Drug companies engaged in an illegal and deceptive scheme to charge inflated prices for prescription drugs that cost the state and Medicare consumers tens of millions of dollars, state Attorney General Mark Bennett said yesterday.

A lawsuit filed by the attorney general's office alleges the companies came up with "phony" wholesale prices that made the state and Medicare consumers pay "grossly excessive prices."

"The taxpayers of Hawai'i have been swindled by certain drug manufacturers falsely inflating prices in our Medicaid programs and to Medicare beneficiaries," said Lillian Koller, director of the state Department of Human Services.

The lawsuit is against 44 Mainland companies supplying prescription drugs to Hawai'i residents and is similar to lawsuits filed by about 20 other states against drug companies engaged in what was described as an industry-wide practice.

The 44 companies are based around the country and manufacture a wide range of prescription drugs. They are listed in the suit alphabetically from Abbott Laboratories Inc. to Watson Laboratories Inc. Among them are the Bayer Corp., Pfizer Inc. and Johnson & Johnson, Inc.

Representatives with several of the drug companies could not be reached for comment yesterday, but they have denied any wrongdoing in the court cases filed against them in other states.

INFLATED PRICES

The suit alleges the companies charge inflated wholesale prices for a wide range of prescription drugs and asks for an unspecified amount of damages for the state, which pays for the prescriptions through Medicaid and other healthcare programs covering some 350,000 residents.

The suit also seeks a $5,000 fine against the companies for each participant in Medicare who must pay 20 percent of the price of their medications.

The rising costs of prescription drugs have contributed to the state's ballooning healthcare bill. State officials pointed to the cost of prescription drugs in the Medicaid program alone that has risen from $45 million in fiscal year 1999 to $117 million in fiscal year 2004, a 160 percent increase. The number of Medicaid recipients rose during that period only 20 percent, from 36,000 to 43,000.

'ALL-OUT WAR'

The increasing costs, the suit said, has contributed to a "health-care funding crisis" in Hawai'i.

The suit alleges, for example, that Par Pharmaceutical's ulcer medication Ranitidine was available for $27.70, but the company's average wholesale price that was charged to the Medicaid program was $1,480. In another example cited by the suit, Mylan Pharmaceutical's heart drug Atenolol was available at $1.60, but the wholesale price charged to Medicaid was $74. Prices are for the year 2000.

Bennett said he anticipates contentious litigation that may resemble "all-out war."

"But we believe filing this lawsuit was the right thing to do and we wanted to send a message that this overcharging and this scheme with respect to Hawai'i taxpayers and the citizens of the state of Hawai'i just simply has to stop," he said.

SECRETIVE MARKET

The lawsuit alleges the companies took advantage of an "enormously complicated" and secretive market for prescription drugs.

The companies' average wholesale prices became the basis for which healthcare providers such as doctors, hospitals and pharmacies would be reimbursed by the state in the Medicaid and other healthcare programs.

By doing so, the state finances "windfall profits" to the providers, the suit said. The companies use the "lure" of those profits to encourage the providers to buy their drugs from them instead of their competitors.

Asked why those providers aren't being sued, Bennett said his office as well as state attorneys generals in other states are targeting the drug companies.

"We believe the architects of this scheme are the pharmaceutical companies, the drug manufacturers and the windfall profits are being reaped at the company level," he said.

NO CRIMINAL PROBE

Bennett said his office is not conducting any criminal investigation related to the allegations. He said he is not aware of any criminal investigation by other states, but said he will not comment on what the Department of Justice "may or may not be doing."

He said he believes the lawsuit is "the best course of action for individual states to pursue on this matter."

Bennett's office has hired two lawyers who he said are among the best in the country. Charles Barnhill Jr. of Madison, Wisc., and W. Daniel "Dee" Miles III of Montgomery, Ala., would receive 15 percent of any recovery for their attorney fees, as well as court costs, which are estimated to run into the millions of dollars.

Barnhill, who has handled similar lawsuits in four other states, said the companies' practice dates as far back as 1992. He indicated that his understanding is that the companies' wholesale prices are also the basis for the price that private consumers pay for the drugs.

"If there are individuals who believe they are charged too much, the courts are always open," Bennett said.

Reach Ken Kobayashi at kkobayashi@honoluluadvertiser.com.