[Also posted on Postscript]

The guilty plea and $1.5 billion settlement by Abbott to resolve their illegal off-label promotion of Depakote revealed a saga of extensive industry abuses and influence peddling that put millions of vulnerable seniors at risk. Abbott’s extensive promotion of the unapproved uses of the anti-convulsant drug Depakote to treat both seniors with dementia and to treat children is shocking. But it is even more alarming that this not the first major drugmaker to plead guilty to illegal marketing tactics that have targeted this exceptionally vulnerable population of seniors.

Many may recall that Eli Lilly was caught illegally promoting the unapproved, or “off-label” use of the antipsychotic drug Zyprexa to treat seniors with dementia, despite their internal studies showing that the risk of death from this drug increased in elderly patients.

Marketing these drugs to nursing homes for use on patients who ‘act up’ or are unruly has been a lucrative strategy for drugmakers. In response, we applaud the Department of Justice and the State Attorneys-General for their increasingly aggressive litigation to penalize these dangerous and unconscionable marketing practices.

But unfortunately for the millions of seniors who may be given Depakote or Zyprexa today or in the near future, the record-breaking $1.4 and $1.5 billion settlements respectively may not translate into improved care, unless further action is taken.

We urge Medicare and Medicaid officials at the federal and state level to move quickly to develop and implement safeguards, such as prior approvals or mandatory second opinions, that could be put in place to protect these vulnerable seniors from any unwarranted or inappropriate use of the drug Depakote to treat their dementia.

Looking forward, it’s time that all off-label settlements by the DOJ or the states include a requirement that the drugmaker pay to correct the misinformation that off-label marketing creates – i.e. that a drug is safer or more effective than it really is. Using lawsuits to fund corrective educational campaigns has a long history, both in public and private sector litigation. (See description here.)

To help stop the inappropriate and potentially harmful overuse of Depakote, Zyprexa, or Risperdal from continuing, doctors should be retrained to undo the misinformation campaigns by Abbott, Eli Lilly, and Johnson and Johnson. Several states, including Pennsylvania and New York have implemented “academic detailing” programs that send independent medical experts, usually nurse practitioners and pharmacists, to provide doctors with the truth about how effective drugs are from an objective, evidence-based perspective. Many state programs specifically address mental health drugs such as Zyprexa and Depakote. Indeed, one of the first of these education programs designed by Dr. Jerry Avorn, who spearheaded the concept in the 1990’s, recommended that a little tender loving care by nursing home staff could reduce the inappropriate use of sedatives, common at that time. A similar conclusion was reached by some nursing homes profiled in an  inspiring Boston Globe article addressing the overuse of Depakote.

– Wells Wilkinson,
Director, Prescription Access Litigation
Staff Attorney, Community Catalyst

Second Circuit takes a pass on reviewing the legality of pay-for-delay settlements

A negative court decision before the Second Circuit this week underscores the importance of passing federal legislation to ban ‘pay-for-delay’ settlements in order to preserve access to affordable, quality prescription drug benefits. At issue is the drug industry practice of paying off generic competitors of expensive brand-name drugs to delay access to low-cost generics. See our earlier blogs here and here.

On Tuesday, the Second Circuit issued a decision on the legality of pay-for-delay settlements concerning the drug Cipro that dealt a blow to consumer advocates and consumer protection attorneys challenging these collusive agreements in court. The decision rebuffed the Federal Trade Commission, the Department of Justice, and a group of State Attorneys-General, all of whom asked the Court to re-evaluate an earlier precedent from 2005 that allowed such ‘pay-for-delay’ settlements.

While the attorneys ponder whether to appeal the case to the Supreme Court, the importance of a legislative solution to this problem becomes even more clear.

Current legislation before the U.S. Senate proposed by Senators Herb Kohl (D-WI) and Richard Durbin (D-IL) would create a presumption that any drug patent settlement that exchanges a payment in return for an agreement to delay bringing a generic to the market is a violation of anti-trust law. The bill gives the FTC the tools to challenge such settlements. However, it still allows the drug companies to prove that a settlement is not a collusive agreement, but a legitimate effort to avoid the time and costs of litigation.

Why is a ban on pay-for-delay settlements important? Since 2005, Congress has responded to concerns about potential collusion by requiring the drug industry to file any settlement of patent litigation concerning a generic drug under seal with the FTC. Since 2004, the FTC has reviewed these settlements, and found that an increasing number of ‘pay-for-delay’ sweetheart deals have been made since the courts started to allow them in 2005. Last fiscal year, a record 19 such pay-for-delay deals were made. By the nine month mark of this fiscal year on June 30, the record was broken, with 21 new pay-for-delay settlements.

These settlements have prevented billions of dollars in possible savings, by preventing generic drugs from being available. At a time when consumer advocacy groups like AARP are documenting exhorbitant price increases for brand-name drugs, generic drugs are the best solution. Another recent report found that every 2% increase in generic use saves Medicaid $1 billion a year.

The FTC, which reviews these agreements, reported in January 2010 that $20 billion dollars in annual brand-name drug spending was being insulated from generic competition by pay-for-delay sweetheart deals. Then, in July, the FTC reported that new pay-for-delay deals were shielding another $9 billion in drug spending from market competition.

How does this impact consumers? The FTC reports that pay-for-delay settlements keep a generic drug off the market for an average of 17 months. The FTC estimates that being forced to take a brand-name drug costing $300 per month, instead of a generic costing $30, would increase a consumer’s health cost by $4,590 over that 17-month period. Drugs that cost more, or that have longer delays, will cost even more.

If a robust, competitive market is to play a role in our new health care system, shielding nearly ten percent of all annual brand-name drug sales from market competition will only allow drug company price increases to continue depleting more and more of our health care resources, while putting more patient care at risk.

In a brief filed with the court, the AMA and AARP described having access to a generic drug improves the quality of patient care:

The price of a brand drug can be prohibitive for uninsured patients who do not have help covering the cost of their prescription drugs. Even for those patients who are insured but who are on fixed or limited incomes, having a generic option is often the difference between having access to a health care treatment and not having any treatment option at all.

And the lawsuit filed by PAL member AFSCME District Council 37in 2006 is challenging the pay-for-delay settlements concerning the drug Provigil, used to treat narcolepsy. This lawsuit has revealed how the lack of competition reduces patients’ quality of life or quality of care when an insurance company refuses to pay for a high-cost brand-name drug. A pastor from Ohio reports that after

paying almost $17,000 in annual premiums for my family [health insurance plan, l] ast year, I was paying around $650/month [for Provigil. I]t now costs me $852/month. That is out of pocket money I have to come up with until later in the year when I reach my deductable and I can enjoy a few months of only paying $60/month. I cannot describe to you how much stress and difficulty this has caused for me and my family the last several years. As you can imagine, with my income, I often cannot afford to refill my prescription. I often take 1/2 or 3/4 of my dosage on days I know I won’t be driving much so I can delay getting a refill. But I do a lot of driving for my work, so I am forced to spend lots of money I don’t have just so I can be safe driving.

To find out how you can support legislation to prevent these pay-for-delay settlements, please contact us!

The state of Alaska is suing Eli Lilly (NYSE:LLY) for failing to disclose health risks (like diabetes and weight gain) allegedly associated with Lilly’s hugely profitable “atypical antipsychotic” drug Zyprexa. Last week, attorneys for the state rested their case, at which point the lawyers for Eli Lilly asked the Judge to dismiss the case, saying that the matter was one for the Food and Drug Administration, and not for individual states.

The Judge disagreed, and refused to dismiss the case, offering an opinion from the bench as to the FDA’s ability to police drug safety. Here’s how the Anchorage Daily News described it:

Without lawsuits like the one the State of Alaska brought against Lilly, claims that drugs cause health problems “might well go unaddressed,” Anchorage Superior Court Judge Mark Rindner said from the bench this week.

The jury was out of the room. The state had just rested. Lilly asked the judge to issue an immediate verdict in its favor, a routine step at that point in a trial.

Rindner was reacting to an assertion by Lilly lawyer George Lehner that drug regulation is a matter for the federal Food and Drug Administration, not any state. Alaska’s Unfair Trade Practices and Consumer Protection Act shouldn’t apply to drugs, Lehner told the judge.

Rindner disagreed. Evidence presented by the state over the past two weeks established that the FDA “isn’t capable of policing this matter,” he said.

This isn’t the first time that a Judge addressing allegedly illegal Zyprexa marketing by Eli Lilly has dismissed the notion that the FDA was adequate to ensure that Zyprexa was safe and properly marketed. As we reported back in June 2007, U.S. District Court Judge Jack Weinstein, soundly rejected this notion in refusing to dismiss a class action lawsuit brought by consumers and health plans (including PAL coalition member Sergeants Benevolent Association Health and Welfare Fund. That case alleges that Eli Lilly illegally and improperly promoted Zyprexa for “off-label” uses, that is, uses that the FDA has not approved as safe and effective. In his ruling (available here), Judge Weinstein said:

“Under the present organization of the pharmaceutical industry, the official federal Food and Drug Administration (FDA), and the plaintiffs’ bar, the courts are arguably in the strongest position to effectively enforce appropriate standards protecting the public from fraudulent merchandising of drugs.” (Opinion, pp. 3-4)

And he went on…

“Allowing this and like suits to proceed may or may not increase the cost of pharmaceuticals and the efficacy of medical treatment in this country. It does, however, furnish backstop protection against under-regulated potentially dangerous activity by a market where caveat emptor largely rules.” (Opinion, p. 12)

What happens in the Alaska case will be closely watched, as 9 other states have similar lawsuits against Eli Lilly. A potentially incriminating email in which a Lilly vice president appears to advocate marketing Zyprexa for off-label purchases was revealed in the Alaska trial several weeks ago, the New York Times reported on March 14, 2008 (Lilly E-Mail Discussed Off-Label Drug Use). As Alex Berenson of the Times reported:

In the message, Dr. Lechleiter, who was then the company’s executive vice president for pharmaceutical products, noted to other Lilly officials that company representatives were already promoting Strattera, a second Lilly psychiatric drug, to pediatricians and child psychiatrists. The representatives could also discuss Zyprexa with such doctors, he said.

“The fact we are now talking to child psychs and peds and others about Strattera means that we must seize the opportunity to expand our work with Zyprexa in this same child-adolescent population,” Dr. Lechleiter wrote in the message. He also encouraged Lilly to get data on the use of Zyprexa in treating “disruptive kids” in order to increase the drug’s sales.

The Judge in the Alaska case refused to admit the email into evidence in the trial because that case does not concern off-label use. The email, however, is likely to be an issue in the off-label cases, such as the one before Judge Weinstein. In that case, Judge Weinstein will hear from both sides this week on a motion to certify the case as a national class action. These “class certification” motions are a vitally important stage in a class action case, as they determine whether or not the defendant (here, Eli Lilly) will face the claims of potentially millions of individuals and thousands of health plans.

These two Judges have acknowledged what by now is common knowledge: the FDA lacks both the resources (money, staff) and the political will to hold drug companies accountable and to force them to disclose safety risks associated with hugely profitable drugs. In the face of the FDA’s abdication of its core mission, the Courts are a vital safety net to ensure that drug companies cannot rip off and injure consumers with impunity. In the past few years, vital information about dangerous drugs has come to light only through litigation (for more on this, see “The Role of Litigation in Defining Drug Risks,” Journal of the American Medical Association, 2007; 297: 308-311)

To receive updates about the national Zyprexa class action that PAL members are involved in, as well as about other class actions concerning illegal marketing and pricing tactics by drug companies, fill out the form here. To learn more about the Zyprexa class action, go here.

Hat tip: Pharmalot

Judge Patti Saris of the US District Court for the District of Massachusetts today issued an order in the massive national class action lawsuit, In re Pharmaceutical Industry Average Wholesale Price Litigation. In it, she found Astra Zeneca (NYSE:AZN) and Bristol-Myers Squibb (NYSE:BMY) liable for double damages for their illegal conduct in artificially inflating teh Average Wholesale Prices of a number of physician-administered drugs. She had previously held in June 2007 that these companies had violated Massachusetts law in doing so, but had not ruled on the amount of damages they would have to pay. Today’s order is here.

Two PAL members, Health Care for All of Massachusetts, and Pipefitters Local 537 Trust Funds, are plaintiffs in the case.

Below is the press release that PAL issued today on this important development:

_____________________________________

FOR IMMEDIATE RELEASE

November 2, 2007

BOSTON, MA – Judge Patti B. Saris of the U.S. District Court for the District of Massachusetts issued an order today in the massive class action lawsuit, In re Pharmaceutical Industry Average Wholesale Price Litigation, awarding double damages against Astra Zeneca (NYSE:AZN) and Bristol Myers Squibb (NYSE:BMY) for illegally inflating the “Average Wholesale Prices” (AWPs) of certain physician-administered drugs. Astra Zeneca (AZ) will have to pay $12,941,869 in damages, and Bristol Myers Squibb (BMS) will have to pay $695,594.

A trial against these two companies and several others was held over several months in late 2006 and early 2007. In June 2007, the Court issued its order resulting from that trial, finding that AZ, BMS and Warrick Pharmaceuticals (a subsidiary of Schering Plough) had violated the Massachusetts Consumer Protection Act (Chapter 93A) by grossly inflating the AWPs for a number of drugs. In that June order, however, the Court did not award final damages against the defendants, requesting additional information from the parties. The order issued today is the Court’s ruling on those damages. One of the key issues the Order addresses is whether the damages should be multiplied or not.

Under the Mass. Consumer Protection Act, a Court can order the doubling or even trebling of damages against defendants for “unfair and deceptive” conduct, if the conduct was “knowing and willful.” Judge Saris found that AZ’s and BMS’s conduct in inflating the AWPs of the drugs in question was knowing and willful, because they knew that Medicare patients and their insurers would have no choice but to pay 20% co-insurance on the “grossly inflated phony AWPs.” She awarded double damages against Astra Zeneca because it “sold its drug Zoladex based on its profitability to the doctor’s office…[t]he damage to the sick and old beneficiaries was inevitable.” She awarded double damages against BMS for certain years for the drugs Taxol, Cytoxan and Rubex. These double damages apply to a class of Massachusetts health plans that provide Medicare supplemental insurance. For a separate class of non-Medicare Massachusetts health plans, she awarded single damages.

“This is a major victory for consumers and health plans in Massachusetts,” said John McDonough, Executive Director of Health Care For All, a plaintiff in the case and a member of the Prescription Access Litigation (PAL) coalition. “Drug companies have been put on notice that illegally inflating drug prices at the expense of seriously ill seniors and the disabled will cost them dearly in Massachusetts.”

Blue Cross Blue Shield of Massachusetts was also a plaintiff in the case, as was PAL coalition member Pipefitters Local Union 537 Trust Funds.

The Judge’s order applies only to health plans in Massachusetts, as the trial addressed claims under Massachusetts state law. Claims against these defendants in the 49 other states must still be heard by the Court. The lawyers representing the plaintiffs estimate that, if one extrapolates the numbers in Massachusetts to the other 49 states, total nationwide damages against these two companies could exceed $200 million.

Both Bristol Myers Squibb and Astra Zeneca previously had agreed to settle some of the claims against them, claims that the price increases harmed a nationwide class of millions of individual Medicare beneficiaries. Astra Zeneca agreed in May 2007 to settle those claims for $24 million and Bristol Myers Squibb agreed in July 2007 to settle for $13 million. Another defendant, GlaxoSmithKline, settled all the claims aginst it in August 2006 for $70 million, and thus was not part of the trial that began in fall 2006.

Today’s order is just the latest development in this massive nationwide class action suit against dozens of drug companies. The next round of trials, addressing hundreds of additional drugs, is currently scheduled to begin in spring 2008.

“The Judge’s decision in this case exposes one of the most reprehensible drug industry schemes in recent memory,” said Alex Sugerman-Brozan, director of Prescription Access Litigation, “Overcharging people on Medicare with cancer and other serious illnesses and their health plans is as appalling as it gets, and this decision should give the other companies in this lawsuit some indication of what may lay ahead for them.”

Today’s order brings the total amount of settlements and judgment in the case so far to over $120 million. The order can be found here.

About Prescription Access Litigation
The Prescription Access Litigation (PAL) (www.prescriptionaccess.org) Project works to challenge illegal pharmaceutical industry tactics that increase the cost and improper usage of prescription drugs, using class action litigation and public education. PAL is a national coalition of more than 130 organizations, including consumers, seniors, heath care, labor, legal services, women’s health and human services groups in 36 states and the District of Columbia. PAL is a project of Community Catalyst, a national non-profit advocacy organization working to build the consumer and community leadership that is required to transform the American health system. PAL publishes the PAL Blog at www.prescriptionaccess.org/blog.

About Health Care For All
Health Care For All (www.hcfama.org) is building a movement of empowered people and organizations in Massachusetts with the goal of creating a health care system that is responsive to the needs of all people, particularly the most vulnerable. Health Care For All is dedicated to making quality care the right of all people, and supports a health care system that is universal, comprehensive, and equitable.

Readers of this blog know that we here often get our knickers in a twist over federal preemption arguments by pharmaceutical defendants seeking to avoid liability in lawsuits. Prescription drug and medical device companies have been arguing with increasing frequency in recent years that lawsuits against them brought under state law are “preempted” by the FDA’s authority under federal law. (Remember that 8th Grade U.S. Civics course? Under the Constitution’s “Supremacy Clause,” federal law trumps state law when the two conflict).

Unfortunately, the FDA has been aiding and abetting them by intervening in products liability lawsuits and by adding a preamble to a Guidance on Drug Labellng, making the same arguments. Given the FDA’s abdication of its responsibility to aggressively enforce drug and device safety, this amounts to “We won’t enforce it, and we won’t let anyone else either.”

There’s a pendulum effect to corporations’ approach to federalism, and we’re at one apex of its swing. When the federal government is aggressive with regulation and enforcement, business is all about “states’ rights.” When the federal government moves away from enforcement and regulation, states step in to fill the void. Suddenly, the federal government is paramount to business, and those pesky states are “interfering” in the unique and exclusive prerogatives of federal agencies. We’ve witnessed the recent odd spectacle of various industries pushing for federal regulation, as ably documented in this recent New York Times article: “In Turnaround, Industries Seek U.S. Regulations” (Sept. 15, 2007). The shifting allegiance of course reeks of what it is – opportunism.

But the Constitution remains, and its delicate balance of federal and state powers. (Digression into the 10th Amendment omitted for your comfort). The Supreme Court has agreed to hear two cases concerning whether federal law preempts the rights of consumers to bring lawsuits under state law against drug and device manufacturers. The first, Riegel v. Medtronic, is summarized below, by Public Citizen Litigation Group, which represents the Riegels:

After suffering serious injury when a balloon catheter burst while he was undergoing an angioplasty procedure, Charles Riegel and his wife sued the catheter’s manufacturer, Medtronic, Inc (NYSE:MDT). Medtronic moved to dismiss the lawsuit, arguing that the Food, Drug, and Cosmetic Act expressly preempts state-law damages actions brought by patients who have been injured by medical devices that received premarket approval from the Food and Drug Administration. The court agreed and dismissed the case.

Public Citizen represented the Riegels on appeal and represents them now before the U.S. Supreme Court. The Supreme Court granted cert. on June 25, 2007, and will hear the case next Fall. The question before the Court is whether the express preemption provision of the Medical Device Amendments to the Food, Drug, and Cosmetic Act preempts state-law claims seeking damages for injuries caused by medical devices that received premarket approval from the FDA.

[PAL joined an amicus curiae ("friend of the Court") brief submitted by Community Rights Counsel to the Supreme Court. That brief can be found here.]

The second was covered in an AP Story earlier this week (“Court Takes Drug Liability Case“):

The case involves a product liability lawsuit against Pfizer’s (NYSE:PFE) Warner-Lambert unit. A group of Michigan plaintiffs led by Kimberly Kent in April 2000 sued Warner-Lambert Co. over alleged injuries caused by its Rezulin diabetes drug. Rezulin was ordered off the market in March 2000 by the Food and Drug Administration after it was linked to nearly 400 deaths and hundreds of cases of liver failure.

The District Court dismissed the case, arguing that a Michigan state law that prohibits virtually all lawsuits against drug companies applied, and then also ruling that a narrow exception in that law — that suits are allowed when the drug company misled the FDA to get the drug approved — was preempted. Talk about damned if you do, damned if you don’t! The Court basically ruled that state law applied, except when it might benefit the injured consumers, in which case federal law applied and preempted the exception written into state law. The 2nd Circuit Court of Appeals disagreed, reinstating the suit, and of course Warner Lambert appealed to the Supreme Court, which agreed to hear the case.

Hopefully the Supreme Court will rein in the running joke that federal preemption has become, acknowledge that state law litigation does not interfere with the FDA’s regulation of drugs (a position the FDA itself took for years, and only changed under the current administration) and restore the balance set out in the Constitution that protects the states’ historic “police powers” to protect the health and safety of their citizens.

In June 2005 and February 2006, members of Prescription Access Litigation’s coalition filed class action lawsuits against First Databank, Inc. and McKesson Corp, alleging that the companies conspired to raise drug prices by inflating the “Average Wholesale Price” (AWP) of hundreds of drugs. AWP is used to set the retail price of prescription drugs. The case seeks to get reimbursement for consumers and health plans, and to end this type of scheme.

You may be eligible to join this lawsuit if you:

• Had no insurance at any time between 2001 and 2004, and
• Paid for brand-name prescription drugs (not generics) yourself

OR if you paid for brand-name prescription drugs yourself that were not covered by insurance.

To find out if you qualify, please email pal(at)communitycatalyst.org (remove the “(at)” and replace with a @ when you write your email) or call 617-275-2931 or 866-208-9800 ext. 2931 by October 4th. Or complete this form and mention that you’re inquiring about the First Databank/McKesson case.

To receive updates about PAL’s cases and other projects, sign up for our occasional email alerts. To be contacted about class action lawsuits and settlements that you may eligible to participate in, please complete this form. All information will kept confidential.

In an opinion posted today on the website of the New Jersey Courts system, the New Jersey Supreme Court refused to allow a class action lawsuit to go forward against Merck, the maker of the withdrawn arthritis drug Vioxx. The lawsuit, International Union of Operating Engineers Local 68 Welfare Fund v. Merck was brought on behalf of a nationwide class of “third party payors” (health plans, union health & welfare funds, self-insured employers, and others) and alleged that Merck’s deception and concealment of information about the cardiovascular dangers of Vioxx caused these third party payors (TPPs) to pay for Vioxx when they would not otherwise have paid for it, and to pay inflated prices for it as well.

In July 2005, the Law Division, which was hearing the case, agreed to certify a nationwide class of TPPs that paid for Vioxx. “Class Certification” is the stage at which a Court decides whether to allow a lawsuit to proceed as a class action, on behalf of a large group of individuals or entities. Merck appealed the Law Division’s decision, and the Appellate Division upheld the certification of the class of TPPs. (PAL and several PAL members filed amicus curiae (friend of the court) briefs at both of these stages.) Merck appealed to the New Jersey Supreme Court, which held a hearing on the appeal in March 2007. The Court issued its decision today, and reversed the certification of the class.

The decision is significant because so many pharmaceutical companies are based in New Jersey. Thus, many pharmaceutical lawsuits are brought in New Jersey, under New Jersey’s Consumer Fraud Act. (Although now they are primarily brought in federal court, not state court, due to the Class Action Fairness Act of 2005).

The decision was just posted at 10:00 AM this morning. It is available here. What follows are some preliminary thoughts on and reactions to the decision.

In the 29 page opinion, the Court does not really begin its analysis until page 19. Its decision that a class should not be certified primarily rests on what is known as the “predominance” requirement:

“The central question before us, as in Iliadis, is whether the putative class raises “questions of law or fact common to the members of the class [that] predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” R. 4:32-1(b)(3).” (Decision, p.14)

The Court spends several pages describing how TPPs decide what drugs to include on their list of drugs they will pay, known as “formularies.” It particularly focuses on its conclusion that different TPPs treated Vioxx differently, in terms of coverage, copayments and the like. The Plaintiffs had argued that if Merck had disclosed the negative information about Vioxx, that TPPs would have not covered Vioxx or would have placed greater formulary restrictions on it.

The Court concludes that common questions of law and fact do not predominate, primarily because it rejects the the plaintiffs’ proposed method for calculating “ascertainble loss.” The New Jersey Consumer Fraud Act requires plaintiffs to show:

“(1) unlawful conduct . . . ; (2) an ascertainable loss . . . ; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.” N.J. Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 12-13 (App. Div.), certif. denied, 178 N.J. 249 (2003). (Decision, p. 24)

The plaintiffs had argued that the Court should focus on Merck’s marketing of Vioxx. This argument is essentially that Merck’s deceptive marketing of Vioxx misled all TPPs and affected their decisions to cover Vioxx, regardless of what those specific decisions were. In other words, TPPs paid for Vioxx when they would not have otherwise, or would have on a much more limited basis, because of Merck’s deception. The defendants, by contrast, argued that the individual decisions of each TPP in the class were key to the claims, and thus that individual questions predominate over common ones, since TPPs acted in numerous different ways concering Vioxx. The Court concludes “…the commonality of defendant’s behavior is but a small piece of the required proofs. Standing alone, that evidence suggests that the common fact questions surrounding what defendant knew and when it did would not predominate.” (Decision p.26-27)

What is odd about this conclusion is that it seems to contradict something the Court says earlier in its opinion. Many states’ consumer protection act require that plaintiffs show “reliance,” that is, that they actually relied on the alleged deceptive acts of the plaintiff. NJ’s Consumer Fraud Act, does not require reliance:

“Our CFA does not require proof that a consumer has actually relied on a prohibited act in order to recover. In place of the traditional reliance element of fraud and misrepresentation, we have required that plaintiffs demonstrate that they have sustained an ascertainable loss.” (Decision, p.27)

Yet, by saying that each individual class members’ actions and treatment of Vioxx predominates over Merck’s deceptive marketing campaign, the Court seems to be importing a requirement of reliance. It presumes that each class member’s reaction to the revelations concerning Vioxx is relevant to whether or not the CFA is violated. Yet that is, at its core, a question of reliance, and isn’t relevant here. It also ignores the fact that the Merck’s fraudulent marketing was a baseline for all of the admittedly-diverse decisions of different TPPs on how they would cover Vioxx. It is axiomatic that every TPP would have regarded Vioxx differently, and paid for it differently (if at all), had they been told the truth about it.

On p. 15 of the opinion, the Court lays out its standards for predominance from prior cases:

In Iliadis, supra, we explained the meaning of predominance, referring to the importance of an analysis of “the number, and more important the significance of common questions.” 191 N.J. 108 (citing Carroll, supra, 313 N.J. Super.at 499)…Finally, we noted that “predominance requires, at [a] minimum, a ‘common nucleus of operative facts.’” (Decision, p.15)

The common question of whether Merck deceptively marketed Vioxx is far, far more significant than the “non-common” question of how individual TPPs reacted to that marketing (which arguably, is not relevant at all, because it is a reliance issue.)

The Court then goes on to question the plaintiffs’ proposed method of determining “ascertainable loss:”

“Plaintiff argues that it should be permitted to demonstrate class-wide damages through use of a single expert who would opine about the effect on pricing of the marketing campaign in which defendant engaged. To the extent that that plaintiff intends to rely on a single expert to establish a price effect in place of a demonstration of an ascertainable loss or in place of proof of a causal nexus between defendant’s acts and the claimed damages, however, plaintiff’s proofs would fail. That proof theory would indeed be the equivalent of fraud on the market, a theory we have not extended to CFA claims.” (Decision, p. 29)

There are several problems with this analysis. First, it isn’t much of an analysis — it goes into no detail about why this method would not be adequate. In fact, methods such as this are routinely used in other pharmaceutical class actions. Data concerning insurance coverage for drugs and the amount paid by
third party payors as a group versus individuals making copayments are readily available.

Second, it does not explain why the use of such an expert amounts to a “fraud on the market theory.” It merely states that the plaintiffs’ approach is “fraud on the market” and leaves it at that — no analysis of why this is allegedly so.

Finally, the issue is largely beside the point. It is adequate to show that the members of the class had an ascertainable loss. It is not necessary to show how much that loss was, for purposes of class certification. But that seems to be precisely what the Court is seeking. By concealing vital information about Vioxx’s safety, Merck induced TPPs to cover and pay for Vioxx when they would otherwise not have. The TPPs ascertainable loss is those improper payments. The amount of their ascertainable loss is a question not of liability, but of damages, which was not at issue at this stage of the case.

The last section of the opinion addresses the “superiority” requirement, i.e. that a class action be shown to be superior to other methods of adjudication. The Court’s analysis here ignores key facts. On p.16, the Court says that its superiority analysis:

“demands ‘(1) an informed consideration of alternative available methods of adjudication of each issue, (2) a comparison of the fairness to all whose interests may be involved between such alternative methods and a class action, and (3) a comparison of the efficiency of adjudication of each method.’” …More specifically, in Iliadis, we identified as important to the superiority analysis a consideration of the “class members’ ‘lack of financial wherewithal.’” In such circumstances, we have expressed a concern that, absent a class, the individual class members would not pursue their claims at all, thus demonstrating superiority of the class action mechanism.” (Decision, p.16-17, internal citations omitted)

In its analysis on p.30-32, the Court fundamentally misunderstands the nature of third party payors. It compares this proposed class to a class of individual hourly wage earners in the Iliadis case and concludes that:

“Unlike the individual wage earners there, plaintiff and, by extension, all of the members of the class, allege that they have been damaged in large sums. Unlike those hourly wage earners, plaintiff and the other third-party payors are well-organized institutional entities with considerable resources. Unlike in Iliadis, here we see no disparity in bargaining power and no likelihood that the claims are individually so small that they will not be pursued. In short, we find no ground on which to conclude that this proposed nationwide class meets the test for superiority that we have traditionally required.” (Decision p.31-32)

The question is not whether the class members have been “damaged in large sums,” (and what constitutes large, anyway?) but rather, whether the damages they suffered make an individual lawsuit feasible. Pursuing an individual lawsuit against Merck in this case would be an enormously expensive undertaking. Certainly, large commercial insurers like Aetna, Humana, United Healthcare and even many Blue Cross plans would have the “financial wherewithal” to pursue such cases. But there are tens of thousands of smaller TPPs that would not, including the plaintiff here, IUOE Local 68 Welfare Fund.

The Court had identified on p.16 that an important consideration is “class members’ ‘lack of financial wherewithal.’ In such circumstances, we have expressed a concern that, absent a class, the individual class members would not pursue their claims at all, thus demonstrating superiority of the class action mechanism.” But the Court wrongly concludes that class members here would be able to pursue their claims without a class action. Most of them would not.

While some TPPs are “well-organized institutional entities with considerable resources,” many are not. How could one conclude that a small union health and welfare fund with a few hundred members has “no disparity in bargaining power” with a company like Merck?

The bottom line is that for most TPPs, a class action is the only way they can pursue claims against Merck for its deceptive marketing of Vioxx, a campaign that cost health plans and consumers billions in unnecessary costs, not to mention tens of thousands of heart attacks and deaths.

Today’s decision from the New Jersey Supreme Court is an extremely disappointing one. It ignored key facts about the class and how they were affected by the allegations in the case. Unfortunately, this decision will make it that much harder for health plans to hold drug companies accountable for their illegal tactics. With so many drug companies headquartered in New Jersey, this case will have broad impact.

To read the court’s decision, click here.