Editorial: State right to sue over drug prices

Wednesday, Jan. 23, 2002 | 8:26 a.m.

The joke about the government paying $600 for a toilet seat is not funny when substituting the word taxpayers for government. Such pricing practices are especially not funny when we're talking about Nevada, not the Pentagon. The pharmaceutical industry, according to a civil lawsuit filed by the state, may be grossly overcharging for drugs and medicines vitally needed by Nevadans to stay healthy or alive.

The state pays for medications as part of its benefits package for state workers. It also subsidizes medications needed by senior citizens and other residents who need financial aid. Nevada Attorney General Frankie Sue Del Papa and her staff last year studied state costs for pharmaceutical products. In state District Court last week in Reno, Del Papa's office filed suit against 12 major drug manufacturers on behalf of all Nevada taxpayers.

A spokesman for one of the drug companies being sued said he believed the company's actions "are lawful and proper." Tim Terry, chief of Nevada's Medicaid Fraud Unit, however, likened the state's suit to a "gathering storm." He noted Congress has found evidence of drug overpricing and said it's the attorney general's hope that other states will study Nevada's suit and decide to join in.

Del Papa's staff found evidence that manufacturers manipulate the "Average Wholesale Price" to enhance sales and increase their market share of many drugs and medicines. The Average Wholesale Price, an index used nationally, is intended to reflect what health care providers pay for the drugs they dispense or prescribe. When health care providers bill governments, it is standard for them to use this index in charging for drugs and medications provided to the people covered through government programs. This index, Nevada says, should be set by truly independent, third-party reporting agencies. In fact, Nevada says, the private agencies set up to play that role are merely receiving and publishing information given them by the industry giants themselves.

Terry said the effect is that "we have a coyote in charge of the henhouse. There's no oversight in the practice of manufacturers setting the AWP. Someone needs to be checking, something has to be done."

Doctors and pharmacies dispensing drugs to people employed by the state or who are enrolled in state programs such as Medicaid are reimbursed by the state based on the index. Nevada is claiming that the indexed reimbursement rate to doctors and pharmacies is vastly higher than what doctors and pharmacies actually paid the drug manufacturers.

In industry parlance, this difference between what doctors actually pay and their reimbursement rate is known as the "spread." Why would the industry be interested in doctors and pharmacies profiting from such a spread? Nevada argues that the spread is motivation for health care providers to dispense or prescribe drugs with a higher spread. This profit margin, earned at the expense of Nevada taxpayers, is incentive to ignore competing drugs that are less expensive but work just as well.

While Nevada has not calculated its actual losses, the lawsuit says the number is in the tens of millions -- money that could otherwise be spent on roads, paying schoolteachers or for other state needs. In addition to seeking financial compensation for overcharges, Nevada in its suit asks the court to order the drug companies to provide accurate information about wholesale prices. The state logically reasons that the indexes upon which they base their reimbursements should be trustworthy.

The attorney general's office is right to pursue this issue. The state should not be overcharged for ensuring the quality of people's health.