John O'Brien Oct. 15, 2012, 6:13pm

FRANKFORT, Ky. (Legal Newsline) - Just as the Alabama Supreme Court did before it, a Kentucky appeals court has reversed millions of dollars in judgments in drug-pricing lawsuits brought by the state attorney general.

Friday, the Kentucky Court of Appeals ruled in favor of two pharmaceutical companies alleged by state Attorney General Jack Conway to have defrauded the state Medicaid program by inflating the average wholesale prices of their products. The court said the State was "complicit" in pricing system and not allowed to ask for compensation.

The ruling wipes out a $16 million verdict against Sandoz Inc. and a $114.7 million verdict against AstraZeneca. Included in the AstraZeneca verdict was a punitive damages award of $100 million.

"Upon a thorough review of the record, we find that (judgments notwithstanding the verdicts) should have been granted in favor of both Sandoz and AstraZeneca because the Commonwealth failed to establish causation of damages," wrote sitting Judge Joseph Lambert, a former chief justice of the state Supreme Court.

"More specifically, since the Commonwealth was aware for decades that the AWPs were inflated, it could not have relied upon them as accurate figures, and thus, no damages resulted."

Lambert wrote that the results reached by the jury were "clearly unreasonable."

The three-judge panel said the State was aware of an ever-increasing spread between the cost of generic drugs and the AWP reported, creating greater profits for pharmacies.

However, it ruled, the State knew this, even commissioning a private study of the prices.

"Clearly, the Commonwealth was aware that AWPs were not the actual prices paid for generic drugs," Lambert wrote.

"In light of this fact, it is wholly untenable for the Commonwealth to now claim millions of dollars in compensatory damages for harm caused by the false or fraudulent reporting of AWPs to price publishers.

"Frankly, it is appalling that the Commonwealth had actual knowledge of this 'shell game' method of pricing... However, even more appalling is the fact that, in spite of that knowledge, it acquiesced, billed accordingly, and now seeks reimbursement by way of compensatory and punitive damages."

Conway hired private attorneys to handle the case. George Galland of Chicago's Miner, Barnhill & Galland represented the State at oral arguments.

Similar cases have been filed by many attorneys general around the country, leading to millions of dollars in settlements.

Former Alabama Attorney General Troy King sued 73 companies, but watched as the state Supreme Court overturned more than $270 million in three cases in 2009. Earlier this year, the court also reversed a $78 million verdict against Sandoz.

Also this year, the Wisconsin Supreme Court affirmed a $9 million judgment against Pharmacia.

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