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Suit targets 13 generic drug makers

Reilly: Medicaid was overcharged $50m

Jumping into the escalating legal battle against pharmaceutical manufacturers, Attorney General Thomas F. Reilly planned to file a lawsuit today against 13 generic drug makers, claiming they overcharged the state Medicaid program $50 million for more than 150 medications.

Like numerous other lawsuits against drug makers, Reilly is attempting to challenge a system under which companies report a high "sticker" price for drugs, while selling them at a deep discount to doctors, hospitals, and pharmacies. Medicaid ends up paying close to the sticker price, when under federal regulations, government programs are supposed to pay close to the lowest price available for prescription drugs. The doctors, hospitals, and pharmacies end up keeping some of the profit.

Other lawsuits have focused mostly on brand-name drug makers. David S. Nalven, a prosecutor in Reilly's office, said the lawsuit to be filed today in US District Court in Boston is the first to focus solely on generic drug makers, accusing them of fraud under the state's false claims act. Even though generic manufacturers allegedly use some of the same illegal pricing schemes as brand-name drug makers, he said, prosecutors haven't focused their investigations on generic drug makers because their products cost less. But, Nalven said, patients are using more and more generics -- partly because the Medicaid program has encouraged them to do so.

"We think reform of this sector has been largely overlooked," Nalven said. "A lot of attention has been given to brand-name manufacturers. But not only do generic makers engage in these schemes, they have the greatest price spreads, the greatest corruption, because they must compete on the basis of price alone."

Kathleen Jaeger, president of the Generic Pharmaceutical Association, disputed the accusations.

"The current system for calculating Medicaid rebates has been reasonably applied by companies in past and in current practice," she said. "It's also important to note that generics have saved Medicaid programs millions of dollars."

Generics account for 51 percent of all prescriptions written in the United States, but only 8 percent of the spending on medications, she said.

Executives at Barr Laboratories Inc., one large generic company named in the lawsuit, said they hadn't seen the state's lawsuit. "We're comfortable with our business practices and intend to defend our company," said spokeswoman Carol Cox.

Nalven estimated that the Medicaid health insurance program, which is for the poor and disabled, has overpaid generic drug makers $50 million since the early 1990s for more than 150 medicines. Medicaid spends about $1.2 billion annually on medications for its enrollees. Medicaid is supposed to pay the wholesale acquisition cost --the average price the wholesaler pays the manufacturer -- plus 6 percent for medications. But as in other lawsuits alleging price inflation, wholesalers pay far less than the reported cost because they receive discounts and rebates.

"These are tough times in the state right now, and every dollar counts," Reilly said. "The state is being forced to make very difficult choices with taxpayer money and Medicaid spending is out of control. We decided to take a good hard look at the generic industry and what we found is disturbing. The abuse is pervasive."

Liz Kowalczyk can be reached at

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