drugs. Those drugs previously had only 20% WAC-to-AWP spread.
The suits go on to allege that McKesson used this “5% scheme” to provide a benefit to their large pharmaceutical retail chain clients, who would then earn an extra amount with each prescription. They allege that First Databank went along with the scheme to ease the burden of establishing accurate spreads and to curry favor with McKesson so that McKesson would use First Databank as the source of drug prices for its customers.
As a result of this arbitrary increase, the suits claim, millions of consumers and third-party payors (insurance companies, union benefit funds and others) have had to pay drug prices that were unnecessarily and artificially inflated.The first case was filed in June 2005 in the U.S. District Court for the District of Massachusetts and was deemed to be a “related” case to the Average Wholesale Price Multi-District Litigation. A second case was filed in the U.S District Court for the Northern District of California on February 1, 2006, but was dismissed on May 11, 2006.
On May 22, 2007, the plaintiffs announced that they had reached a similar settlement to the one above with Medispan, the only real competitor to First Databank in the publishing of AWPs. This addresses the condition in the settlement with First Databank that First Databank's agreement to cease publication of AWP data within two years of the Court’s approval of the settlement is conditional to no competitor continuing to publish similar AWP data. A link to the settlement with Medispan is below.
In August 2007, the Court ordered that notices be published notifying consumers of the settlement and mailed to Third Party Payors (health plans, insurers, etc.) On August 2, 2007, Judge Saris agreed to certify the case as a class action and certified two classes, one of consumers and one of third party payors. The Court at this juncture certifyed the consumer class for liability and for damages, but only certified the third party payor class for liability and equitable relief.
A fairness hearing to evaluate whether the settlement is "fair, reasonable and adequate" and should be approved was held on January 22, 2008. At the hearing, the plaintiffs and First Databank and Medispan presented information on why the settlements should be approved. A number of organizations that are not parties to the case filed "amicus curiae" (friend of the Court) briefs concerning the settlements. These included trade groups representing independent and chain pharmacies and Pharmacy Benefit Managers arguing that the settlement should not be approved. Prescription Access Litigation and 19 organizations with a combined membership of more than 6 million individuals submitted an amicus brief arguing that the settlement is in the best interests of consumers and third party payors and should be approved. A copy of that brief is below. The Judge refused to grant final approval to the settlement, citing in particular her concerns about the proposed "rollback" applying to drugs that were not part of the original complaint and about the absence of monetary relief for class members (particularly for cash-paying consumers), and her unwillingness to approve ordering First Databank and Medispan to cease the publication of AWPs with two years of the settlement becoming final.
On March 19, the plaintiffs and First Databank submitted an Amended Settlement to the Court, addressing the concerns the Court raised at the January 22, 2008 Final Approval Hearing. Also on March 19, 2008, the Judge issued its order certifying two classes in the case against McKesson Corporation.
On December 17, 2008, the Court held a second "Final Approval" hearing for the First Databank and Medispan settlements. A number of parties and organizations that are not class members again objected to the settlement. A ruling from the Judge on whether or not the settlement will receive final approval is pending.
Latest Update: Settlement with McKesson
On November 21, 2008, the plaintiffs reached a $350 Million settlement with McKesson, making it one of the largest settlements in drug litigation history. The settlement comes just before the parties were to go to trial on December 1, 2008. The settlement agreement allocates the $350 million among three different groups: Third Party Payors ($288,675,000), consumers who paid a graduated co-payment ($20,900,000), and cash paying consumers ($40,425,000). On December 11, 2008, the Court held a hearing on the proposed settlement, and later granted "preliminary approval," which has allowed notice to be sent to the class members, and started a period of several months during which class members can choose to file claims or object to the settlement. Also, a website has been established with the details of the settlement and claims process. See http://www.mckessonawpsettlement.com/
The final approval hearing is currently scheduled for July, 27, 2009. You can read the PAL blog on the settlement with Mckesson here.
First Databank Plaintiff Class
Medispan Plaintiff Class
McKesson Plaintiff Class
Details about the settlements and classmembers' rights can be found at http://www.mckessonawpsettlement.com/