1. THOMAS W. CORBETT, JR. Attorney General Pharma Conference National State Attorney General Program May 10-11, 2007 James A. Donahue, III Chief Deputy Attorney General Antitrust Section

2. The Zen of AWP  How knowing what AWP is and should be can provide enlightenment

3. The Theory  System needed to purchase drugs while neither enriching, nor impoverishing pharmacists  System had to provide efficiency incentives  Needed replicatability

4. The Problems  The Lake Wobegon Problem  The Surveys  Lying, Cheating and Stealing

5. The Lake Wobegon Problem  Part 1: An average means that someone is paying an above average price for drugs and losing money on a sale to a government program  Part 2: Since AWP was first adopted in the 1960s, the pharmacy business has changed so that all drugs stores are above average.

6. The Surveys  Price are determined by surveys conducted by private reporting services  No one is required to be honest with these services.  Think of the penalty you would face if you answered a survey question dishonestly.

7. Lying, Cheating and Stealing  As the difference between AWP and actual wholesale prices grew, an opportunity arose to “ market the spread. ”  Effect of marketing the spread is reverse competition: Competition to offer ever greater spreads which mean higher prices.

8. Lying, Cheating Stealing Part II  Differences between AWP and real wholesale prices have grown across the board.  Markups can be used for marketing, rebates, detailing.  AWP is the major tool to limit transparency in drug pricing.

9. The Bottom Line  As Judge Stearns stated in rejecting a similar argument, “ The suggestion that Congress would deliberately condone a bribery scheme using public funds to enrich drug manufacturers and physicians is, to say the least, unusual. ”

10. Pennsylvania’s AWP Lawsuit  Filed in March 2004.  Now removed to MDL, Motion for remand pending.  Allege fraudent pricing on 319 drugs by 37 defendant drug company defendants.  Involves both doctor dispensed and pharmacist dispensed drugs.

11. The Future of AWP  Various other average pricing guides  My favorite: Competitive Bidding

12. Role of Attorneys General  Recover Damages for State Agencies  Recover Damages for Consumers  Obtain industry Reform  Perform Law Enforcement Role: Deterence