WASHINGTON -(Dow Jones)- The U.S. Supreme Court on Wednesday appeared skeptical of a California county's bid to sue large pharmaceutical companies on allegations they overcharged public health-care facilities for prescription drugs.
At issue are drug makers' pricing obligations to health-care facilities that serve the poor, and whether those facilities have a right to sue drug companies to enforce those obligations.
Under agreements with the federal government, drug makers must cap the prices they charge medical facilities that provide safety-net health services. Santa Clara County, on behalf of its health centers, filed suit against several companies, alleging they charged prices above the caps.
Drug companies enter into the agreements as a condition of participating in Medicaid, the federal health-care program for the poor.
The defendants include subsidiaries of AstraZeneca PLC (AZN, AZN.LN), Sanofi-Aventis SA (SNY, SAN.FR) , Bayer AG (BAYRY, BAYN.XE), and Takeda Pharmaceutical Co. (TKPYY, 4502.TO), as well as Bristol-Myers Squibb Co. (BMY), Merck & Co. (MRK), Pfizer Inc. (PFE) and GlaxoSmithKline (GSK, GSK.LN).
A lower court said the county and its medical facilities had a right to bring the lawsuit because they were third-party beneficiaries of the pricing agreements.
But several members of the high court seemed to take a different view Wednesday during an hour-long oral argument, suggesting that pricing enforcement was the responsibility of the U.S. Department of Health and Human Services.
Justices Antonin Scalia and Ruth Bader Ginsburg said Congress did not provide third-parties the right to file lawsuits to enforce the pricing agreements. "I have trouble finding that intent here," Scalia said.
Justice Sonia Sotomayor said the agreements only involved drug-maker obligations to the federal government. "What am I missing here?" she asked a lawyer for Santa Clara County.
The county's lawyer, David Frederick, said normal contract rules should allow third-party medical facilities to sue. "All we're asking for is the bargain the manufacturers agreed to undertake," he said.
Frederick said the Department of Health and Human Services has been deficient in enforcing the pricing agreements and could not be counted on to do so.
Lisa Blatt, a lawyer for the drug companies, said the lawsuit would be disruptive to federal regulation of Medicaid and could clear the way for thousands of similar lawsuits by health facilities.
"These lawsuits are neither sensible nor a good idea, and not what Congress intended," she said.
Justice Department lawyer Ginger Anders, representing the Obama administration, argued in support of the drug makers' position, saying Congress had vested enforcement authority only with HHS.
Anders also said last year's health-care overhaul created new administrative procedures that will allow health facilities to resolve complaints that drug makers are overcharging them.
There are more than 14,000 health facilities that participate in the drug-discount program. Those facilities purchased an estimated $6 billion in drugs under the program in 2009.
The case is Astra USA v. County of Santa Clara, 09-1273. A decision is expected by the end of June.
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