Sandoz Inc. v. State of Alabama

Case Updates

The Alabama Supreme Court dismissed the case, holding that Alabama could not claim it was a victim of fraud because the state knew or should have known about the standardized drug pricing methods, and yet did not alter its reimbursement practices.

NCLC urged the Alabama Supreme Court to hold that pharmaceutical manufacturers cannot be held liable for fraud, or penalized with a substantial punitive damage award, based on industry-standard drug price reporting conventions that are accepted by federal and state officials. In this case, the State of Alabama relied on Sandoz's reported prices to reimburse pharmacists for drugs purchased for Medicaid recipients. The state claimed that Sandoz's reported “Average Wholesale Prices” (AWP) fraudulently misrepresented what wholesalers actually paid for Sandoz's drugs because the AWP rates did not reflect discounts often provided by the manufacturer to pharmacists. The state Medicaid agency had been fully aware of the manufacturer's standard drug pricing methods for decades, yet the agency did not alter its reimbursement practices. NCLC argued that the award of punitive damages against Sandoz for its use of “Average Wholesale Price” and “Wholesale Acquisition Cost” reporting conventions was unconstitutional because it was not 'reprehensible' conduct.