AWP and does it affect STRS retirees?...You bet it does...it affects all Americans!

From John Curry, July 17, 2007
Subject: AWP and does it affect STRS retirees?...You bet it does...it affects all Americans!

brandmedia.com

Don't want to read 183 pages of a federal district court ruling? I don't blame you BUT, here's a compilation of a federal case ruling that affects all of us who have ever purchased an Rx and didn't have the slightest idea of what goes on "behind the scenes" to cause our purchase to be inflated. We have been the unwitting players in a game known as "market the spread" that has left our wallets the victim of the game that we didn't even know that we participated in! Truly, AWP means "ain't what's paid!" John

P.S. If you really want to read the ruling (all 183 pages of it) there is a link to that document at the very end of the article.

6-28-2007

Can't Be Bothered to Read That Massive Drug Price Ruling? Start Here!

You can be forgiven for not reading Massachusetts federal judge Patti Saris's huge ruling on average wholesale price litigation (inflating drug prices to make companies and doctors rich, in layman's terms), which was handed down last week.

It's 183 pages, after all.

So I thought I'd do all my readers a favor and extract the juicy bits for your entertainment. Have fun! If you've got a lot of free time, you can download the full text at the end of this post.

Because AWP is the predominant benchmark for reimbursement by the government and third-party payors, plaintiffs contend that manufacturers grossly inflate each drug’s AWP to create a “spread” between the doctor’s real acquisition cost and the fictitious published AWP, and that drug manufacturers then “market the spread” in order to obtain market share over a competitor’s drug. Indeed, some doctors began to refer to “AWP” as “ain’t what’s paid.”

The evidence established that the Medicare system created perverse incentives by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry without any oversight. Many pharmaceutical companies unscrupulously took advantage of that flawed AWP system by establishing secret mega-spreads between the fictitious reimbursement price they reported and the actual acquisition costs of doctors and pharmacies.

Many doctors (particularly oncologists and urologists) eagerly entered the fray by exacting discounts and rebates from manufacturers. Many doctors purchased the drugs based on their “return to practice,” which means the profitability of the drug to the practice.

Disturbingly, the patient was a vulnerable victim of this strategy of “marketing the spread” because when the AWP was raised, the Medicare patient was required to make a co-payment of 20 percent of the inflated AWP…Not surprisingly, none of the cancer patients who testified had ever heard of AWP, and they trusted their doctors to pick drugs for them based on effective treatment criteria, not profitability.

What was remarkable, though, was how few of the pharmaceutical witnesses at trial were concerned about the impact of an inflated AWP on old and sick people making co-payments based on a percentage of AWP. Indeed, from the vantage point of AstraZeneca’s sales team, they were actually assisting patients because Zoladex was cheaper than Lupron in treating prostate cancer.

The Office of Inspector General reports that Medicare reimbursement for the top 10 oncology drugs ranges from 20 percent to nearly 1000 percent per dosage more than acquisition costs.

The conjunction of manipulation of the AWP to induce customers to purchase a product with active marketing of the spread is strong evidence of the unlawful intent necessary to trigger the anti-kickback statute.

According to GAO and CMS, in 2001 Medicare overpaid Part B drugs by over $1 billion. … In 2002 oncologists collected approximately $600 million in overpayments.

(Congress ended the AWP spreads in 2003, and unsurprisingly, drug prices plummeted)

Even with the increase in administration fees paid to doctors, Medicare has had overall cost savings from the decrease in drug expenditures for Zoladex, Taxol, Remicade, Procrit, and albuterol. The total reimbursement for a typical administration of Zoladex, including both product cost and administration fee, fell from $451.56 in 2002 to $226.48 in 2005 under the new ASP system.

(But back in the bad old days …)

The reported AWP for Zoladex, however, was drifting farther and farther away from the actual selling price of the drug. In 1995 the spread rose to over 40% and continued rising steadily to reach over 140% in 2002. During that year, the AWP for a 3.6 mg dose of Zoladex was $469.99, while the ASP was only $194.62. Despite understanding that patients and payors were paying for Zoladex based upon these inflated AWPs, AstraZeneca seemed unconcerned. Alan Milbauer, AstraZeneca’s VP of Public Affairs, acknowledged that “yes, the reimbursements went up, but it was overall less cost to the health care system and less cost to the patient. So I actually felt good about that.”

Sales representatives sent a letter to potential accounts encouraging them to switch to Zoladex … A section titled “DO THE MATH!” then explained exactly how to calculate the “Return to Practice.”

(Internally, J&J execs began to have ethics and public relations concerns about marketing the spread, but … )

J&J actively encouraged their sales representatives to market the spread on Procrit to physicians. The materials for a Sales Training Workshop indicate that one of the training objectives was to “[k]now how to explain PROCRIT Profit to the Pharmacist.”

(J&J) Sales Manager John Hess … directed the sales representatives to be discreet in their use of the profit information, instructing them to “simply draw out the scenario on a piece of scratch paper asking for the office billing fee, injection fee, and acquisition fee based on medicare or non-medicare.” The memo closes with an underlined directive: “Do not distribute this memo to your offices. This is for your information only!”

BMS also knew that AWP was an “artificially inflated number.” Yet despite these understandings, there was very little concern, if any, about payors and cancer patients overpaying for their drugs. Sales Representative Douglas Soule best summed up the attitude of BMS when he said, “it’s just the system.” When asked if it ever bothered him that people were paying a percentage of a phony price, he finally responded, “No.”

The overwhelming evidence at trial established that AWPs are fictitious and are rarely, if ever, prices paid by doctors … Nonetheless, defendants argue that they had no intent to deceive the patients or payors who ultimately paid for their products.

While establishing mega-spreads itself constitutes egregious misconduct, marketing those spreads so that doctors would choose a drug based on profit rather than therapeutic value is particularly outrageous and unethical. Even the industry understood that spread-marketing violated industry standards. Both BMS and J&J instructed their sales teams that the spread should not be a promotional or marketing tool, although these instructions were often ignored.

The defendants well understood the devastating impact the mega-spreads had on old and sick patients required to make co-payments they could ill afford, and set up programs to help some needy patients by subsidizing their costs. The spiraling drug costs incurred by third-party payors and the government, however, were never a concern.

The Court finds liability for: a. AstraZeneca: Zoladex (1998-2002) b. BMS: Taxol (2001-2002); Vepesid (1998-1999, 2001-2002); Cytoxan (1998-2002); Blenoxane (1998-2002); Rubex (1998-2000, 2002) c. Warrick: albuterol sulfate (1998-1999)

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