A major national drug company is asking a judge to prevent the state from trying to collect more than $200 million from it.
Attorneys for McKesson Corp. contend that the Arizona Health Care Cost Containment System lacks the legal authority to impose $101.3 million in penalties and another $111.7 million in assessments. AHCCCS contends that the company artificially inflated the basis used to charge for drugs that were provided to AHCCCS recipients.
The dispute stems from an investigation conducted by AHCCCS of claims submitted to the agency over more than six years.
“The investigation established a pattern of improper price inflation for certain brand-name drugs attributed to a scheme first implemented in late 2001 by McKesson’’ and another company that provide drug information, according to David Botsko, the agency’s inspector general. He said that change in how the company computes the average wholesale price of its drugs — the figure used to bill insurers and others — resulted in a 5 percent increase in costs.
Based on that, the agency wants penalties and assessments of nearly $212.9 million “for causing millions of false or fraudulent claims for brand-name drugs to be presented to Arizona’s Medicaid agency.”
In its lawsuit filed in Maricopa County Superior Court, the company does not address the question of how much it was charging. Instead, lawyers for the firm contend that AHCCCS has no right to fine the company.
As McKesson sees it, the firm has no relationship with AHCCCS.
The program, Arizona’s Medicaid alternative, is set up like a health-maintenance organization. It contracts with various health plans to provide care for AHCCCS enrollees for a flat fee. Those plans, in turn, have arrangements with various doctors and pharmacies to provide services to AHCCCS members.
“Those providers submit claims for payment to the health plans, not to AHCCCS,” the lawsuit states.
But Monica Coury, an assistant AHCCCS director, said Arizona is simply following the lead of other states where program officials find evidence of “manipulation of drug pricing.”
“Then state Medicaid programs can get involved to basically get their money back and assess appropriate civil monetary penalties,” she said.
Coury acknowledged that in the Arizona system, it is the health plans which contract with the pharmacy benefit managers to purchase their drugs. But she said it is AHCCCS that sets 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.
This isn’t the first time that state officials have gone to court over the issue of drug prices. In 2005, the state sued 20 major drug manufacturers and their subsidiaries, claiming they defrauded Arizonans and their health insurers out of tens of millions of dollars through inflated and purely artificial drug price lists.
In that 204-page complaint, then-Attorney General Terry Goddard said the companies list average wholesale prices far above what they actually charge for the drugs.
Goddard said what makes that significant is individuals and insurance companies are being billed and paying a percentage of the inflated list price.
The differences can be huge. For example, he said one company listed its average wholesale price for an anti-anemia drug at $184.40, while the U.S. Justice Department determined it actually was available for $2.76.
Other companies were selling sodium chloride — essentially a sterile salt solution used as a flush — for less than $4 a dose while listing prices in excess of $670.