The state Supreme Court waded through lengthy arguments Tuesday in a case in which the state of Pennsylvania has alleged two pharmaceutical companies inflated the price of their drugs at the government’s expense.

In the case of Commonwealth v. TAP Pharmaceutical Products, two pharmaceutical companies, Johnson & Johnson and Bristol-Myers Squibb, are appealing combined verdicts against them of roughly $80 million. The state alleged the companies inflated their drugs’ prices such that the government overpaid medical providers in prescription drug reimbursements.

Donald E. Haviland Jr. of Haviland Hughes in Philadelphia and John M. Elliott of Blue Bell, Pa., firm Elliott Greenleaf & Siedzikowski argued in Harrisburg on Tuesday on behalf of the Pennsylvania Attorney General’s Office that the drug companies thrived and unlawfully profited in a realm of confusion.

During the six years it took for the cases to get to trial, during the trial itself, and during post-trial litigation including Tuesday’s arguments, Haviland said there has been "confusion abound."

The allegations went to trial before Commonwealth Court Judge Robert E. Simpson Jr. in separate bench and jury trials for Johnson & Johnson and Bristol-Myers, respectively. The result was a $51.8 million judicial finding against Johnson & Johnson, which included nearly $45.3 million in reimbursements to the state and nearly $6.6 million in civil penalties, and a $27.7 million judicial finding against Bristol-Myers.

Those numbers stood up on post-trial motions in the form of a 202-page opinion from Simpson in the Bristol-Myers case and a 178-page opinion in the Johnson & Johnson case.

The state’s case, boiled down, is essentially this: The drugmakers overstated the average wholesale price, or AWP, for their drugs such that state programs — particularly Medicaid and the Pharmaceutical Assistance Contract for the Elderly, or PACE, program — and consumers would end up paying too much to reimburse prescribers.

It was the difference between the price medical providers pay for the drugs and that which they are reimbursed for them that drug companies would market to doctors, a tactic the state’s lawyers have called "spread marketing."

With fluctuating rates and a laundry list of models and acronyms, the state’s lawyers argued the drug companies intentionally misled the taxpayers to turn a profit.

"You could have the intelligence of [Albert] Einstein, the humanity of Mother Teresa, and the guile of Machiavelli, and you still could not have penetrated this blizzard of acronyms that the drug companies were sewing their confusion with," Elliott told the justices.

Of the more-than-a-dozen companies sued by the state, Johnson & Johnson and Bristol-Myers Squibb were the two drugmakers to go to trial.

The companies were paid the wholesale acquisition cost, or WAC, by the wholesalers, from whom the medical providers would buy the drugs. Then, the medical providers would buy the drugs from the wholesalers and sell them to patients, who often secured their drugs through Medicaid or PACE. The medical providers would accordingly seek reimbursement from the state for the drugs at a rate of AWP minus 10 percent.

Just what a drug’s AWP is composed of was also a subject that seemed to capture the justices’ interest.

William F. Cavanaugh Jr. of Patterson Belknap Webb & Tyler in New York represented Johnson & Johnson; Robert C. Heim of Dechert in Philadelphia represented Bristol-Myers Squibb.

According to Cavanaugh, the state advanced a theory that it was under the impression that AWPs reflected actual averages when, in reality, it knew the AWPs were not.

Justice Max Baer noted Simpson found the drugmakers would change the AWPs to confuse the government.

Cavanaugh, among other points, argued the state was judicially estopped from taking the opposite position in this case that it has successfully taken in prior litigation related to AWPs, in which it has argued that it intended its reimbursement rates to be higher than those in other states to ensure drug dispensers make a profit on the cost of ingredients.

He said the law of the land prevented the commonwealth, which he said was "playing fast and loose with the facts," from taking the position that it did when the state had previously defended a higher reimbursement rate — a flat AWP — in the previous litigation.

Cavanaugh also argued the state could not be awarded in the case because the Unfair Trade Practices and Consumer Protection Law (UTPCPL) allows the state to claim a "restoration" award from a party that derived moneys or property from a violation of the law. The drug companies, in Cavanaugh’s view, were not in violation of the law.

Specifically, he said the only ones deriving benefits from the state’s reimbursement money — the going rate of which is AWP minus 10 percent — were the medical providers.

Haviland, though, responded it was "preposterous" for the drug companies to claim they didn’t benefit from the high AWPs, pointing to the companies’ increased market share and ability to sell to wholesalers at a higher starting price as the primary and tangible benefits of spread marketing.

"The providers claimed direct payments but benefit was inured by the companies," Haviland said, in response to a line of inquiry from Justice Debra Todd.

A five-week trial was held before Simpson in both cases. The state brought claims of common-law fraud or misrepresentation and civil conspiracy, as well as violations of the UTPCPL.

The jury in the Bristol-Myers case weighed the common-law claims, while Simpson ruled on the UTPCPL claim. The jury found in favor of Bristol-Myers and Simpson ruled against the company, finding it violated the UTPCPL. Simpson ordered the $27.7 million in reimbursement and issued injunctive relief in the form of a ban on Bristol-Myers contributing to the reporting of inflated AWPs or false spreads.

Heim argued Tuesday that, since the jury made no finding of common-law fraud or negligent misrepresentation, the deceptive-conduct finding Simpson made under the UTPCPL was unfounded and his definition of such was "elusive of meaning."

By ruling otherwise, Heim told the justices, Simpson had encroached on the jury’s province.

In its post-trial motions, which are now before the justices, the state argued its common-law claims should not have been dismissed. It also sought costs and attorney fees under the UTPCPL findings. The two drug companies each took issue with the finding that they violated the UTPCPL.

In the Bristol-Myers case, Simpson said the company owed $27.7 million to the state of Pennsylvania for the price of drugs charged in violation of fair trade practices.

Heim noted Tuesday that Bristol-Myers was not found to have reported the inflated AWP.

In Johnson & Johnson, Simpson ordered the drugmaker to reimburse the state government nearly $45.3 million and pay civil penalties in the amount of nearly $6.6 million.

He also barred the company from quoting either to the Pennsylvania Department of Public Welfare or to state programs increased AWPs for its drugs without also reporting current acquisition costs such as average manufacturers’ prices or average sales prices.

In addition, Simpson prohibited the company from promoting or marketing "spreads."

Ben Present can be contacted at 215-557-2315 or bpresent@alm.com. Follow him on Twitter @BPresentTLI. •