$1,000 for sugar water and salt? Big pharma inflates bills, consumers pay

If you've experienced sticker shock at the pharmacy and wondered why drug prices are always rising, even for generics, consider the value of salt. Baxter International, which sells drugs to health care providers and pharmacies, billed Medicaid $928 for $1.71 worth of saline solution -- a 54,000% markup -- for more than 10 years before a Louisiana state lawsuit caught the deception last month.

Baxter also charged the same amount for sugar water -- dextrose solution, an intravenous medication used to treat hypoglycemia. Cost to the company was just $2.25 wholesale, and so, a 41,000% markup. The scheme implicated 11 other brand name and generic prescription drug manufacturers.

It worked because the companies exploited a statute that shuts out Medicaid and Medicare programs from finding out the true market price of medications. The law also prevents health insurance agencies from negotiating lower drug prices and mandates they must accept the wholesale price reported to them.

"The defendants' fraudulent pricing and marketing of their prescription drugs have impacted elderly, disabled and poor Louisiana citizens covered by the state's Medicaid program, by causing the [agency] to pay grossly excessive prices," the complaint states. It accuses the companies' officers, directors, agents, employees and representatives of authorizing and carrying out the deception.

The drug makers, all of which have been sued for similar drug pricing fraud schemes in one or more of 20 other states, reported artificially raised prices for an untold number of drugs to two centralized drug industry reporting services, which distribute the information to those in charge of reimbursements.

The services -- First DataBank and Medical Economics, Inc. -- are not faulted for publishing the false prices in the suit, but an independent report last month showed First DataBank conspired with McKesson Corp., a drug distributor, to raise, fix, and maintain the reported prices of more than 400 brand name drugs. The collusion, which led to a $15 million settlement with the state of Connecticut, raised costs for widely used prescription drugs such as Lipitor, Allegra, Asmacort, Celebrex, Flonase, Neurontin, Nexium, Prevacid and Valium.

"McKesson manipulated the drug market, conspiring to inflate costs for hundreds of drugs and exploiting public programs that serve our most vulnerable citizens. The victims of this scheme included patients and taxpayers who relied on these drugs to treat asthma, allergies, pain, arthritis and cholesterol," Richard Blumenthal, the state's attorney general, said in a statement.

The depth and breadth of the collusion alleged in both suits affects consumers not only because they abused taxpayer money, but also because inflated drug prices result in higher co-pays across the board. This is especially true in the case of Baxter and the two other generic drug makers named in the suit, Ranbaxy and Watson. Generic drug manufacturers stand to gain the most from inflated prices for the same ingredients used in brand-name drugs, because they use them in drugs that cost less to bring to market, thus creating even bigger profits for the manufacturers.

Named in the Louisiana suit are Abbott Laboratories, Baxter International and its subsidiary Baxter Healthcare Corp., Covidien, Mallinckrodt Brand Pharmaceuticals, Forest Laboratories and its subsidiary Forest Pharmaceuticals, King Pharmaceuticals, Monarch Pharmaceuticals, Lupin Pharmaceuticals, Ranbaxy Laboratories Limited and its subsidiaries, Tap Pharmaceutical Products, United Research Laboratories, and Watson Pharmaceuticals and its subsidiaries.

Baxter, the only company for which specific overpricing details were given in the lawsuit, did not return a call seeking comment. Earlier this year, the drug and medical device manufacturer was at the center of a massive recall of infusion pumps by the U.S. Food and Drug Administration. The recall followed repeated attempts by the FDA to work with Baxter to resolve serious and persistent safety problems that have led to more than 500 deaths.