MONTGOMERY, Ala. - (Mealey's) In a 7-1 vote, the Alabama Supreme Court on July 13 vacated a $78.4 million drug-pricing verdict against generic drug maker Sandoz Inc., finding that the state government knew that the reported drug prices were not accurate and that the state based its reimbursement decisions on reasons other than prices reported by Sandoz (Sandoz, Inc. v. State of Alabama, No. 1081402, Ala. Sup.; 2012 Ala. LEXIS 88).
(Opinion available. Document #28-120726-005Z.)
In 2005, Alabama sued more than 70 drug manufacturers in the Montgomery County Circuit Court, alleging that the defendants purposefully reported inflated prices published in third-party drug price lists, causing the state Medicaid department to overpay for drug reimbursements. Sandoz was one of the defendants.
The state alleged that the defendants provided false or inflated average wholesale price (AWP) and wholesale acquisition cost (WAC) information about their drugs to First DataBank, which published the list of drug prices. The state said the reported drug prices greatly exceed the actual prices that hospitals or pharmacies were charged.
Further, the state alleged that the defendants did not disclose discounts, rebates or other inducements that lowered the actual sales prices.
Similar To AstraZeneca Case
The case against Sandoz went to trial, and a jury awarded the state $28,443,572 in compensatory damages and $50 million in punitive damages. Sandoz appealed.
In a per curiam opinion, the Supreme Court majority reversed the verdict and entered judgment in favor of Sandoz on much the same grounds as it did for three other drug-pricing defendants in 2009 in another case, AstraZeneca LP v. State (41 So. 3d 15 [Ala. 20099]; See 11/2/09, Page 32). In AstraZeneca, the court vacated a $274 million verdict against defendants AstraZeneca LP, SmithKline Beecham (now GlaxoSmithKline PLC) and Novartis Pharmaceuticals Corp.
"Alabama law requires that a party claiming to be the victim of fraud must have actually relied on the false information it received and that such reliance must have been reasonable," the majority wrote. "Because in this case, as in AstraZeneca, the State knew that the prices reported by Sandoz were not what the State claims they should have been, Alabama law does not allow the State to claim that its reliance on that information was reasonable."
Other Considerations In Play
"Further," the majority continued, "the State's reimbursement decisions were not based on the allegedly false information provided by Sandoz; instead, its decisions were based on policy concerns and certain requirements of the federal Medicaid program. Thus, as was the case in AstraZeneca, the State's claims should not have been submitted to the jury, and Sandoz is entitled to a judgment in its favor."
The majority said that the Alabama Medicaid Agency, which decides how much the state will reimburse for drugs prescribed to Medicaid recipients, "had actual knowledge that AWPs were not 'net' prices." In addition, it said the state was aware of or should have been aware that WAC data did not include discounts.
The majority said it is "telling" that even after the Alabama Medicaid Agency discovered the purported fraudulent pricing by Sandoz, it did not change its estimated acquisition cost formulas.
The majority consisted of Chief Justice Charles R. Malone and Justices Thomas A. Woodall, Lyn Stuart, Michael F. Bolin, Glenn Murdock, Greg Shaw and Alisa Kelli Wise.
Justice Tom Parker dissented, saying that the court's ruling in AstraZeneca was "a mistaken view of the case and a mistaken interpretation of the evidence." Citing evidence from the trial, the justice said he did not believe that the state knew that the WAC was not a net price.
In addition, Justice Parker said he did not find that the state's actions - preparing a lawsuit, performing a study to confirm the existence of a problem and not changing the estimated acquisition cost formulas - "somehow negated the State's claim."
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