Pfizer Faces $21 Billion in Fines for Pharmacia's Crimes; 32 Other Companies on the Hook
A jury verdict in Wisconsin could expose Pfizer to up to $21 billion in fines after the company was found guilty of gaming Medicaid. It will likely prompt a wave of settlements from other drug companies that are on the hook in this raft of cases.
Pfizer, as the successor-in-interest of its acquisition, Pharmacia, must pay only $9 million under the current decision. The case now enters a penalty phase in which the court will calculate how much to fine Pfizer for 1.4 million overcharges of Medicaid in Wisconsin. Those fines could rise to as much as $21 billion.
The case will be closely watched by dozens of other companies. The Journal-Sentinel:
Wisconsin eventually filed claims against 36 companies. Three of the companies settled for a total of $3 million. Thirty-two cases are pending, with the next one set to go to trial in December.
So there’s the choice: Give Wisconsin $3 million now (or probably slightly more given the recent verdict in the state’s favor) or wait, continue to pay your lawyers, and then possibly pay $21 billion — each! — in the future. Among the other 32 cases are Johnson & Johnson, Merck and Bristol-Myers Squibb. As the AP notes: “the lawsuit challenges the cost of “just about every significant drug out there.”
My guess: Let the settlement talks begin!
Settling also keeps all those embarrasing internal memos inside their secret files. Here’s the money shot from the Pharmacia case:
The Department of Justice turned up a 1993 memo from P.L. McKercher of the Upjohn Co., a predecessor company of Pharmacia, that said, “three decades of gaming of the present reimbursement scheme has provided a lucrative avenue of profit.”
… the lawsuit claimed Pharmacia listed the wholesale price of its anti-breast cancer drug Adriamycin at $241.36 but actually sold the drug to providers wholesale for as low as $33.43. Pharmacia advertised the $207.93 spread to oncology providers to emphasize a wide profit margin.
If you want a primer on the vissicitudes of the average wholesale pricing system, read a digest of a ruling in a previous case, in Massachusetts, here. It’s a good guide as to how these schemes work, and what the problems with the system are.
Final note: Even Pfizer’s most loyal soldiers must be beginning to wish they’d never heard of Pharmacia. Pfizer acquired the company to get its Cox-2 painkiller, Celebrex … right before the Vioxx scandal. D’oh! And the firm itself has turned out to be a nest of corruption. See a back story on its criminal human growth hormone racket here, and a primer on its formulary kickback schemes here.
Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.
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