John Curry & Damon Asbury re: PAL Settlement

From John Curry, October 20, 2006

Subject: Re: PAL settlement
Damon,

Thanks for your input. After our short discussion yesterday about many PBM's having a less than sterling track record, maybe the University of Michigan PBM plan could be examined by those who are studying the choice of our future PBM.

The U. of M. didn't even "combine" with any other entity -- they did it by themselves for themselves. They serve fewer clients (80,000 active and retired) than does the Ohio STRS Rx program. If you are interested in looking at their program or willing to pass it on I will furnish you with the information I have acquired. It has just been put into service as of January 2006. I might add that transparency (something we both agreed that is needed in a PBM) was of paramount importance in their design of the plan.

John

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From Damon Asbury, October 20, 2006
Subject: RE: PAL settlement

John:

I asked staff to look at the proposed settlement and advise me as to how and if it applies to STRS Ohio. The quick read is that we are excluded from the class, because we are a government entity. Even if we are not excluded it seems like the concessions in the settlement are prospective only -- with price rollbacks first effective in 2007.

In addition, our contract with CareMark utilizes Medispan instead of First Databank as the basis for determining brand drug pricing. Therefore, it is doubtful that it will apply to us, except as pricing in the marketplace changes to reflect the ruling.

Damon
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From: John Curry, October 13, 2006

Damon,

Will STRS and/or retirees see any beneficial results of this settlement? Thank you.

John

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PAL Announces Major Settlement with First Databank

FOR IMMEDIATE RELEASE

Friday October 6, 2006

CONTACT: Alison Strock
(202) 628-7772 strock@venturecommunications.com

SETTLEMENT OF CONSPIRACY CASE FORCES MAJOR RESTRUCTURING OF PRESCRIPTION DRUG PRICING SYSTEM

Up to $4 Billion in Rx Drug Savings Expected

Boston, MA, October 6 — The Prescription Access Litigation Project (PAL) today announced a groundbreaking settlement in a nationwide class-action lawsuit brought by PAL members New England Carpenters Health Benefits Fund and AFSCME District Council 37 Health and Security Plan against First Databank, Inc., the most widely-used publisher of prescription drug prices in the United States. The milestone settlement is forecasted to result in a 4 percent rollback of prices on hundreds of drugs which represent 95 percent of the nation's retail branded drug sales. The net impact will be a staggering $4 billion in savings for health plans which have been overcharged for prescription drugs.

"This settlement is truly remarkable and represents real progress in holding drug industry players accountable for the countless ways they manipulate the system in order to wring out unjust profits,” said Alex Sugerman-Brozan, Director of PAL.

The case alleged that from 2002 to 2005, First Databank conspired with leading prescription drug wholesale provider, McKesson Corp., to arbitrarily increase by 5 percent the markups between what pharmacies pay wholesalers for prescription drugs and what health plans and insurers reimburse pharmacies for those prescription drugs. Pharmacies typically purchase drugs from wholesalers, at a price based on an industry price benchmark called the "Wholesale Acquisition Cost” (WAC). When pharmacies dispense drugs to consumers, insurance companies and health plans typically pay the pharmacy a price for the prescription that is based on another benchmark called "Average Wholesale Price,” or AWP. The difference between what the pharmacy pays the wholesaler and what the health plan pays the pharmacy is called the “spread,” and it is the pharmacy"s profit on that prescription.

AWP is a controversial and outdated system, which has created billions of dollars in unnecessary drug spending every year as reimbursement prices for drugs have far exceeded the market price of drugs. AWPs are not based on actual sales, making them susceptible to being manipulated. The plaintiffs alleged that First Databank and McKesson illegally used the increased markups as a symbiotic business strategy for their respective drug-wholesaling and drug price publication production. The case claimed that McKesson and First Databank agreed to increase the “spread” between AWP and WAC from 20% to 25% on hundreds of drugs, to benefit McKesson's customers and the purchasers of First Databank"s pricing guides. McKesson was not part of today's settlement and remains a defendant in the case.

Under the settlement, First Databank has agreed to “rollback” the spread from 25% down to 20% on hundreds of the most-commonly prescribed drugs. This rollback will reduce what health plans pay pharmacies for the drugs that represent 95% of the retail branded drug market. This is projected to result in savings of approximately $4 billion at a time when drug costs are consuming an ever-greater portion of the nation"s health care dollar. However, the most important outcome of today’s settlement is First Databank’s agreement to cease publishing AWP data within two years of the Court’s approval of the settlement. First Databank is a primary source of AWP data used by insurers, employers, pharmacies and Pharmacy Benefit Managers (PBMs). First Databank’s ceasing the publishing of AWP data is thus likely to be the end of the AWP system. This is likely to result in a shift to the use of a more transparent and accurate way of paying for drugs, which will have ripple effects throughout the health care system.

“AWP is on the ropes. We are hopeful that this settlement will knock it out once and for all and help usher in a new era of transparency in drug-pricing,” PAL’s Sugerman-Brozan emphasized. “The system that replaces AWP can only be an improvement.”

The settlement reached today most directly benefits third-party payers, including health insurance plans, union benefit funds and self-insured employers who pay pharmacies for prescription drugs dispensed to their members, but have been forced to pay artificially inflated prices. Mark Erlich, Chair of the New England Carpenters Health Benefits Fund, commented, “We got involved in this case to make real change for working people, and that’s what we’ve achieved today. Our Fund works hard to provide affordable benefits for our union members and their families, but our hands are tied when this kind of price-fixing is going on.”

Rosaria R. Esperon, Administrator of AFSCME District Council 37 Health and Security Plan, asserts that the proposed settlement will allow her Plan to continue to provide affordable prescription drug benefits for hard working members and their families. “In the face of double digit annual increases, this lawsuit exposed the systematic upward manipulation of the prices of brand name drugs -- a practice that bled real dollars from our plan and, ultimately, from our members’ pockets.”

AFSCME District Council 37 Health and Security Plan and the New England Carpenters Health Benefits Fund are represented in the case by Hagens Berman Sobol Shapiro, one of the most experienced law firms in the country in large-scale public-impact litigation. The settlement agreement filed today awaits approval by the U.S. District Court in Massachusetts, where the case is currently pending. The price rollback is expected to go into effect eight to nine months after final approval of the settlement, resulting in major savings beginning in late 2007.

For more information about the First Databank lawsuit and settlement, please visit the PAL website at www.prescriptionaccess.org/index.php?doc_id=996