In Blockbuster Ruling Ala. Supreme Court Overturns Pricing Fraud Verdicts Against Drug Companies


In Blockbuster Ruling, Ala. Supreme Court Overturns Pricing Fraud Verdicts Against Drug Companies

Alison Frankel


We were all set to write about another setback for AstraZeneca in the litigation over reimbursements based on average wholesale prices for pharmaceuticals — Thursday’s $14 million verdict against the company in a Medicaid drug pricing fraud case brought by the state of Kentucky — when we got news that completely shifts the momentum in the sprawling, multistate AWP litigation. The Supreme Court of Alabama, in a 44-page opinion that details the 30-year history of state and national drug pricing policy, ruled there was no basis for the state’s fraud claims against three drug companies appealing adverse jury verdicts. The ruling wipes out verdicts of $33 million against Novartis, $81 million against GlaxoSmithKline and $215 million (reduced post-trial to $160 million) against AstraZeneca. It also dismisses the state’s claims against the three companies.

Alabama’s Supreme Court found that evidence presented by the pharmaceutical companies belied the state’s fraud theory. "The sine qua non of the state’s fraud claims in these appeals is its assertion that it did not know that the published [average wholesale prices] were merely suggested — or list — prices, exclusive of discounts and other incentives available to wholesalers and providers," the court wrote. "This assertion is untenable in light of the correspondence and internal memoranda involved in the state’s formulation of its reimbursement methodology." And because the state knew the AWP was not a true wholesale price average, the court found, it could not claim to have been defrauded by the drug companies.

A long list of firms was involved in the state Supreme Court appeal, which the justices decided on the briefs without oral argument. Novartis had AWP national coordinating counsel from Kaye Scholer, along with Alabama’s Lightfoot, Franklin & White and Cappell & Howard. GSK was represented by Covington & Burling; King & Spalding and Alabama solo Donald Jones, Jr. AstraZeneca had Sidley Austin; Davis Polk & Wardwell; and Christian & Small.

We asked Novartis counsel Saul Morgenstern of Kaye Scholer if the Alabama ruling would have an impact on other state drug pricing fraud actions against pharmaceutical companies. He said it well might. "Other courts in other states should take a look at the ruling and consider what the Alabama Supreme Court found about how the AWP was viewed in the drug marketplace," he said. "Alabama and all the other states have known for 25 years" that the AWP wasn’t a true average of wholesale prices, Morgenstern told us. "They’ve baked that knowledge into their reimbursement policies."

At the very least, according to Morgenstern, the Supreme Court ruling should put an end to Alabama’s drug pricing fraud claims against the pharmaceutical industry. (The state Supreme Court did not directly address a fourth Medicaid drug pricing fraud verdict, $80 million the state won against Sandoz last February.)

Jere Beasley of Beasley Allen, who has represented the state of Alabama at all four trials, said in an e-mail statement that the Supreme Court’s ruling was "most difficult to understand," considering the conduct of the pharmaceutical companies and widespread public support for the litigation. "We will ask the court to reconsider what they have done," the statement said. "We will also again request an opportunity to appear before the court and argue the state’s case. Hopefully, the court will grant oral argument to the state so that the people of Alabama can find out exactly what has happened to them."

Beasley said in an interview that the high court ruling does not affect the $138 million in settlements the state has reached with other pharmaceutical companies in the AWP litigation.

This article first appeared on The Am Law Litigation Daily blog on

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