On October 6th, the Wall Street Journal cast a spotlight on a new method devised by big drug companies to pick the pocket of middle class families. This time a publishing company had a big impact on the price you pay for prescription drugs, making "awesome" profits for the pharmacies at your expense.

Here’s the scheme: First DataBank publishes prices of drugs in the form of AWP's, supposed to represent the "Average Wholesale Price" charged by drug wholesalers. Pharmacies negotiate how much they will get reimbursed based on the AWP, and often set the out-of-pocket price as a function of AWP (important to consumers without insurance, or those paying for medications not covered by a flat co-pay.) So when the AWP goes up, consumers and health providers pay more. That's what happened in 2002, when First DataBank increased the AWP on more than 400 brand-name drugs. Plaintiffs in a class action lawsuit claim that this arbitrarily increased costs for consumers and third-party payors by at least $7 billion over three years. Not exactly chump change.

Why did prices go up? It wasn't because real costs increased, but just because the mark-up wholesalers reported did. Or wholesaler. At least in the final years, First DataBank's "national survey" of wholesalers only looked at one - McKesson Corporation. McKesson claims they increased mark-ups for administrative conveniance, without knowing that they were the sole data point for AWP. Yet a McKesson executive (Robert James, director of brand pharmaceuticals product management) boasted in a January 2002 email: "our successes recently and during this past year include raising the AWP spreads" on many drugs. Why brag about something they didn't know about? Good question. He also reported enthusiastically to colleagues that pharmacies previously made a profit of $6.86 dispensing Lipitor, but with the new AWP they "will enjoy $17.18 profit...and that is awesome!!"

Not so awesome for consumers, who got hurt at least two ways. First, anyone without insurance paid higher prices directly out of their wallets. Same goes for consumers paying for drugs not covered by their plans. And even people shielded by flat co-pays may have paid more, since employers started increasing co-pays in response to pricing upticks.

A settlement proposed last Friday would end the dispute for First DataBank. If the terms are aproved by the judge, First DataBank won't pay money damages, but they would roll back AWP's, lowering drug prices in the immediate term. The plaintiffs' attorney made clear, however, that they "intend to continue to press the case against McKesson."

Notice that it was a class action suit that exposed this scheme and that gives consumers some chance of getting at least a part of that $7 billion back into their own pockets.