Skip to main content
Iowa Attorney General
Main Content

November 13, 2009

Iowa Recovers $4.3 Million from Rx Drug Makers for Overcharges to Medicaid Program

“These practices have harmed taxpayers, undercut the Medicaid program, and driven up health costs for everyone else, too,” said Attorney General Tom Miller.

Des Moines -- Nov. 13, 2009. Eight prescription drug-making companies are paying Iowa $4.3 million to settle allegations that they purposefully reported false and inflated drug prices which serve as the basis for Medicaid reimbursements paid by taxpayers. Medicaid is the state-federal health care program for the poor.

“We alleged these companies – and seventy others – deliberately and unlawfully reported false drug price information in order to increase reimbursements paid by the Iowa Medicaid program and to increase the market share for their own drugs,” Attorney General Tom Miller said Friday at a news conference at his office in Des Moines.

Miller was joined at the news conference by Charlie Krogmeier, Director of the Iowa Dept. of Human Services.

Miller filed a lawsuit in October 2007 alleging that 78 pharmaceutical companies used unlawful pricing schemes that resulted in overcharges of millions of dollars to the Iowa Medicaid Program, which spent over $1.6 billion for the 78 companies’ drugs between 1992 and 2005.

“We are announcing settlement with the first eight companies today,” Miller said. “The suit continues with respect to all the others.” He said the first settlements are mostly with drug companies with relatively low drug utilization in the Iowa Medicaid program.

The settlements announced Friday are with Dey, Inc., and with a group including Abbott Laboratories, Inc.; Amgen, Inc.; Baxter International, Inc. (and associated companies); Ben Venue Laboratories, Inc.; Boehringer Ingelheim Roxane, Inc. (and associated companies); Immunex Corp.; and Roxane Laboratories, Inc. The companies denied any wrongdoing.

Dey, Inc., is paying $1.8 million in its settlement. The other group of seven is paying a total of $2.5 million. Since Iowa’s Medicaid program is funded significantly with federal moneys, about 60% of the settlement payments will go to the federal government. The State of Iowa was assisted in the case by the law firm of Kirby McInerney of New York.

Go to Dey, Inc. settlement agreement.   Go to settlement agreement for group including Abbott, Amgen, etc.

“I think some drug makers’ practices amounted to abuse of the Medicaid reimbursement system,” Miller said. “The practices have harmed taxpayers, undercut the Medicaid program designed to help the poor, and driven up health costs for everyone else, too.”

More background and detail –
Why failure to disclose truthful “Average Wholesale Price” is so important:

Medicaid programs reimburse medical providers (such as doctors, pharmacies, clinics, nursing homes, and hospitals) for prescription drugs. By federal law, providers are reimbursed on the basis of their “estimated acquisition cost” of the drugs, plus a dispensing fee for filling the prescription. Iowa and almost all states rely on the “average wholesale price” to arrive at the estimated acquisition cost. Average wholesale prices for specific drugs are supplied by the drug makers and published in “compendiums” by entities such as First Databank and McKesson Corp.

The problem, the lawsuit alleged, is that average wholesale prices – prices supplied by the drug manufacturers – do not accurately reflect the prices providers actually paid for the drug manufacturers’ products: the actual prices paid often are substantially lower. There often is a wide disparity, or “spread,” between the amount providers pay drug makers for drugs and the amount they are reimbursed, based on inflated Average Wholesale Prices. The State Medicaid program thus overpays providers to reimburse them for drugs.

The Attorney General’s 167-page lawsuit filed in 2007 alleged the 78 defendant pharmaceutical companies “intentionally report false prices” in order to create a spread between Medicaid providers’ actual acquisition costs and the amount drugs are reimbursed. The suit alleged drug companies use this spread, which would be appealing to providers because it increases their profit margin, as a marketing tool to drive up demand, market share and profits for their drugs.

The suit alleged pharmaceutical companies know prices they are reporting are false, and often are grossly inflated. The suit alleged that the price for drugs paid by the State, based on fraudulently-reported Average Wholesale Prices reported by the 78 companies, can exceed 40-50%, 100%, 200% or even 1000% or more of the real prices providers pay for prescription drugs.

“The net result is that Iowa overpays,” the suit alleged. The 78 companies’ unlawful pricing schemes “resulted in overcharges of many millions of dollars to the Iowa Medicaid Program.”

Miller said: “If drug companies want Medicaid to reimburse for their drugs, they are under an absolute obligation to participate in the system with integrity and honesty.”

“Transparency and accuracy in the price reporting system will lower Medicaid costs, strengthen competition, and lower prices throughout the prescription drug industry,” Miller said.

- 30 -

« Back

© 2022 State of Iowa Office of the Attorney General. All rights reserved.