SAN JOSE, Calif. -- For the past six years, Santa Clara County, Calif., has led a quiet legal fight to force the drug industry to reimburse local governments across the country allegedly gouged by hundreds of millions of dollars per year on prescription drug prices at public hospitals and clinics devoted to serving the poor.
But the pharmaceutical companies have struck back with a vengeance, unleashing their lawyers to keep the courthouse doors slammed on the legal claims.
Wednesday, local governments and the drug industry will square off over the issue in the U.S. Supreme Court, which ultimately must decide whether obscure provisions in the federal Medicaid program should prevent a lawsuit over the drug overcharging allegations from reaching a judge and jury.
Santa Clara County, which filed the class action lawsuit in 2005 along with Santa Cruz County, faces an uphill fight. Not only are county officials up against the powerful pharmaceutical industry, but also the Obama administration -- despite its pledge to cut health care costs -- has sided with the drug companies because of concerns that such lawsuits would clutter Medicaid oversight with litigation.
The administration's position has disappointed county officials, particularly because former County Counsel Ann Ravel, who pushed the lawsuit originally, is now a top lawyer in the civil division of the U.S. Justice Department. The Justice Department's civil division crafted the friend-of-the-court brief siding with the drug industry. Ravel, who has strongly defended the importance of the lawsuit in the past, declined to comment on her bosses' position in the case; she was not involved in the legal brief.
Said Jeff Lawrence, one of the private lawyers helping the county in the case: "It's a big mystery as to why they sided with the drug companies."
The Supreme Court case stems from a legal battle against at least 10 drug companies, including Bayer, Pfizer and Glaxo. The lawsuit alleged drugmakers were violating a Medicaid drug discount program that primarily serves the poor, failing to comply with provisions that require the companies to give county hospitals and other public health service agencies wholesale discounts of 20 to 35 percent on over-the-counter and prescription medications. In California, Medicaid is known as Medi-Cal.
The federal Office of the Inspector General had concluded pharmaceutical companies overcharged local agencies tens of millions of dollars each year over a six-year period, a cost that comes from taxpayers because the drug program is a safety net for the poor. The report found Santa Clara County was overcharged by more than $6 million in 1999 alone. That report triggered the lawsuit.
The drug companies have denied the overcharges. But the legal fight to date has not focused on the claims of abuses in the Medicaid program.
Instead, the industry argues federal law bars such lawsuits from third parties providing the health care services. A federal judge in San Francisco agreed, dismissing the lawsuit, but it was reinstated in 2008 by the 9th U.S. Circuit Court of Appeals. The Supreme Court agreed to review that ruling.
Lisa Blatt, who is representing the drug industry in the Supreme Court, did not return a phone message and e-mail seeking comment. But in court briefs, she argued that Congress, in creating the drug program, did not provide a right to sue over charging practices, leaving it up to government regulators to handle the task. The U.S. Chamber of Commerce is also backing the industry in the case.
Lawsuits "would seriously interfere with the administration of the ... drug ceiling price program, as well as the vastly larger Medicaid drug rebate program," the drug industry warned.
Santa Clara County argues that there must be a legal way to force drug companies to pay for overbilling. In a twist, the recent health care reforms created a specific administrative procedure for public health providers to pursue such claims for overcharges from January 2010 going forward. But a Supreme Court ruling against the county could prevent efforts to recover for the same conduct that occurred in past years.
The county is backed in the case by three states, a group of law professors and AARP, a nonprofit group that advocates for quality-of-life issues for Americans over age 50.
"The good news is that we have a remedy going forward," Santa Clara County Counsel Miguel Marquez said. "At stake (in the Supreme Court) is, can we recover for the past. The common person on the street is going to say, 'If they cheated you, there should be a remedy.' They don't care about the legal niceties."
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