First DataBank, Third-Party Payers Resolve AWP Suit By Cutting WAC Mark-Up

The class action against First Databank over average wholesale pricing may be nearing an end. The parties filed an amended settlement proposal with the court on May 29 under which FDB agreed to roll back AWP prices for hundreds of drugs and put $1 million into a settlement fund.

As in the initial proposed settlement, FDB, the leading publisher of prescription drug pricing, would reduce the markup between wholesale acquisition cost and AWP by about 4 percent. But the revised settlement would apply the rollback only to drugs whose AWP had been claimed to be illegally inflated and thus cover about 1,600 national drug codes rather than the 8,000 in the initial settlement proposal.

Class counsel Thomas Sobol, of Hagens Berman Sobol Shapiro, said the court had suggested reducing the scope of the rollback so it would have less of an impact on independent pharmacies. He said the rollback would "likely apply to somewhat less than half or 40 percent of widely used branded drugs."

Massachusetts U.S. District Judge Patti Saris gave preliminary approval to the initial proposed settlement in November 2006. She subsequently asked those opposed to the agreement to submit briefs and several pharmacy groups did so, arguing that it would wreak havoc on their business (¹ (Also see "Pharmacy Groups Oppose AWP Class Action Settlement With First DataBank" - Pink Sheet, 14 Jan, 2008.), p. 13).

The revised settlement also differs from the first in that it includes a monetary payment by FDB and it does not require the company to discontinue publishing AWP. Sobol said the court did not want to be in the position of having to monitor future reimbursement actions by the company.

FDB announced in a June letter to its customers that it would discontinue publishing AWP figures for all drugs within two years after the settlement goes into effect.

Under the settlement the company would also pay up to $625,000 in attorneys' fees, $200,000 for notification of the class and administration of the settlement, and up to $160,000 in expert fees incurred by class counsel.

In addition, FDB would establish and maintain a data room for three years that would include materials produced during the litigation, such as transcripts of testimony of employees and communications between FDB and others over pricing. Members of the class and settlement counsel pursuing pharmaceutical pricing and reimbursement litigation against other defendants would have access to the data room.

The case, New England Carpenters Health Benefits Fund v. First DataBank, began in 2005 when members of the Prescription Access Litigation Project, a coalition of groups that seeks to make prescription drugs more affordable, filed suit against First DataBank and McKesson.

The plaintiffs alleged that the two arbitrarily inflated the AWP prices of more than 400 brand name drugs and as a result, the spread between what pharmacies pay wholesalers for drugs (the wholesale acquisition cost) and the AWP increased from 20 percent to 25 percent.

The settlement agreement does not include McKesson. Saris recently certified two classes of private third-party payers and consumers in the action against the wholesaler which is set to go to trial. The two classes are seeking billions of dollars in damages. The city of San Francisco and the state of Connecticut recently filed separate suits against McKesson.

Saris will hold an as yet to be scheduled fairness hearing on the FDB proposed settlement at which pharmacy groups are likely to reiterate their opposition to the agreement.

"We still oppose it," said Stephanie Kanwit, special counsel for the Pharmaceutical Care Management Association.

Kanwit said the market already adjusted to the AWP increase that occurred five to six years ago. "What's the upside of the settlement in the marketplace? There isn't any," she said. She also objected to the parties' request that the settlement go into effect in 90 days even if there is an appeal.

Sobol expects the court will accept the current terms. "We think with these modifications it is highly likely the court will find the settlement is fair and reasonable and it will go forward," he said.

- Brenda Sandburg ([email protected])