Back in 1992, Congress created a program to require agencies within the Department of Health and Human Services to contract with drug manufacturers to secure price discounts for drugs provided to certain government supported hospitals and clinics. Under the law, the drug manufacturers were required by these contracts to sell drugs to those hospitals and clinics at no higher than “ceiling prices,” which were based on average prices offered for the same drugs.
However, thanks to a decision by the Obama Administration’s Department of Justice in siding with drug manufacturers, those price discounts are now in jeopardy.
The ability of government-supported hospitals, clinics and their patients to get the benefit of these price “discounts” depended on the government writing and enforcing the contracts. But over the years, The agencies became lax in their efforts, and investigations by various inspectors general found persistent over-pricing in setting the ceilings and/or enforcing them through sales to the health care providers.
This is a classic case where the beneficiaries of a regulatory program ought to have the ability to bring enforcement actions against the parties to make sure the benefits intended by Congress actually occur. Thus, a group of supported hospitals/clinics (e.g., Santa Clara County et al) sued the drug makers to compel them to stop overcharging and provide the discounts Congress intended.
Initially brought in State trial court, the case was removed to federal court, and the initial District Court decision dismissed, partly because the federal statute did not explicitly create a private right of action — that is, the Act didn’t say third parties could sue even though they were intended beneficiaries.
But when the case got to the Ninth Circuit Court of Appeals in 2008, the Court reversed, holding that while there was no private enforcement of the statute, per se, Santa Clara County et al could proceed under standard contract law. In other words, since these plaintiffs were the Congressionally intended beneficiaries of the discount pricing contracts between the government agency and the drug manufacturers, contract law gave these beneficiaries a right to sue to obtain the benefits which they were promised under the contracts. Good decision.
The Ninth Circuit’s decision is now on appeal to the US Supreme Court, so the question has been, what would the Obama Justice Department do? Would it side with the hospitals and clinics and allow them, and potentially other beneficiaries of Congressionally mandated drug discount contracts, to enforce these contracts through the courts? Or would it side with the drug manufacturers and argue the hospitals didn’t have the right to sue?
The New York Times today reports DoJ’s decision to side with the drug makers:
The Obama administration, following a lengthy internal debate, has unexpectedly come down on the side of pharmaceutical companies that are accused of overcharging public hospitals and clinics that care for large numbers of poor people.
The administration has told the Supreme Court that the hospitals and clinics cannot sue drug companies to enforce their right to deep discounts on drugs or to obtain reimbursement from companies that overcharge.
It is a classic conflict: a political imperative for the administration — to ensure that inexpensive drugs are available to the poor people who need them — rubbing up against the Justice Department’s fear of an onslaught of lawsuits by clinics and hospitals if the Supreme Court allows them to sue.
Classic conflict? I don’t think so. There are hundreds of affected hospitals and clinics that are exactly the beneficiaries Congress intended for the discount contracts Congress mandated. They are the entities most directly affected by, and most fully aware of, whether the discounts are actually provided. Rather than conflict with the DHHS efforts, private actions by these parties will supplement and perfect DHHS enforcement, and their ability to do so will serve as a deterrent against contract violations by drug makers. So it makes perfect sense to allow these entities to help DHHS enforce the contracts under standard contract law. And that’s why this idea is fairly standard in contract law.
The Inspector Generals’ reports already demonstrate the DHHS hasn’t done an effective enforcement job. And there’s no reason to believe DHHS will significantly improve things, especially when Congress is looking to make dramatic budget cuts in every corner. DHHS should thus welcome the help of private enforcement efforts by the very people the Act was intended to help and who have the greatest stake in effective enforcement.
But as we’ve seen in other cases, this Administration can’t seem to leave well enough alone when it has a favorable, common sense court decision. It insists on maintaining control, even though it has no intention or capability of exercising that control in an effective manner. What were they thinking?
John Chandley
More:
Text of the Ninth Circuit decision in County of Santa Clara vs. Astra USA Inc. . . .



40 Comments

The stench from this Administration grows day by day.
We see whose side they’re on.
More twelve-dimensional chess? It only looks as if the Obama Administration is a bunch of shameless corporatist goons?
score another one for Big Pharma. got recoup those R&D dollars somehow, heaven forbid we develop a rational non-profit based healthcare model.
Look over there at the shiney object of distraction called “Death Panels”!! Pay no attention to BigPharma/BigIns manipulating stuff behind the curtain. Let’s get all ginned up with outrage over ersatz gov’t death panels, whilst BigPharma rips us all off. wheeeee!
didnt see this one coming,,lol
How….unsurprising.
“unexpectedly come down on the side of pharmaceutical companies”
I’m shocked, I tell you shocked, that O is siding with PhRMA. /s
I will say in loud tones this makes me mad and sick. I have just had a recent dispute about a very expensive med; requirements of some sort make a lesser amount cost more than a larger dispenser. Crazy. So, give the crazies more power. What is he thinking?
Can he ever side with the people of this country?
is he close enuf to buissiness
No.
If any doubt remained that Barak Bush Obama is simply in George Bush’s 3rd term, please read above.
The GOP Brooks Brothers suit is GOP’s most cherished asset newt to Arizona Jared and Osama Bin Laden.
Barry never met a wall street GOP Teaparty Banker or BP oil man or Mega-Pharma CEO that he doesn’t service. Obama sucks US criminal drug monopoly now further enriched and rewarded by Barry’s DOJ fellow GOP houseboy Eric Holder and faux Dem Barak Bush Obama….can’t we just be bipartisan?
GOP cipher -Barry Bush Obama is change that John Boehner’s Mitch McConnell and Barry Bush’s identical CEO owners indeed believe in. Barry is the stuffed suit GOP actor that profits GOP all day long 24-7.
Are you faux Dem Obama advocates, affiants and Obama supporters awake?
I spit on the days I on which spoke for, defended him and voted for the fraud GOP tool.
Has anyone made a list of all the times Obama has sided with corporate interests vs. the People of the U.S.?
Next time I talk to my (Progressive Dem)Representatives office, I’d like to ask why she (Jan Schakowsky) continues to support The Naked Emperor.
Obama figures he’ll sneak a sellout in while we’re distracted by Giffords. Typical little weasel.
for more than two decades Democrats in power have serviced their corporate masters, offering the long-suffering, co-dependent ‘base’ the merest rhetorical lip service.
And, (D) loyalists, ‘progressives’ reward them with their votes every time – why ever should the pols change a thing?
its up to you now, to finally change something besides reward their disdain in even numbered years because, look over there, ‘kooky Republican nut-job.’
I notice the NYT chose to frame this as a confligt between ‘poor people’ and put-upon pharmaceutical companies who would be the target of excessively litigious peasants (you know, us). But it seems to me that it is the tax payers of all income levels who are getting screwed here. Craven of the NYT to pin this on Poor People?
Yeah.
In my world, DOJ would be ASSISTING DHHS, not blocking them.
The President acts to support his base – Big Pharma. No cheap meds for Americans but dang are the same drugs cheap in Mexico, Canada. England, Spain, China, India, Pakistan, Italy, France, Chile, Brazil, Australia, Argentina, Vietnam, Cambodia, Tibet, Russia, Serbia, Croatia, Germany, Sweden, Switzerland, South Africa, Egypt, The Ukraine, etc., etc.
Just not here. We’re to pay through the nose. By law. By Presidential edict. Our government, unlike many others, doesn’t represent its citizens. It represents multinational corporations and don’t you peasants ever forget it.
Somebody has to pay for the other countries’ drugs. I mean, really.
Exactly…Any reason to think that our ultra expensive meds are any better? There’s a reason WalMart can offer real bargains.
My world, too. Not our politicians’ world, though. DOJ works to defend its clients – the multinationals who write our legislation and hand it to “our” representatives to enact as law.
“For the people” my ass.
I came across an article once that explained why we pay more. Because we’re richer than the rest of the world and somebody’s got to pay for the R&D or Big Pharma goes broke.
The poor billionaires.
Jesus. Lord Obama is enforcing his Rube Goldburg Stamp Act on us in favor of the British East India Pharmaceutical Company.
One could say that we need a tea party, but that’s already been highjacked by the Wall Street enablers. Damn.
Just how many corporations own this “administration”?
I think it’
s going to be awfully difficult to re-elect this man….unless our votes don’t count at all anymore…if that’s the case,he’s a shoe-in ( or a shoe horn)
Well, bowl me over! What a surprise:)
While President Obama does the bidding of Big Pharma he shamelessly invokes the suffering of his mother or grandmother(I can’t remember) at the expense of the insurance industry. He is shameless. He bereft of moral character.
Sh#t. I think I crossed paths with a person who is affected by this but I doubt the patient or the doctors would come forward due to the fear of retribution in the form of program de-funding. The patient’s cancer is back because of being forced to go off special medication. Why? Because of the new Pharma price hike that the insurance company won’t pay. How corrupt was it to give the banksters anti-trust exemption back in 1947 so they could practise the dark arts of the insurance/hedge business? Meanwhile, the crookedness metastases: “Goldman Sachs Proprietary Traders Roskis, Benatoff Said to Plan Hedge Fund” (by Jesse Westbrook, Jan. 10, 2011, link: http://www.bloomberg.com/news/2011-01-10/goldman-sachs-proprietary-traders-roskis-benatoff-planning-own-hedge-fund.html ).
Legalized murder.
That is the country’s present dilemma in a nutshell.
Amen-amen.
I guess there are death panels after all.
Scarecrow; with all that’s gone on in the past 72 hours, you get points for continuing to hold Mr. Centrist’s feet to the fire.
It’s a duty that we mustn’t neglect.
Thank you, Scarecrow. Good post.
What did we expect would happen…we had all the red flags. or Pharma’s ,what?, 10 million dollar investment grooming a candidate,[ on the books?] is going to stand against the MOTU? The shit we didn’t really, fully know during the longest election campaign EVER, about the Shadow Gov. until it was too late. And even then, who else?
In my heart I don’t wish the life of a Politician on anyone. But, if I did, I would love to support a candidate from FDL’s central headquarters.
Obamacare is all about taking care of the pharmaceuticals and trial lawyers and has little to do with health care. If he had been interested in providing health care for all Americans, all they had to do was put everyone on Medicare and charge Social Security taxes accordingly to pay for the program. Sure, some modifications would have had to be made but very little and certainly not 2000 pages of them.
Absolutely. The administration loves this left/right distraction, and they know it will further divide us as a people. If we’re focused on blaming those on the right and documenting every word out of some bloviator’s mouth, we’re not paying attention to the administration and what it’s doing to us. Yep, the Obama and his buddies like this situation just fine.
I thank Scarecrow for introducing some reality into the constant stream of blame and division. Recommended.
This goes right along with the privatized-healthcare-industrial-complex-preservation act (AKA “Patient Protection and Affordable Care Act “). Whoda thunk this administration would knock down cost-controls (especially when they blocked drug re-importation)?
I shocked I tell you, shocked!
Obama making that “deal” with the drug manufacturers cost the US national healthcare. His deal cost the baby-boomers their birthright. For accepting those contributions, then carrying out the drug companies’ bidding Against the American people, was a crime. And that crime was Bribery.
The pharmaceutical corporations are basically a cartel. Almost all the biggest corporations in America run on either a monopoly or cartel model.
And that’s the kind of “free market” that Obama and Wallstreet like!
antiwar.com had an article about a month ago about how the neocons had successfully made inroads into the Tea Party. However, the story isn’t over yet, in spite of know-nothing comments by people whose brains can’t disentagle the concepts of attempting to coopt the Tea Parties, from actually having done so, finally and forever more.
From the same quarters, antiwar.com, there’s a current article by Justin Raimondo that indicates that the neocons’ success is limited, and that we can expect an ongoing fight.
See The Tea Party, Foreign Policy, and the Politics of Real Change
Too bad there’s not more signs of life in the progressive side of things. See Glen Greenwald’s Daley is a reflection, not a cause
Fortunately, progressives are not monolithically useless and coopted, either. In fact, there’s organizing going on via MyFDL’er themalcontent, somewhat along the lines indicated by MyFDL’er jeffroby in his “Dump Obama” diaries. I recommend you check out their diaries.