U.S. Backs Drug Firms In Lawsuit Over Prices
By ROBERT PEAR
10 January 2011
The New York Times

Copyright 2011 The New York Times Company. All Rights Reserved. WASHINGTON -- The Obama administration, following a lengthy internal debate, has unexpectedly come down on the side of pharmaceutical companies that are accused of overcharging public hospitals and clinics that care for large numbers of poor people.

The administration has told the Supreme Court that the hospitals and clinics cannot sue drug companies to enforce their right to deep discounts on drugs or to obtain reimbursement from companies that overcharge.

It is a classic conflict: a political imperative for the administration -- to ensure that inexpensive drugs are available to the poor people who need them -- rubbing up against the Justice Department's fear of an onslaught of lawsuits by clinics and hospitals if the Supreme Court allows them to sue.

Sara Rosenbaum, a professor of health law and policy at George Washington University, said the case raises the question of whether the intended beneficiaries of a government program can enforce their right to assistance that is made available by Congress.

''You can parse the legal issues, as the Justice Department has done,'' Ms. Rosenbaum said. ''But the bottom line is that a lot of poor people and a lot of safety-net providers are not getting the discounts they are supposed to receive.''

The court is being asked to rule in a lawsuit brought by Santa Clara and Santa Cruz Counties in California against AstraZeneca and a number of other drug makers.

The counties contend that the companies overcharged for drugs supplied to their hospitals and clinics. An AstraZeneca spokesman, Tony Jewell, said the company ''believes that there is no evidence'' that the overcharges occurred.
Nationwide, more than 15,000 clinics and hospitals participate in the discount program, which cuts prices of prescription drugs by 30 to 50 percent. The providers spend more than $6 billion a year on drugs.

Santa Clara County, which includes the city of San Jose and is home to 1.8 million people, operates a public hospital and 12 clinics. Juniper L. Downs, a lawyer for the county, said: ''The intent of this program is to provide discounted drugs to eligible clinics and hospitals so we can deliver affordable medical services to individuals most in need. That would seem to be aligned with the broader health care goals of the Obama administration.''

But in a friend-of-the-court brief, the Justice Department said that only the federal government has the authority to enforce the drug-discount law, and that private lawsuits would interfere with that authority. Oral arguments in the case, Astra USA v. Santa Clara County, Calif., are scheduled for Jan. 19.
Asked to explain the administration's stance, a White House spokesman said, ''We will let the brief speak for itself.''

Several Democratic lawmakers expressed surprise at the Justice Department's position. ''The administration had a chance to put health care reform into action by defending the discounted drug program,'' said Representative Sam Farr of California. ''Instead, it chose to side with the pharmaceutical companies to preserve a loophole that overcharges providers and undermines the president's efforts to expand access to affordable health care.''

A federal health official, who spoke on the condition of anonymity because he was recounting lawyer-client discussions inside the government, said: ''We really wanted to stand on the sidelines of this case. The Justice Department took the lead in solidifying the government's position because of a broader concern about the possible impact of the case beyond this one little program.''
The drug-discount program was created in 1992 under the Public Health Service Act. The law directed the secretary of health and human services to sign agreements with the companies that set maximum prices for drugs sold to certain health care providers. They included community health centers; AIDS, tuberculosis and family-planning clinics; hospitals that serve large numbers of poor people; and children's hospitals.

Federal officials calculate the maximum price for each drug based on data that the manufacturers submit to the government.

The Department of Health and Human Services' inspector general found that drug manufacturers often overcharged clinics and hospitals over the last eight years but were rarely penalized by the government.

''In actual practice, manufacturers have been able to overcharge covered entities with impunity,'' said Ted Slafsky, executive director of Safety Net Hospitals for Pharmaceutical Access, which represents 600 hospitals in the drug-discount program.

For their part, the companies said the rules for calculating prices and discounts were ''exceedingly complex and technical.'' They rejected the idea that there was ''a single correct way'' to calculate prices.

The companies have signed agreements with the Department of Health and Human Services promising to provide discounts to clinics and hospitals that serve large numbers of poor and uninsured patients. In their lawsuit, the counties contend that these agreements are contracts, and that as ''intended beneficiaries'' the counties can sue to enforce them based on ''a bedrock principle'' of contract law.

Such lawsuits ''complement federal enforcement efforts,'' the counties said.
The Justice Department argues that the counties and clinics cannot sue because Congress has never given them that right.

The United States Court of Appeals for the Ninth Circuit in San Francisco ruled in favor of the clinics and hospitals in December 2009. The drug companies appealed, with support from the Justice Department, which is urging the Supreme Court to reverse that decision.

The administration's position is similar to that taken by the drug manufacturers. Allowing lawsuits is ''a recipe for rampant confusion and inconsistency,'' the Pharmaceutical Research and Manufacturers of America said in its own friend-of-the-court brief.

The U.S. Chamber of Commerce said such lawsuits could ''wreak havoc'' and would have ''dire and sweeping consequences'' for other companies that do business with the government. ''The scope of federal contracting is enormous,'' the chamber said