Wisconsin Supreme Court Upholds $9 Million Damages Award Against
By org jforward wisbar 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
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
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
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
The Wisconsin Court of Appeals certified the case to the supreme court,
which affirmed the rulings in State
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
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
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.