AstraZeneca's $103M Drug Pricing Settlement Is Merely Tip of the Over-Charging Iceberg

Last Updated Jun 21, 2010 10:00 AM EDT

AstraZeneca (AZN) settled its drug pricing litigation for $103 million and went some way to correcting one of the most egregious frauds on patients and healthcare providers the U.S. has ever seen. This lawsuit has taken years -- and for the other pharmaceutical companies involved, still isn't over -- and disclosures from it have come out in dribs and drabs, none of which have made front page headlines.

But if you put it all together, it becomes clear that AZ spent years overcharging Medicare, Medicaid and private insurance coverage providers for its drugs, contributing significantly to the increased cost of healthcare in the U.S. The extra money AZ milked from the system was certainly much larger than the $103 million it agreed to pay late last week.

For instance, in related "average wholesale price" (AWP) litigation in both federal and state courts:

  • AZ lost a $160 million verdict in Alabama (later overturned on appeal)
  • AZ lost a Kentucky state court case for $14.7 million* (AZ appealed the ruling).
  • AZ lost another a previous Massachusetts federal court ruling for $13 million in a Zoladex AWP case, which has now been wrapped into last week's settlement.
An AZ spokesman told BNET:
In Alabama, the Alabama Supreme Court did not just overturn the verdict -- it entered a judgment in favor of AstraZeneca because it was clear from the evidence that the state Medicaid agency was not duped or defrauded.
Let's be clear, this isn't simply a contractual disagreement about prices. As Massachusetts federal judge Patti Saris wrote in 2007 on this case, inflated AWP's essentially function as bribes: Doctors can buy the drugs from AZ at a discount and then bill Medicaid or Blue Cross at the full price set by AWP, picketing the extra and providing a perverse incentive to prescribe profitable drugs over appropriate drugs.

AZ's role in this is magnified by the fact that the company successfully convinced the FDA and healthcare reimbursers that its Nexium heartburn drug was significantly different from Prilosec, which long ago became a cheap non-prescription generic drug. It took years for the industry to realize that Nexium was basically the same thing as Prilosec, and that millions of extra dollars had been needlessly paid by patients and coverage providers.

This is one reason why some aspects of U.S. healthcare are more than twice as expensive as coverage in foreign countries, according to Sen. Herb Kohl, D-Wisc., who wrote a letter to AZ in March asking for an explanation of this situation:

Nexium (esomeprazole), produced by AstraZeneca is the second most-prescribed drug nationwide. According to data prepared by IMS health, one dose of Nexium (esomeprazole) costs $3.91 in the United States. In Switzerland the cost drops to $2.15; in Canada, $1.97; in the United Kingdom, $1.32; in the Netherlands, $1.28; in France, $1.22; in Australia, $1.02
*This item originally said, incorrectly, that there were significant punitive damages awarded in the Kentucky case. There were not. Apologies for the error. Related: Image by Flickr user TheTruthABout, CC.