Wisconsin Supreme Court Upholds $9 Million Damages Award Against Pharmaceutical Company

By Joe Forward, Legal Writer, State Bar of Wisconsin

June 22, 2012 – Pharmacia Corporation, a large  pharmaceutical company, gamed Wisconsin’s Medicaid system and must pay approximately $9 million in damages, the Wisconsin Supreme Court affirmed today.

The decision allows Wisconsin to recover approximately $22 million in damages, forfeitures, costs, and attorney fees against Pharmacia, one of just 36 named defendants. According to the Wisconsin Justice Department, 10 other companies have settled for $17 million, and claims against 25 other drug companies are still pending.

In 2009, after years of discovery, a jury found that Pharmacia inflated “average wholesale price” estimates – known as “marketing the spread” – which reflect the average price that pharmacies pay to acquire Pharmacia's drugs from wholesalers. In reality, the prices were much lower.

Pharmacia attracted a larger market share, the state argued, by inflating estimates that ultimately gave pharmacies bigger profits. That’s because Medicaid reimburses pharmacies based on the average wholesale price that drug manufacturers report.

Thus, the jury found that Pharmacia, which merged with Pfizer Incorporated in 2003 to become one of the world’s biggest pharmaceutical companies, violated the state’s Deceptive Trade Practices Act (DTPA) and awarded $2 million in damages for the violation.

The jury also awarded $7 million in damages for violating the state’s Medicaid fraud statute, and found that Pharmacia violated the statute 1.44 million times, representing the number of times Medicaid overpaid for products.

After a challenge from Pharmacia, the circuit court reduced the number of fraud violations to 4,578 and imposed $1,000 fines for each violation, totaling about $4.58 million in fines. The statute, Wis. Stat. 49.49(m), allows fines up to $15,000 for each violation. The circuit court had also awarded costs and attorney fees in the amount of around $8.8 million.

The Wisconsin Court of Appeals certified the case to the supreme court, which affirmed the rulings in State v. Pharmacia Corp., 2012 WI 62 (June 22, 2012). The decision will impact proceedings against many other drug manufacturers, also parties to the lawsuit.

The court (4 justices, 3 did not participate) held that the state was entitled to receive the jury trial it received and the circuit court judge properly reduced the number of Medicaid violations. It also ruled that the jury’s damage award of $9 million was not impermissibly speculative.

Pharmacia had defended by arguing, among other arguments, that Medicaid reimbursements are set by the political budget process and it should not be punished for political decisions.

It said the average wholesale pricing numbers, reported by another agency, are just benchmarks; the state had access to actual pricing information but chose not to rely on it.

However, the state set forth evidence that pharmacies were paying 20.25 percent below published wholesale prices, and the legislature eventually reduced reimbursement rates.

“[T]here was plentiful evidence from a wide range of credible witnesses with extensive experience in the field to substantiate the state’s argument that the legislature would have reduced brand drug reimbursements to reflect actual wholesale prices had Pharmacia offered them,” Justice Gableman wrote, also noting inflation of generic drug pricing information.

The court also upheld the circuit court’s decision to reduce the number of Medicaid fraud violations – the number of false representations made by Pharmacia – because the jury’s number was based on legal error and not supported by the evidence.

“Stated differently, the jury’s finding can only be fairly understood as supported by the evidence if one adopts an erroneous legal theory,” Justice Gableman wrote.

The jury found that Pharmacia violated the Medicaid fraud statute, Wis. Stat. section 49.49(am)(a)(2), every time Medicaid overpaid for a drug.

“The times pharmacies were overpaid is merely a consequence of the alleged fraud, not the fraudulent conduct itself,” wrote Justice Gableman.

Rather, the circuit court correctly based the number of violations on the number of times Pharmacia transmitted an inflated pricing report to the independent reporting agency, First DataBank, and Medicaid used it to reimburse a pharmacy, the court explained.