The furor over escautf8g prescription drug prices has inspired dozens of state investigations and civil lawsuits in recent years across the United States, most of them targeting manufacturers.
But another factor in the increases quietly surfaced Oct. 6 in a Boston federal courthouse. Two major Bay Area companies were accused in court documents of infutf8g the cost of prescription drugs to the tune of an estimated $7 billion between 2001 and 2005.
The Wall Street Journal first reported in early October that a drug data publishing company based in San Bruno called First DataBank had reached a settlement with a group of unions in Massachusetts and Pennsylvania over how the company gathered and presented prices in the pharmaceutical catalog that it’s maintained for years.
First DataBank is a subsidiary of the New York–based media empire Hearst Corp., owner of the San Francisco Chronicle, Esquire, and dozens of other publications across the country. Another company still being targeted by the plaintiffs is the San Francisco–based drug wholesaler McKesson Corp., which earned $88 billion in revenue last year and is ranked 16th among Fortune 500 companies.
First DataBank’s price listings play an enormous role in determining what Americans pay for medications. When you receive a bottle of antibiotics to treat an infection, for instance, your private health insurer or state Medicaid program (known as Medi-Cal here) will refer to First DataBank’s listed drug prices as a benchmark to determine what it’ll pay the pharmacy as a reimbursement. That means if the benchmark goes up, so too can your insurance premiums and the cost to state governments.
The settlement, according to federal records, forces First DataBank to adjust the formula it uses to determine those prices. An economist hired by the plaintiffs testified that the savings in 2007 alone for consumers could amount to a staggering $4 billion. First DataBank has also agreed to cease publishing the prices in their drug guides within two years.
Physicians, hospitals, pharmacists, and all manner of other health care professionals pay First DataBank a subscription rate for access to a digital clearinghouse of information on drug dosages and allergies, among other things.
More importantly, First DataBank publishes what’s known as an “average wholesale price” for more than 290,000 pharmaceuticals. There are three major drug wholesalers in the United States, including McKesson, that buy drugs directly from manufacturers and then mark up the price before selling the drugs to pharmacies. The average wholesale price — widely used around the country to determine what pharmacies will get as a reimbursement — is supposed to be a reasonable reflection of what the pharmacies pay the wholesalers for drugs.
First DataBank claimed to survey these wholesalers to come up with an average price that includes the markup, which it then lists in its drug-pricing database. But in recent years, the Journal reported, such surveys have been few and far between, and sometime around 2002, First DataBank inexplicably froze the markup at 25 percent, even though the prices pharmacies were actually paying fluctuated dramatically due to competition.
Citing testimony from one employee, the Journal notes that First DataBank began surveying only one company to come up with its average: McKesson. The cost to pharmacies still varied, but McKesson had reportedly standardized its markups on paper at 25 percent. That meant insurers and state health care administrators relying on First DataBank were making reimbursements that translated to higher profits for the pharmacies.
The employee’s testimony and documents in the case indicated that McKesson knew exactly what was happening. What remained unclear at press time was why First DataBank would choose to survey only McKesson or how it might have benefited from the decision.
The Journal notes the pharmacies were the only ones that stood to profit from the standardized markups, not McKesson directly. But internal McKesson e-mails show the company not only was aware of its impact on First DataBank’s published figures but hoped pharmacies would see McKesson working in their best interests — a marketing scheme, if you will.
An e-mail from one McKesson product manager gleefully exclaims that the profit for pharmacies dispensing a bottle of the cholesterol drug Lipitor leaped from $6.86 to $17.18.
First DataBank admitted no wrongdoing and is not paying money to the plaintiffs of the Boston settlement. The company was founded in 1977, and Hearst purchased it in 1980. Federal records show that in 1998, Hearst bought a $38 million company that owned one of First DataBank’s only real competitors, Medi-Span.
A later investigation by the Federal Trade Commission revealed that Hearst had failed to turn over key documents to the Justice Department’s antitrust division during the sale. As a result the feds slapped Hearst with a $4 million fine in 2001, at that time the largest premerger antitrust penalty in US history. The FTC also belatedly concluded that Hearst’s ownership of Medi-Span gave it a monopoly over the drug database market and not only required that Hearst give up Medi-Span but forced the company to disgorge $19 million in profits generated from the acquisition.
Hearst spokesperson Paul Luthringer directed us to a bare-bones statement when the Guardian called with questions about the Boston suit. “The allegations made in these actions have raised concerns with respect to the integrity of the pricing information that is provided to First DataBank for purposes of publishing [the average wholesale price],” the release states. “In light of these concerns, First DataBank has determined to make certain changes in its drug pricing reporting practices.”
Climbing drug costs can’t be attributed mainly to First DataBank or McKesson, of course. In fact, recent investigations and civil suits spearheaded to find out why prices have skyrocketed have focused on the manufacturers. During those inquiries First DataBank has been hit with dozens of subpoenas nationwide requesting company records and testimony, according to San Mateo Superior Court records. Many of those cases are still ongoing.
Attorneys for the plaintiffs in Boston who made McKesson and First DataBank defendants in the summer of 2005 declined to comment. McKesson also has remained tight-lipped since the Journal story was published. Spokesperson James Larkin said the company would not answer questions beyond a prepared statement.
“If First DataBank decided to survey McKesson only, it did so without telling McKesson,” the statement reads. “In fact, First DataBank has affirmed in an earlier lawsuit involving other parties that it never told McKesson that at times McKesson was the only wholesaler being surveyed.” SFBG
Here are links to key documents, including federal court records of the Oct. 6 Boston settlement with the Hearst-owned First DataBank (www.hagens-berman.com/first_data_bank_settlement.htm), the Justice Department’s antitrust fine of Hearst in 200l (www.usdoj.gov/atr/cases/indx330.htm), and the Federal Trade Commission decision requiring Hearst to give up its monopolistic subsidiary, Medi-Span (www.ftc.gov/bc/healthcare/antitrust/commissionactions.htm).
Guides
Past ain’t past
› cheryl@sfbg.com
“What is the international camp language? It’s beating.” In an instant, a guide at the former concentration camp just outside of Mauthausen, Austria, transforms a group of high schoolers from giggly to terrified. From the looks of the parking lot, Mauthausen is like any other historical attraction. Sightseers roll up in enormous motor coaches, clutching digital cameras loaded only with fun-time Euro-vacation shots — until now.
There’s no narration in KZ, Rex Bloomfield’s layered doc about the Mauthausen camp’s post–World War II transformation into an exceedingly unsettling tourist destination. (KZ is short for the German word Konzentrationslager, or concentration camp.) The film is largely composed of interviews with visitors, guides (“I’ve been taking antidepressants for years,” one remarks woefully), and Mauthausen residents — many too young to remember the camp’s horrors and some too old to realize that Hitler Youth nostalgia isn’t something most folks would want caught on tape. The disconnect between town and camp, past and present, can be breathtaking. “McDonald’s” and “Mauthausen” are painted on the same billboard; a young couple shrug off the fact that their comfy home once belonged to an SS officer; and the local tavern features lederhosen, suds, and a folkie strummer whose sunny lyrics praise “the cider tavern up by the KZ.”
Though Bloomfield doesn’t shape his film with archival footage, talking-head academics, or voice-overs, the way KZ is edited makes it pretty clear he’s just as stunned as we are by the juxtapositions his film uncovers. An elderly Mauthausener remarks that during the war she wasn’t sure what was going on in the camp, just that it was “nothing good”; moments later the camera cuts to a group nervously shuffling into the KZ’s gas chamber, where they hear incredibly graphic descriptions of deaths that happened where they now stand.
For its San Francisco Jewish Film Festival engagement, KZ screens with the short The Holocaust Tourist: Whatever Happened to Never Again?, which examines the off-kilter rebirth of Jewish culture (think faux-Hebrew signage and “Jewish-style” restaurants that serve pork) in Krakow, Poland, owing to the popularity of Schindler’s List. What visitors to Mauthausen or Krakow (the closest big city to Auschwitz) actually get out of their experiences is unclear; some seem deeply moved, while others are simply checking off another stop on, say, their “Highlights of Poland” itinerary. As both films point out, being a tourist is perhaps all most people can — or should — be in places where such evil still lingers.
Meanwhile, in Tel Aviv, Israel, folks with zero interest in confronting horror head-on can’t avoid it when a suicide bomber targets their hangout, a laid-back watering hole called Mike’s Place. Amazingly, filming for the documentary Blues by the Beach — intended as a feel-good look at “real life in Israel” beyond headline-grabbing violence — had begun before the April 2003 attack. After the project’s primary catalyst, American producer Jack Baxter, was seriously injured in the blast, Joshua Faudem (an Israeli American with a filmmaking background who happened to be a Mike’s Place bartender) carried on with help from his then-girlfriend, Pavla Fleischer, also a filmmaker.
Despite this stunning chain of coincidences, Blues by the Beach unfortunately suffers from lack of focus, shifting from Baxter’s search for a doc subject to Mike’s Place to Faudem’s failing relationship with Fleischer. Though the filmmakers’ post-traumatic stress is well earned, it can get tedious. Far more inspiring is the resilience of Mike’s Place itself. Visit the bar’s Web site (www. mikesplacebars.com) for a striking illustration of how recent tragedy offers just as much opportunity for off-the-wall juxtaposition as anything left over from World War II: a page memorializing the victims of the bombing and another page proudly displaying pics from the bar’s annual “Pimp-n-Ho” costume bash. SFBG
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