A judge has blocked efforts by the state's health care program to assess more than $200 million against a major national drug company.
Maricopa County Superior Court Judge Edward Burke said state rules and regulations regulate the authority of the Arizona Health Care Cost Containment System to impose civil penalties and assessments over false claims. Those rules, the judge said, specifically apply to individuals or companies that provide goods or services to the state.
But Burke said the McKesson Corp., in selling drugs to organizations that contract with AHCCCS to provide services, does not fit that definition. That, the judge said, puts McKesson beyond the reach of state regulations.
Burke said if AHCCCS really believes that the drug company's actions harmed the agency, it can file suit in state or federal court.
"So AHCCCS' lament that a ruling in McKesson's favor would authorize its alleged fraud is unavailing," he wrote.
"We are reviewing the decision and considering our options," said Monica Coury, an AHCCCS assistant director.
At the heart of the fight is the allegation by the state that McKesson and another company that provided drug information altered the way it determines the "average wholesale price" of the drugs it sells. That figure is what is used to bill insurers and others.
David Botsko, AHCCCS' inspector general, said that change resulted in a 5 percent increase in costs.
Over a two-year period, AHCCCS figured the increase ultimately drove up bills by more than $50 million. Based on regulations allowing an assessment of double the money lost, the state demanded more than $111.7 million.
On top of that, AHCCCS sought another $101.3 million in penalties.
Coury acknowledged that her agency contracts with health plans and the health plans contract with pharmacy benefit managers to purchase their drugs. But she said it is AHCCCS that sets the rates based on the usage and price of certain drugs, known as "encounter data."
"And if the encounter data for drugs is higher than it should be because of price fixing on the part of drug companies, then we have a right to reclaim the taxpayers' dollars and assess appropriate penalties," Coury said.
Not true, Burke said.
He said a plain reading of the agency's formally adopted and approved rules says the kind of penalties and funds it wants can be assessed only against "providers." And Burke said McKesson is not an AHCCCS provider.
The judge said that AHCCCS was legally entitled to craft the rules to apply to all "persons," something that also would have covered corporations. But Burke said the agency did not do that.