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Drug makers accused of consumer fraud

| Friday, Feb. 14, 2003

ALBANY, N.Y. — New York state Attorney General Eliot Spitzer on Thursday accused three major drug companies of providing financial incentives to doctors and pharmacists to favor their products.

Spitzer accused Pharmacia Corp., GlaxoSmithKline and Aventis of consumer fraud, commercial bribery and making false statements concerning wholesale prices to government-operated subsidized health plans. Spitzer said the inflated prices cost New York state and its consumers as much as $50 million to $100 million a year for the drugs, many of them used to treat cancer or ease the side effects of chemotherapy.

Drug company officials said their practices are legal and said Spitzer and other states' attorneys general were overreaching. California and Texas have similar suits pending.

The attorney general filed suits against Pharmacia and GlaxoSmithKline in state Supreme Court in Albany on Thursday. He expects to seek a claim in the "tens of millions of dollars." A "pre-litigation notice" has also been sent to Aventis, he said.

Spitzer said the companies report an inflated "average wholesale price" to governments for their drugs. The government uses that price to reimburse doctors and pharmacies for the drugs even though they buy the medicines at a different, lower price.

The difference between what the government pay providers and the lower drug price they pay is pocketed by health care providers, according to Spitzer. He said the "spread" is an enticement to choose those drugs over competitors, a claim the companies dispute.

"It is craven, it is wrong," Spitzer said at a press conference in New York City. He said drug companies "will not pick the pockets of those who need pharmaceuticals to support their dividends and their CEOs' outrageous salaries."

He said the practice cost the state $141 million on seven drugs in 2001. Consumers would have saved another $28 million, Spitzer added.

Spitzer said he's unsure how many other companies might engage in the practice and wouldn't comment on whether the physicians and pharmacists who participated would be investigated for their role. He said he is concerned that financial incentives played a role in doctors' prescribing decisions, but can't prove such behavior.

Choosing a drug based on anything but a patient's needs could be deadly, said Dr. Paul A. Bunn, president of the American Society of Clinical Oncology. He said, however, no oncologist would be enticed by cash to choose a drug.

"If there's a difference in those two costs, which sometimes there is, the physician uses that pay for cancer care services in the office," Bunn said.

Pharmacia spokesman Paul Fitzhenry said the reimbursement has in practice "evolved over time to become a means by which physicians and other health care providers are reimbursed for their time and facilities."

GlaxoSmithKline chief executive Jean-Pierre Garnier indignantly told a group of Wall Street analysts at a meeting yesterday that his company was first to point out the loophole to the government and has done so repeatedly. Garnier said he found it "ironic and sad" that the company was now being sued.

"We've never benefited from the spread becoming bigger or smaller," said Garnier, who earns $10 million a year, including stock options, according to published reports.

After the meeting, Glaxo spokeswoman Nancy Pekarek said Garnier had misspoke and the company wasn't first to point out the loophole, although it has discussed the issue with the government.

Glaxo maintains that the government sets the prices not the drug company and that the spread is not used as a sales tool.

Spitzer said that's a "word game" because the companies report their price, which is the basis of the reimbursement governments make.

"Aventis believes that we have complied fully with the laws and regulations," said company spokeswoman Lise Geduldig. She declined further comment, but said Congress has been reviewing the reimbursement of Medicare and Medicaid.

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