How much "spread" in AWP pricing is unlawful?

A colorful ruling by federal U.S. District Court Judge Patti B. Saris (Boston) dated June 21, 2007, proclaimed that some pharmaceutical manufacturers had been “unscrupulously taking advantage of the flawed AWP (average wholesale price) system . . . by establishing secret mega-spreads far beyond the standard industry markup,” describing this behavior as “unethical and oppressive.” The case involved selfand physician-administered medications that “represent a tiny percentage of the thousands of pharmaceutical products available in the United States market.” Although manufacturers sold these medications to physicians and other providers for much less than AWP, plaintiffs, including third-party payers and patients who pay either coinsurance or full price for medications, paid for these drugs using AWP-based formulas. The resulting “spread” between the actual acquisition cost and reimbursed amount was so profitable for physicians that, the judge noted anecdotally, one doctor had a plaque that read, “This is the house that leucovorin built.” After 20 days of trial and almost 40 witnesses, the judge concurred with plaintiffs that the drug companies took advantage of no oversight of self-reported AWP values and that “the published AWPs for defendants’ drugs are fictitious because they do not reflect the true average sales price (ASP) to providers, like doctors and pharmacists” (page 3). The judge noted in the decision, “I use the term ‘spread’ and ‘markup’ interchangeably” (page 3). She ordered AstraZeneca to pay damages of $4.45 million to non-Medicare third-party payers and BristolMyers Squibb (BMS) to pay damages of $183,000 for the period from December 1997 to December 2003. The judge ruled that Johnson & Johnson (J&J) did not violate the law because its spreads “never substantially exceeded the range of what was generally expected.” Table 1 in the decision shows “percentage markup” (spread) of 40.7% for Zoladex (AstraZeneca) in 1995 and 149.7% in 2001; among 5 BMS drugs, the markup was 27.0% for Taxol in 1997 and 128.7% in 2002; 1 drug from J&J, Remicade, had a spread of 32.1% in 1999 and 31.9% in 2001; 1 drug from Schering-Plough, Proventil, had a spread of 53.4% in 1993 and 28.6% in 2001; and 1 drug from Warrick (Schering), albuterol sulfate, had a spread of 186.8% in 1995 and 651.4% in 2002. The Class 2 claims are from third-party payers in Massachusetts that reimburse Medicare beneficiaries for their statutory 20% coinsurance under Medigap or supplemental insurance. Class 3 claims included (1) all other third-party payers, (2) consumers who make coinsurance payments, and (3) consumers without insurance “for these drugs in Massachusetts and who pay for the drugs based on AWP.” This decision in In Re Pharmaceutical Industry Average Wholesale Price Litigation refers to “perverse incentives” created by the Medicare system in basing provider reimbursement on AWP, unscrupulous behavior of “many pharmaceutical companies” in Commentary