Last night, a federal judge in Louisiana held that the state could not sue Merck to recover what it alleged were overcharges for Vioxx®, given what Merck (allegedly) knew, but had (allegedly) failed to disclose, about the elevated cardiovascular risks associated with taking the painkiller, prior to 2004 -- when Merck withdrew Vioxx from the market. [Earlier background, here.] This outcome is likely to be the exception, rather than the rule, in my estimation. Why?
During the early part of this decade (2000 to 2005), Louisiana's state Medicaid machinery was essentially a "captive" of the big pharma industry players, by rule of local law.
Back then, the state apparently had no statutory authority to negotiate drug prices with the pharma companies -- so the judge ruled Lousisana couldn't (lawfully) have reduced the price it paid for Vioxx, even if it had shown that it would have desired to do so -- had it known about the problems with Vioxx, before Merck took the drug off the market.
In the larger commercial states, California, Illinois, New York, Massachusetts and New Jersey, for example (almost all of which currently have similar suits pending against Merck), the states DID, and DO have the right to negotiate/reduce pricing on the state's "formulary" drugs -- by so-called "tier" schemes, most commonly.
So, this may well be a case of Merck's "winning the battle, but losing the war" -- even if the appeal (which the state authorities have vowed to take) in Louisiana is unavailing.
Here's some of the history, from the judge's own decision:
. . . .Under federal law, state Medicaid programs are permitted, but not required, to offer prescription drug benefits to Medicaid-eligible individuals. . . .
States that decide to provide a pharmacy benefit receive both federal funding and rebates from pharmaceutical companies under the Medicaid Drug Rebate Program. 42 U.S.C.A. §§1396r-8(a), (b)(West 2003 & Supp. 2009). This rebate program -– created by the Omnibus Budget Reconciliation Act of 1990 (“OBRA 90”) -– requires a drug manufacturer to enter into a national rebate agreement with the Secretary of the Department of Health and Human Services (“HHS”) in order for states to receive federal funding for coverage of its drug products for Medicaid patients. Id. (See also Trial Tr. 663:3-17, 665:16-666:1, Apr. 15, 2010.) These rebates are shared between the states and the federal government according to their respective shares of the program’s cost. (Trial. Tr. at 665:16:16-661:1, Apr. 15, 2010.) In exchange for these rebates, which reduce the cost of the Medicaid programs, manufacturers are guaranteed coverage of their drugs under Medicaid, unless a particular drug is specifically exempted from coverage by the Medicaid statute. (Id. at 665:16:16-661:6.) See also 42 U.S. § 1396r-8(d)(2) (specifying categories of drugs excluded from Medicaid coverage). States may negotiate with pharmaceutical companies for supplemental rebates in addition to those provided under the federal rebate program. . . .
[P]rior to June 13, 2001, Louisiana law precluded the establishment of a Medicaid restrictive formulary. . . .
There are. . . four exceptions to the Medicaid mandatory reimbursement requirement. Coverage may be denied where: (1) a prescription is not made for a “medically accepted indication”; (2) a prescription is made for a category of drugs (such as barbiturates) or for an indication (such as smoking cessation) specified in 42 U.S.C.A. § 1396r-8(d)(2) or a drug has been determined by the Secretary of HHS to be subject to clinical abuse or misuse; (3) a state has executed a special rebate agreement with the manufacturer, approved by the Secretary of HHS, specifically restricting coverage of the prescription; or (4) a state has established a formulary meeting statutory requirements and exclusion of the drug from the formulary is based on the drug’s label and is for a specified population and/or condition for reasons of safety or efficacy, and the exclusion conforms with procedures set forth in the federal Medicaid statute (including making specified findings in writing and securing approval from the Secretary of HHS). 42U.S.C.A. §§ 1396r-8(d)(1), (2), (4). . . .
That is where the California, Illinois, New York and Massachusetts cases are likely to be fought, and decided -- in that last bolded bit of language. So, stay tuned.
[A sincere H/T Ed Silverman's fine Pharmalot piece, here.]