By Charles Wolfe
The Associated Press

FRANKFORT - The Kentucky attorney general's office Monday sued five pharmaceutical companies, alleging they inflated their drug prices to bilk Medicaid and Medicare.

"This case is about corporate greed," Attorney General Ben Chandler said in a news conference to announce two lawsuits in Franklin County Circuit Court. The alleged overcharging may have cost the state "well in excess of $100 million," Chandler said.

Defendants are Abbott Laboratories Inc. of Abbott Park, Ill.; Dey Inc. of Napa, Calif., and three related companies based in Kenilworth, N.J. - Schering Corp., Schering-Plough Corp. and its subsidiary, Warrick Pharmaceutical Corp.

They allegedly inflated the average wholesale prices of several drugs. Their reimbursement rates from government health plans are based on the wholesale averages, according to the suits.

A spokesman for the Schering companies said the average wholesale price - AWP - used by Kentucky Medicaid is a "reference price for reimbursement," not a literal cost.

"It has been well known and widely reported since the 1960s that AWP as a reference price does not reflect actual prices," said spokesman Bill O'Donnell. .

"If there is fault here, it is the continued use of an undefined reference price to calculate reimbursement rather than government using some more realistic price," O'Donnell said. "Contrary to what we believe the suit is alleging, the company did not seek to take advantage of the AWP system."

Calls for comment to Abbott Laboratories and Dey were not returned.

In the lawsuits, the attorney general agreed that "reported AWP bears no relation to any price, much less an average wholesale price." The difference between reported AWP and actual cost is known in the industry as the "spread," and the companies marketed the spread to induce doctors and other Medicaid providers to purchase and prescribe their drugs over those of competitors, the lawsuits said.

All the companies "knowingly, willfully and intentionally provided false and inflated AWP and other pricing information" for their drugs, the suits said.

Chandler said his prosecutors believe pharmaceutical companies have been setting the price "just wherever they want to set it." He said consumers feel the effect through the loss of tax dollars and, in the case of Medicare recipients, through excessive prescription co-payments.

Chandler, who also is the Democratic nominee for governor, said the lawsuits were a year in the making and were unrelated to his campaign against the Republican nominee, U.S. Rep. Ernie Fletcher. However, he has repeatedly criticized Fletcher for voting against legislation to legalize importation of lower-cost prescription drugs from Canada.

In the lawsuits, Chandler asks the circuit court for injunctions, fines, damages and, in the case of Medicare patients, restitution of co-payment overcharges.