Since 2005, the drug industry has increasingly used multi-million dollar ‘pay-for-delay’ settlements to prevent generic drugs from coming to the market. The PAL coalition has opposed this industry collusion with lawsuits on Provigil, Tamoxifen, and Cipro, and through our support for legislation (introduced by Rep. Rush and Sen. Kohl). The FTC has also been a steadfast opponent of these anti-competitive agreements and their negative impacts on consumers. Unfortunately, the ability of FTC or PAL members to challenge these settlements in the courts has been hampered by a number of unfavorable legal decisions.
The Second Circuit’s Cipro Decision
The Second Circuit’s April 29th ruling did dismiss the challenge to the ‘pay-for-delay’ settlements totaling $398 million that have prevented a generic version of Cipro from coming to the market. But the Court did so begrudgingly, and then invited the folks bringing the lawsuit to ask the Second Circuit to revisit the question of whether these settlements are legal under anti-trust protections. Even more surprising, the Court then spelled out why.
In their decision, the three judge panel stated that a review of the binding precedent established under Tamoxifen by the full nine-judge panel for the Second Circuit (called an ‘en banc review’) may be appropriate for four reasons: First, the Court said that United States Department of Justice has urged a review of this decision saying that “Tamoxifen adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny.” Second, the Court found that “there is evidence that the practice of entering into reverse exclusionary payment settlements has increased since we decided Tamoxifen.” Third, the panel stated that “after Tamoxifenwas decided, a principal drafter of the Hatch-Waxman Act criticized the settlement practice at issue.” Finally, the Court noted that the Tamoxifen decision was based in no small part on the now erroneous understanding that a pay-for-delay settlement with the first generic competitor would not prevent other generic competitors from attempting to followand file suit.
The 2005 Tamoxifen decision by the Second Circuit Court of Appeals (which covers New York, Vermont, Connecticut) dismissed an FTC order challenging a pay-for-delay settlement. The Tamoxifen Court ruled the practice legal under anti-trust law, because the settlement provided drug maker AstraZeneca with no more protection from generic competition than their patent already did.
This Tamoxifen decision, along with the Eleventh Circuit’s Schering-Plough decision in 2005, and Federal Circuit’s 2008 Cipro decision, have been mounting obstacles to consumer and FTC efforts to oppose these settlements. Only the Sixth Circuit, in its 2002 Cardizem decision, has held that such agreements to “eliminate competition” are a “per se illegal restraint on trade.”
When the Appeals Courts from different US Circuits arrive at differing legal standards, the US Supreme Court should resolve this inconsistency, or ‘split’ between the Courts. Indeed, the PAL-member lawsuits concerning Cipro and Tamoxifen asked the Supreme Court to do just that, as has the FTC. So far, all of these requests have been denied. But a possible reversal in the Second Circuit might change things.
Consumers, legal and medical experts, and the Administration all file briefs in opposition to continued legality of pay-for-delay settlements
Amicus briefs in support of the request for a reconsideration of the Tamoxifen standard were filed by PAL and PAL coalition member AFSCME DC37; AARP, AMA, and the Public Patent Foundation; Consumers Union, US Pirg, Consumer Federation of America, and the National Legislative Associaton on Prescription Drug Prices. Also filing briefs were the American Antitrust Institute, the FTC, and the Department of Justice’s Anti-Trust division.
The amicus brief for the Department of Justice argues that ”by shielding most private reverse settlement agreements from antitrust liability, the Tamoxifen standard improperly undermines the balance Congress struck in the Patent Act between the public interest in encouraging innovation and the public interest in competition.”
The amicus brief from the Federal Trade Commission (FTC) added three additional reasons to those stated by the Second Circuit panel. FTC argued that the Tamoxifen standard gives drug companies an improper incentive to pay off generic drug manufacturers and protect even the weakest patents.
Next, FTC noted that the number of pay-for-delay settlements had grown since 2005, to now insulate “at least $20 billion in sales of branded drugs from generic competition.”
The FTC estimates (very conservatively in our opinion) that these settlements will continue to cost $3.5 billion a year by delaying competition from lower-priced generics, but warned that these costs may grow.
The amicus brief submitted by PAL and PAL member AFSCME District Council 37pointed out that these settlements have cost consumers and health plans $12 billion or more each year in lost savings on generic drugs, and the costs are likely to increase as brand-name drug prices go up (as they did by 9.2 % in the year ending on March 31, 2010) while generic drug prices decline (as they did by 9.7 % during this time period.) Aside from the effect that higher costs have on reducing access to needed medicines, PAL pointed out how these settlements threaten to reduce the quality of care for consumers by limiting the drug options available to them. PAL pointed out that consumers of the drug Provigil, which is protected from generic competition by a pay-for-delay settlement, end up entering the donut hole faster and paying huge sums out of pocket when their health plans refuse to cover the drug due to its high cost.
AARP, the AMA, and the Public Patent Foundation filed a brief arguing that these settlements threaten our health care system because they undermine consumer access to generic drugs, which have, on the whole, “saved consumers over $734 billion in the last 10 years.” AARP noted that “[e]ven 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 health care treatment and not having any treatment option at all.”
AARP’s brief warned that the Tamoxifen precedent will have long-term negative consequences on the well being of consumers because “when a generic pharmaceutical’s entry into the market is delayed, it limits treatment access to vulnerable patient populations and prolongs the difficulty that physicians have in prescribing affordable treatment options.”
Industry use of these pay-for-delay settlements has driven up costs and prevented access to needed medicines for millions of consumers. This industry practice has prevented or delayed generic versions of the drugs Cipro, Provigil, Androgel, and many other drugs that amount to $20 billion of our nation’s current $278 billion in drug spending, according to the FTC.
PAL, Community Catalyst, and dozens of PAL coalition members have opposed these settlements through lawsuits and legislative advocacy. Please contact us if you would like to join in our work to oppose these anti-competitive settlements.
Today’s New York Times reports that PHARMA has finally staked out their agenda in health care reform – avoiding cost controls, and keeping generics off the market.
An undisclosed deal announced this past Sunday between the drug industry, Sen. Baucus, and the Obama administration would help pay as much as half the cost of brand name drugs for seniors in the costly ‘donut hole’ under Medicare. (Currently, a Prescription Drug Plan regulated under Medicare Part D pays three fourths of the first $2,700 in yearly prescription costs, but then stops at the ‘donut hole.’ This forces the consumer to pay all of the next $3,454 in costs out of pocket. Medicare Part D coverage starts back up when the drug costs exceed $6,100.)
Due in part to the continually rising costs of prescription drugs, a fourth of Medicare beneficiaries hit their donut hole. One out of seven of the seniors who hit the donut hole then stop taking their medications due to cost.
A White House spokesperson notes that the deal would save these elderly consumers $30 billion over the next 10 years, but that an additional $50 billion would go to the federal government over the next decade, possibly in the form of rebates to Medicaid or other federal programs purchasing drugs.
While proposals to control or reduce drug costs are needed, our experience with drug pricing fraud by the drug industry teaches us that reliable and transparent price benchmarks are needed to keep this proposal from being a sham. For instance, a nationwide class action lawsuit by PAL members revealed that drug wholesaler McKesson Corp. manipulated reported prices that were used as reimbursement benchmarks, which cost Medicaid, private insurers, and consumers over $7 billion from 2001 to 2005. Another PAL class action lawsuit revealed that over 13 of the largest drug manufacturers engaged in a scheme between 1991 and 2004 to inflate their reported reimbursement prices on doctor-administered drugs, costing Medicare part B, insurers, and consumers billions of dollars.
Finally, a government report from 2006 showed that even when the federal government negotiates contracts with drug makers that guarantee federally funded community health centers the best possible price, the drug industry failed to comply with the contracts, costing hundreds of millions of dollars each month, and possibly billions of dollars a year. In this case, lax monitoring and enforcement by HHS left community health centers and other front-line government programs with little recourse.
These lawsuits and other lessons illustrate the need for full transparency, to allow consumers advocates to monitor progress, and ensure that Medicare consumers truly benefit from this proposal.
In addition to heading off cost controls, the other prong of the drug industry’s agenda is to shoulder aside their generic competitors. As pointed out in today’s Wall Street Journal, this ‘discount program’ may actually discourage seniors on Medicare from switching to less expensive generic drugs.
PHARMA has also come out against legislation that would prevent brand name drug companies from paying their generic rivals to delay bringing new generics to the market. These “pay-for-delay” settlements have become common since 2005, and have cost consumers and insurers an estimated $12 billion a year in lost savings.
For instance, the current class action lawsuit by PAL member AFSCME District Council 37 has challenged multiple settlements between Cephalon Corp. and generic manufacturers Teva, Barr, Mylan, and Ranbaxy. These settlements, totaling up to $136 million dollars, have stopped all four of these generic companies from bringing a generic version of the drug Provigil to the market.
The House version of the bill to prevent “pay-for-delay” settlements, HR 1706, passed an important hurdle on June 3rd, when it was approved by the House Subcommittee on Commerce, Trade, and Consumer Protection, and sent to the full Committee on Energy and Commerce. The NY Times reports that the Senate version of the bill, S. 369, is poised for a vote this week.
The Times article noted that President Obama’s budget criticized these settlements as “anticompetitive agreements” that keep generic drugs off the market. The FTC, which continues to challenge the anti-competitive nature of these settlements in court, sees consumers being harmed. FTC chairman Jon Leibowitz said that allowing these settlements to continue would cost consumers tens of billions of dollars in the next decade. According to the Times, Mr. Leibowitz cautioned that
“Drug companies are lobbying furiously against the legislation because they want to preserve their monopoly profits at the expense of consumers.”
The Times article also made clear that Pharma has launched their own dis-information campaign on the bills. Pharma made the outrageous claims that these anti-competitive agreements benefitted consumers because they “avoided litigation and allowed generic drugs to enter the market before drug patents expired.”
However, in case after case (K-Dur, Tamoxifen, Cipro) these settlements have prevented generic versions of brand name drugs from becoming available to consumers. How?
These settlements, often for many millions of dollars, allow brand name companies to ‘buy-off’ their generic competitors with multi-million dollar payments that are far in excess of the profit margin on a new generic drug. This lets the brand name drug continue its exclusive sales, guaranteeing them hundreds of millions, if not billions of dollars free from competition.
These “pay-for-delay” settlements are likely to arise in current litigation on the validity of patents for the drugs OxyContin, Protonix. and Wellbutrin.
You can help. Please contact your Congressperson or Senator, and urge them to support HR. 1706/S. 369. If you are part of an organization, please contact us to sign on to a letter of support of these bills.
Bill would ban the reverse payment settlements that are keeping new generics off the market!
Yesterday, a bill to ban the “pay-for-delay” settlements between brand-name drug companies and their generic competitors cleared its first legislative hurdle.
The House Subcommittee on Commerce, Trade, and Consumer Protection reported H.R. 1706, the “Protecting Consumer Access to Generic Drugs Act of 2009” out of subcommittee, sending it the House Committee on Energy and Commerce.
If passed, H.R. 1706 would ban the “pay-for-delay” settlements between brand name drug makers and generic drug makers that postpone the entry of generic drugs on the market. The measure has the potential to make a huge difference to consumers currently unable to afford their brand-name prescription drugs. Generic drugs usually cost 80-90% less than the equivalent brand name drug. During a hearing when the bill was introduced just over two months ago, testimony before the subcommittee suggested that these settlements have cost consumers about $12 billion per year since they became common in approximately 2005. [FN1] This is supported by an FTC estimate that early market entry of the generic form of only four brand name drugs (Zantac, Prozac, Taxol, and Platinol) has saved consumers and providers over $9 billion in health care costs. [FN2]
These settlements arise in part due to the laws governing the early entry of generic drugs to the market. Under current law (the Hatch-Waxman Act) the generic drug maker may apply to the FDA for approval to market and sell a generic version of a brand name drug if they feel the drug’s patent is invalid. The brand name drug maker nearly always responds by suing the generic company for patent infringement.
Since approximately 2005, brand name drug companies have been settling these patent disputes by buying-off the generic companies with multi-million dollar settlements. (See our cases on Provigil, Oxycontin, Cipro, Tamoxifen, and K-Dur.)
Current PAL member lawsuits on Provigil and Oxycontin are challenging these ‘pay-for-delay” settlements, and other PAL member lawsuits on Protonix and Wellbutrin will likely result in such a settlement. Past PAL-member lawsuits have lost challenges to these settlements in two of the three federal circuit courts to address the issue (K-Dur in the 11th Circuit and Tamoxifen in the 2nd Circuit) while only the 6th Circuit (in a non-PAL lawsuit, In re Cardizem CD Antitrust Litig., 332 F.3d 896, 908 (6th Cir. 2003)) and the FTC continue to reject these settlements as anti-competitive. H.R. 1706 would ultimately resolve the mixed results encountered by lawsuits.
H.R. 1706 would deem any payment between a brand name drug maker and a generic manufacturer to settle a patent infringement dispute to be an unfair and deceptive practice, and an unfair method of competition under the Section 5 of the FTC Act (15 USC § 45).
These “pay-for-delay” settlements also allow a loophole under the Hatch-Waxman Act to prevent any other generic manufacturer from subsequently applying to bring that generic drug to market until 6 months after the first generic company has done so. Therefore, if a brand name drug maker pays off the first generic company, which holds this 6 month period of exclusivity, no other generic company can bring that same generic to the market until after the original patent expires. For these reasons, these settlement agreements are highly anti-competitive and harmful to consumers.
Today, the Supreme Court rejected arguments by the prescription drug industry that having their labels approved by the Food and Drug Administration should be a shield from state law tort liability.In a rousing victory for consumers of prescription drugs, the Supreme Court rendered a decision preserving consumer rights to access the courts when injured physically or financially by prescription drugs.
In the case Wyeth v. Levine, the Court ruled 6 to 3 that the FDA’s approval of a drug label does not preempt consumer’s rights to sue the manufacturer for their failure to warn of knows risks associated with the drug.
The lawsuit was brought by Diane Levine, a musician from Vermont who while suffering from a migraine was given the anti-nausea drug Phenergan. Her physician’s assistant did so in a manner that caused the drug to contact her arteries, which caused gangrene and resulted in the loss of her arm. Ms. Levine sued and settled with her doctor. She also sued the drug’s Manufacturer, Wyeth. In its defense, Wyeth argued that the FDA’s approval of the label under federal law preempted Ms. Levine’s rights under state law, but lost. After a 5-day trial, a Vermont jury concluded that the drug maker did not adequately warn of the known risks of gangrene associated with the use of the drug, and awarded Ms. Levine $7.4 million.
After losing in appeals all the way up to Vermont’s Supreme Court, Phenergran’s manufacturer, Wyeth appealed to the U.S. Supreme Court. The Court accepted the case, and addressed the issue
whether federal law preempts Levine’s claim that Phenergan’s label did not contain an adequate warning about using the IV-push method of administration.
In today’s decision, the Court decided that there was no preemption, and found in favor of Ms. Levine.
The Court first noted that it was not impossible for the drug maker to comply with both state law and federal requirements in preparing the drug’s label.The court concluded that the drug maker could have added warnings to the label at any time to reflect the risks of gangrene that had occurred to over twenty people since the labeling was approved by FDA. Wyeth had incorrectly argued that the federal regulations prohibited their changes to the label, because they must have been based on “newly acquired information….”The Court countered that Wyeth was incorrect, and that they could have added warnings to reflect the 19 amputations that had arisen from Phenergan’s use before Ms. Levine’s case.
The Court also concluded that Wyeth suffered from a “more fundamental misunderstanding” about the duty to warn consumers of the risks of prescription drugs.The Court noted that
Wyeth suggests that the FDA, rather than the manufacturer, bears primary responsibility for drug labeling. Yet through many amendments to the FDCA and to FDA regulations, it has remained a central premise of federal drug regulation that the manufacturer bears responsibility for the content of its label at all times. It is charged both with crafting an adequate label and with ensuring that its warnings remain adequate as long as the drug is on the market.
Wyth also argued that the Ms. Levine’s lawsuit should be preempted because it interferes with “Congress’s purpose to entrust an expert agency to make drug labeling decisions that strike a balance between competing objectives.” The Court rejected this argument as being both out of line with the intent of Congress, and as based on “an overbroad view of agency’s power to pre-empt state law.”
On the first point, the Court notes that “[i]f Congress thought state-law suits posed an obstacle to its objectives, it surely would have enacted an express preemption provision at some point during the FDCA’s 70-year history” like it did with a 1976 amendment allowing “express pre-emption … for medical devices….”
The Court also spoke to the FDA’s role in the preemption debate, especially it’s position in favor preemption announced in the preamble to the 2006 regulations that redesigned the format and content requirements for prescription drugs.The Court also assessed how much weight to give an agency position that “state law is an obstacle to achieving its statutory objectives….” The Court found that in cases lacking express authority by Congress, the deference given to an agency “depends on its thoroughness, consistency, and persuasiveness.”Based on this, the Court decided that FDA’s position “does not merit deference.”
First, the Court pointed out a glaring procedural lapse by FDA in adopting the position that their regulations and approval of drug label preempts state law. In proposing the draft rule in 2000, the FDA had stated that the rule would “not contain policies that have federalism implications or that preempt State law.”
Despite this, FDA adopted a position in favor of preemption upon publishing the final rule in 2006. FDA did so “without offering States or other interested parties notice or opportunity for comment….” As a consequence, the Supreme concluded that “[t]he agency’s views on state law are inherently suspect in light of this procedural failure.”
The Court also noted that the FDA position on preemption “is at odds with … Congress’s purposes, and it reverses the FDA’s own longstanding position….” The Court summarized the history of FDA’s relationship to state law, noting that
the FDA traditionally regarded state law as a complementary form of drug regulation. The FDA has limited resources to monitor the 11,000 drugs on the market,and manufacturers have superior access to information about their drugs, especially in the postmarketing phase as new risks emerge.
The Court also stated that
State tort suits uncover unknown drug hazards and provide incentives for drug manufacturers to disclose safety risks promptly. They also serve a distinct compensatory function that may motivate injured persons to come forward with information. Failure-to-warn actions, in particular, lend force to the FDCA’s premise that manufacturers, not the FDA, bear primary responsibility for their drug labeling at all times. Thus, the FDA long maintained that state law offers an additional, and important, layer of consumer protection that complements FDA regulation.12 The agency’s 2006 preamble represents a dramatic change in position.
We recognize this decision as an important victory for consumers, and we applaud the Court for this decision.
We hope to post more details on this decision, and its potential impact on our other lawsuits, soon.
Back in March, we reported that 11 defendants in the massive In re Pharmaceutical Industry Average Wholesale Price Litigation case had agreed to settle the case against them for $125 million (11 drug companies settle AWP allegations for $125 Million“). The Court hearing the case granted “preliminary approval” to that settlement this Summer, and now notices are being sent out to certain people on Medicare, published in a number of newspapers and magazines, and even being broadcast on TV (you might have seen these ads if you were watching MSNBC during the conventions).
The case alleged that several dozen drug companies illegally inflated the price of prescription drugs that are administered in doctor’s offices (i.e. usually through injections or IVs). Consumers who paid a percentage co-payment for any of these approximately 200 drugs (see here for the list) are eligible to submit claims forms to get a reimbursement from the settlement. Claims forms must be postmarked or received by January 31, 2009. The drugs are primarily for the treatment of different types of cancer, HIV, allergies, infections, inflammation, pain, gastrointestinal problems and lung and blood issues.
Consumers who are eligible to receive payments from the settlement include both people on Medicare Part B (who received a yellow post card in the mail) and people not on Medicare (who need to file a claim form that can be downloaded from the settlement website or requested by calling 877-465-8136.
Details of the settlement, how to file claims, how to exclude yourself, etc, can be found at AWPTrack2settlement.com or by calling 877-465-8136.
In 2003, Abbott Laboratories (NYSE:ABT) raised the price of its HIV/AIDS drug Norvir (ritonavir) by 400% overnight. Norvir is used in combination with other “protease inhibitors,” (PIs) and it “boosts” the effectiveness of the PI it’s used with. Abbott also makes a combination pill called Kaletra that includes both Norvir and its own PI – when they raised the price of Norvir, they didn’t raise the price of Kaletra.
Prescription Access Litigation coalition member SEIU Health and Welfare Fund filed a national class action lawsuit against Abbott. The lawsuit claimed that Abbott violated federal anti-trust laws, alleging that Abbott raised Norvir’s price in order to boost sales of Kaletra, at the expense of competing PI drugs that require Norvir as a booster. In a nutshell, the lawsuit argued that Abbott tried to “leverage” its patent-protected monopoly over Norvir into a monopoly over the market for protease inhibitors.
As we’ve discussed before, Abbott has fought throughout the litigation to keep documents regarding the price increase of Norvir sealed. Abbott’s lawyers recently argued that a set of documents that they wanted shielded from public view contain “highly confidential information related to … how Abbott analyzes, views and makes strategic business decisions in the HIV pharmaceutical market.” [Order, p2.
But after a Judge recently ordered some of the documents unsealed (a copy of the Judge’s order is here) it became clear why Abbott wanted to keep what was in these documents hidden from public view.
First, these documents revealed Abbott’s disregard of how a price increase would affect HIV/AIDS patients. An email from Abbott executive Jesus Leal shows three strategies that Abbott considered to drive up sales of Kaletra, despite the potential interference with patients’ existing or future treatment regimens.
One strategy was to sell Norvir in three ways: as an ingredient in Kaletra, as a separate pill priced at five times its former price, or at the original price in a liquid form that Abbott executives admit tasted “like someone else’s vomit.” Given that many protease inhibitors have nausea as a possible side effect, even considering a strategy that would force the many HIV patients who could not afford a five-fold price increase resort to taking the foul-tasting liquid Norvir is reprehensible.
Another strategy considered was to stop selling Norvir altogether, and offer only Kaletra. But switching to Kaletra is not medically appropriate for many HIV/AIDS patients, because they eventually have to change to different PI drugs as the virus mutates and becomes resistant. A premature switch to Kaletra would deprive patients of a treatment option that they would otherwise have held in reserve until absolutely necessary.
Further, one side effect of Kaletra is hyperlipidemia (high cholesterol), which leads to higher risks of heart attack and stroke. Thus Kaletra may be less appropriate for some HIV patients than other treatments which combine Norvir(ritonavir) and other PI drugs as necessary.
Abbott considered – and eventually adopted -- a third strategy – continue selling Kaletra, but increase Norvir’s price to five times its former price. Since this time, Kaletra sales have grown significantly, from $400 million in 2003, to between $682 and $900 million in 2004, and $1.14 billion in 2006.
Exhibit 18 also reveals that Abbott planned to argue that their price increase was necessary because it was “no longer feasible for Abbott to provide a production line of Norvir capsules at the current price.” Abbott executives speculated that a price increase had a notable weakness - the company would face “exposure on price if forced to open books.” They were right. Their own released documents show that it was profit motivations and market factors, not ‘feasibility’ that caused Abbott’s unconscionable 400% price increase of the widely needed drug Norvir.
It is apparent from these documents that patient and consumer concerns were secondary to, if not absent from, Abbott’s financial considerations. One released document [Exhibit 39] has a chart summarizing a proposed slide presentation on the price increase. Not surprisingly, the one slide summary labeled “Public Relations and Activist Slide” has no summary at all, just a question mark “(?).” This shows that Abbott knew that it would be lambasted by activists for its unconscionable price increase, and that there was no good response to this criticism.
The only remorse or reservation shown in these documents was a comment by Abbott’s Vice President of Global Pharmaceutical Development, John M. Leonard, M.D. He responded to Abbott’s proposals to limit access to Norvir “I think we are on the right (but uncomfortable) track.” [Exhibit 28] ‘Uncomfortable’ is a gross understatement given that the price hike Abbott was proposing increased the annual cost of Norvir for an uninsured patient from $1,300 to $6,600 a year.
The true purpose of the price increase demonstrated: Boost Kaletra sales
The documents also showed that Abbott quintupled the price of Norvir in response to the declining market share of Kaletra relative to protease inhibitors made by competitors. Kaletra sold almost $400 million in 2003 but new PI drugs having fewer side-effects made by other drug companies threatened Kaletra’s future sales.
One slide summary in Exhibit 28 shows that Abbott knowingly increased Norvir’s price in order to push the cost of using a competing drug Reyataz to a “significantly higher price.” This, Abbott speculated, would create “formulary pressures” i.e. pressures on insurers to cover Kaletra instead of Reyataz, or to increase the co-payment that consumers would have to pay for Reyataz.
Another slide summary showed that Abbott saw the treatment improvements from Reyataz not as a boon to HIV/AIDS treatment and to patients, but as a form of unfair gain by their competitor Bristol-Meyers-Squibb (BMS) at the expense of Abbott. Ironically, Abbott didn’t consider raising its price by 400% to be unfair gain at the expense of HIV/AIDS patients.
These released documents don’t reveal much about Abbott’s price hike that wasn’t already known (see, for instance, an article that originally ran in the Wall Street Journal here) but they do reinforce how coldly calculating Abbott was in considering how best to put profits before HIV/AIDS patients.
Abbott recently submitted a Motion for Summary Judgment to the Court hearing the Norvir class action. If this motion is denied, a trial in the case is currently scheduled for August 2008.
Readers, what do you think of the released documents? Do they change your opinion of Abbott? Or just reinforce it? Please post your thoughts in the comments.
And by the way, here are links to all the documents the Court agreed to unseal:
In December 2003, Abbott Laboratories (NYSE: ABT) decided to increase the price of its HIV/AIDS drug Norvir (ritonavir) by 400%. PAL member Service Employees International Union Health & Welfare Fund filed a class action lawsuit against Abbott in October 2004, alleging that the price increase violated the antitrust laws.
Norvir is a “protease inhibitor” (PI) that is commonly used as part of AIDS “drug cocktails” (combinations of prescription drugs working together). Norvir is very important because it “boosts” the effects of other PIs taken by HIV/AIDS patients. Abbott, by increasing the cost of Norvir by 400%, effectively forced HIV/AIDS patients to pay significantly more for their life-saving drug regimens. (The Wall Street Journal did an excellent story in Jan. 2007 laying out the history of the price increase, “Inside Abbott’s tactics to protect AIDS drug“)
Abbott faced a firestorm of criticism for this outrageous price increase — there were shareholder resolutions, protests at Abbott headquarters, a boycott by hundreds of physicians, Attorney General investigations, numerous newspaper editorials lambasting the move, etc. But Abbott refused to even consider reducing the price. The only significant challenge to Abbott’s conduct is the lawsuit brought by SEIU Health and Welfare Fund and two patients.
The lawsuit has overcome significant hurdles (the Court denied Abbott’s motion to dismiss and motion for Summary Judgment, and certified the case as a class action), and the trial is scheduled to begin this summer. Abbott has again filed a motion for Summary Judgment. Such motions are filed with the Court after the parties have completed discovery (exchange of documents, depositions of witnesses and experts) but before the trial. Abbott is essentially asking the Judge to rule in its favor, arguing that based on the evidence, there’s no way a reasonable jury could find in favor of the plaintiffs.
Both Abbott and the plaintiffs have filed numerous documents with their Summary Judgment motions, and now Abbott is asking the Court to “seal” many of those documents, i.e. make them not available to the public. The motions and papers concerning Abbott’s request are here, here and here.
Why does Abbott want to keep these documents a secret and out of public view?
One of Abbott’s lawyers submitted a declaration to the Court giving the reasons:
“5. It is my understanding that the portions that have been redacted reflect, in general, Abbott’s strategic thinking and views related to pricing, public relations, marketing, research and development, market positioning, promotional activities, market segmentation, strategic brainstorming, long-range planning, sales, and lifecycle management of its pharmaceutical products that are not shared with the public or widely disseminated even within Abbott. It is my understanding that this information is kept in the highest confidence even within Abbott and is not intended to be disseminated to the general public or Abbott’s competitors.”
It seems to me that “Abbott’s strategic thinking and views related to pricing, public relations, marketing, research and development, market positioning, promotional activities, market segmentation,” etc are all of great public interest, particularly given that they concern a drug that is essential to fighting the significant public health crisis that is HIV/AIDS.
The fact that such information “is not intended to be disseminated to the general public” of course doesn’t mean that it shouldn’t be. In fact, it may even be all the more reason it should be. In fact, the plaintiffs quoted a Court opinion from an unrelated case in their original filing on this issue:
“Indeed, common sense tells us that the greater the motivation a corporation has to shield its operations, the greater the public’s need to know.” [In re Lifescan, Inc. Consumer Litigation, No. C 98 20321 JF, 1999 U.S. Dist. LEXIS 9894, at ** 7-8 (N.D. Cal. June 23, 1999)]
But let’s read on…
“6. In addition, it is my understanding that many of the Exhibits, from which these redactions are made, contain information that could be confusing, misleading, or incomplete if taken out of context or without the proper background information. Therefore, some of the information redacted, in addition to being competitively sensitive, could be used to mislead the public and be perceived in a way that was never intended by the author or the deponent. Public dissemination of this information could substantially harm Abbott’s good will, standing, and relationships that it has created with the HIV/AIDS community.” [emphasis mine]
Of course, one has to ask, what good will, standing, and relationships with the HIV/AIDS community is Abbott talking about? Abbott managed to alienate virtually the entire HIV/AIDS community by raising Norvir’s price, and then further by threatening to withhold all new medicines from Thailand if Thailand’s government issued a compulsory license for the HIV/AIDS drug Kaletra (a pill that, incidentally contains Norvir, and which the Norvir price hike was intended to increase US sales of). [A compulsory license would have allowed Thailand to break the patent on Kaletra in Thailand and import a less costly generic version]
And how could Abbott think that trying to keep these documents from public view would improve its relationship with the HIV/AIDS community? It’s likely that many of the documents would just rehash what’s already publicly known about Abbott’s reprehensible price increase. Sometimes trying to keep documents secret does more harm to a company’s reputation than the documents themselves would have. Nothing arouses suspicion more than the question “What are they trying to hide?” So Abbott may have, as the expression goes, cut off its nose to spite its face with this move.
Abbott’s attorney then goes on to give “justifications” for why particular Exhibits should be sealed, all beginning with the phrase “It is my understanding that…”
The lawyers for SEIU and the class filed a response to Abbott’s attorneys arguments, which is here. They point out that:
To have documents sealed, Abbott has to “overcome a strong presumption of access by showing that ‘compelling reasons supported by specific factual findings . . . outweigh the general history of access and the public policies favoring disclosure.’” Pintos v. Pac. Creditors Ass’n, 504 F.3d 792, 802 (9th Cir. 2007).
“The declaration Abbott has filed in support of its sealing request… fails to satisfy Abbott’s burden…[T]he declaration is not based on the personal knowledge of Abbott’s counsel…For the most part, the declaration merely asserts [Abbott's counsel's] “understanding” of the general subject matter of the redacted portions of the documents Abbott proposes that the Court permanently seal, and presents no actual evidence.”
The “Declaration offers little in the way of facts; rather, it is replete with unsubstantiated, conclusory statements and hypothetical assertions, as well as argument… Abbott has not even attempted to make the sort of particularized showing mandated by the applicable standards.
And finally, “much of the information in the documents has already been made public, the documents are mostly four to six years old and therefore especially undeserving of being shielded and there is a particularly strong interest here in allowing public access to the materials at issue given that the subject matter of the litigation ‘involves matters of significant public concern.’”
So we ask you, dear readers, what do you think? Did Abbott do more harm than good in trying to seal these documents? Post your thoughts in the comments.
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For information about the Norvir case, including copies of court documents, go here.
The Attorney General of New York state and Mayor of New York City issued this announcement yesterday, of a lawsuit against Merck (NYSE:MRK):
Attorney General Andrew M. Cuomo and New York City Mayor Michael Bloomberg today filed a joint lawsuit against the maker of Vioxx for misrepresenting the dangers the drug posed to its users. The lawsuit seeks damages and civil penalties in addition to restitution for tens of millions of taxpayer dollars wrongfully spent on Vioxx prescriptions, and marks the first time the State and City have brought a joint action to fight Medicaid fraud.
One question concerns what New York is seeking restitution for:
As a result, Merck is accused of having caused New York doctors to prescribe Vioxx to patients whose cardiovascular conditions made them especially susceptible to the drug’s negative effects. Had the doctors been adequately informed, the suit alleges, they would not have prescribed Vioxx and thus Medicaid and EPIC would not have paid for its dispensation.
The group of “patients whose cardiovascular conditions made them especially susceptible to the drug’s negative effects” is but a small subset of the patients for whom Vioxx was improperly prescribed. With Vioxx, Merck’s deception caused the entire health care system to pay for prescriptions not only for people who were at risk of heart attacks and thus shouldn’t have taken Vioxx, but also for people who wouldn’t have taken it had they known the risks (regardless of whether they were individually at higher risk) and also for people who simply didn’t need it — that is, the vast majority, for whom over-the-counter Ibuprofen or Naproxen Sodium would have worked just as well.
The press release makes it seem that NY is only seeking to recoup the payments it made for patients who were “especially susceptible” to the side effects. How will New York determine which patients those are? And why are they not seeking to recoup the payments made for the much larger groups of patients who were prescribed Vioxx unnecessarily? The deception allegedly undertaken by Merck was not just about the side effects — but also about the efficacy: Merck made Vioxx seem like a vast improvement over other drugs, when for pain relief it was no better than ibuprofen.
The main question that springs to mind is “What took them so long?” Vioxx was withdrawn from the market at the end of 2004. Here it is, nearly three years later. The filing of this lawsuit comes on the heels of the recent decision of the New Jersey Supreme Court, refusing to allow a class action on behalf of “third party payors” (TPPs) to go forward. Third Party Payors are those entities that pay for drugs and medical care on behalf of individuals — i.e. health plans, union benefit funds, self-insured employers. Government programs like state Medicaid programs are also third party payors, but are almost always excluded from these class actions because only state Attorneys General can bring lawsuits on behalf of their states.
In all likelihood, the timing of this new lawsuit, so soon after the New Jersey Supreme Court Vioxx decision, is coincidental. But it does make one consider the patchwork system in which the different players in the health care system try to get restitution when a drug company rips them off.
When a consumer goes to the pharmacy counter, numerous different entities may pick up part or all of the tab:
The consumer him or herself (either out of pocket entirely, or a fixed copayment or a percentage co-insurance)
A private health plan, perhaps through an employer or union, or purchased individually, or a Medicare supplemental plan, or a Medicare drug plan
A state government program, such as Medicaid, an AIDS Drug Assistance Program, a state program for seniors, or a state employee health plan
A federal government program, suchs as the VA, Tri-Care (the military health plan), a federal employees health plan, or Medicare Part D
When a drug company (or any health care company, for that matter) deceives the public about the safety or efficacy of its products, each of these “payors” is harmed when it unnecessarily pays or overpays for the drug in question.
Let’s focus for a moment just on the payments that all of these different people and payors made unnecessarily for Vioxx (and not on the untold suffering and medical cost imposed on those who actually had heart attacks, and their families). How do each of the types of payors described above get reimbursed for their payments? Through a fragmentary and overlapping and somewhat illogical system of separate lawsuits, in which the same facts have to be demonstrated again and again (unless, as hopefully will happen, Judges apply the doctrine of “collateral estoppel,” in which Merck would not be able to argue again and again in each suit that they didn’t know about the risks until they withdrew the drug). So, in a situation such as this you have:
Class action lawsuits on behalf of third party payors and consumers — sometimes in the same lawsuits (as in the consolidated proceedings currently before the U.S. District Court in New Orleans), and sometimes in separate lawsuits (as in New Jersey state court, where a consumer class action was filed separately from the TPP class action which the NJ Supreme Court just ruled on recently).
Lawsuits brought by state Attorneys General on behalf of their state Medicaid programs, state employee health programs, state prisons, programs for the elderly and disabled, and others. At times, these Attorneys General participate in the class actions described above.
Lawsuits on behalf of cities and counties, to recoup funds spent on Vioxx for city and county employees
False Claims Act lawsuits on behalf of federal programs such as Medicare (however, Medicare Part D didn’t go into effect until 2006, long after Vioxx was off the market
In this mix you have private attorneys, state Attorneys General and federal prosecutors. It makes for a rather complicated situation. It also makes for strange bedfellows – in a single class action lawsuit, you can have state Attorney Generals, large for-profit commercial insurers that cover millions of people (e.g. Aetna, Humana, United Healthcare, and some Blue Cross plans), small non-profit health plans, union health and welfare funds, self-insured employers, and millions of individual consumers. A class action is really the only way to seek restitution in these situations, in which virtually none of the people and entities who were harmed would be able to bring a lawsuit on their own. But it does make things tangled.
New York is not the first state to sue Merck over Vioxx payments (Texas, for instance, sued Merck back in June 2005). But New York in the past few years has been a leader among states in prosecuting pharmaceutical fraud, under former-New York AG Eliot Spitzer, now Governor of New York). So other states may jump on this bandwagon, in New York’s wake (to mix metaphors).
It will be interesting to see whether Merck’s promise to try every case will hold true for state Attorney Generals, whom corporate defendants are often loath to try to intimidate.
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.
The case alleged that First Databank, the preeminent publisher of whole prescription drug pricing information, and McKesson, one of the three largest prescription drug wholesalers, conspired to increase the “Average Wholesale Prices” published by First Databank for hundreds of brand-name prescription drugs. The “Average Wholesale Price,” or AWP, is a benchmark figure used by health plans and Pharmacy Benefit Managers to determine how much to pay pharmacies for prescription drugs that are dispensed to patients with insurance. For instance, a health plan may have a contract to pay a pharmacy AWP minus 15% for drugs given to its members.
Manufacturers report either the AWPs for their drugs to First Databank, or another figure, Wholesale Acquisition Cost (WAC), which is the price that manufacturers typically sell their drugs to wholesalers. First Databank would then apply a “markup” of 20% or 25% to the WAC to calculate the AWP. The lawsuit alleged that:
“Beginning in late 2001, First DataBank and McKesson reached a secret agreement on how the WAC to AWP markup would be established for hundreds of brand-name drugs. McKesson and First DataBank, raised the WAC to AWP spread from 20% to 25% for over four hundred brand-name drugs that previously had received only the 20% markup.” (Memorandum & Order, p.6)
By raising the “spread” from 20% to 25%, this alleged scheme had the effect of raising the prices of the drugs in question by 4% across the board. Tens of millions of purchases of hundreds of drugs were thus made at the new, inflated prices, cause billions in unnecessary and allegedly illegal overpayments.
In October 2006, First Databank agreed to settle the case against it. First Databank agreed to rollback the “spread” on hundreds of drugs (representing 95% of the retail branded drug market) from 25% to 20%. This rollback will save an estimated $4 billion on drug spending in the first year alone. First Databank also agreed to go out of the business of publishing Average Wholesale Price data, which will result in health plans, Pharmacy Benefit Managers, and government programs shifting away from using the flawed AWP system to using a more transparent and accurate benchmark for paying for prescription drugs. In November 2006, the Court granted preliminary approval to that settlement. Just recently, in August 2007, the Court ordered that notices be published notifying consumers of the settlement and mailed to Third Party Payors (health plans, insurers, etc.)
McKesson, however, did not settle, and the plaintiffs continued to pursue the case against it aggressively. When a case is brought as a class action, it combines the claims of many individuals and entities into one lawsuit. This is particularly important when it would be infeasible for individuals to bring lawsuits on their own, such as when the damages that could be won in such a suit would be far outweighed by the costs of bringing it. The Judge must determine whether or not a case brought as a class action should in fact proceed as a class action. This is called “class certification.” Whether or not a class action is certified usually determines whether or not the case ultimately can go forward at all.
In her August 27 order, Judge Saris certified two classes:
Class 1, Consumer Purchasers: All individual persons who paid, or incurred a debt enforceable at the time of judgment in this case to pay, a percentage co-payment for the Marked Up Drugs during the Class Period based on AWP, pursuant to a plan, which in turn reimbursed the cost of brand-name pharmaceutical drugs based on AWP. The Marked Up Drugs include all of the drugs identified in Exhibit A to the Second Amended Complaint and consist of certain brand-name drugs only; and
Class 2, Third-Party Payors: All third-party payors (1) the pharmaceutical payments of which were based on AWP during the Class Period; (2) that made reimbursements for drugs based on an AWP that was marked up from 20 to 25% during the term of its contract with its PBM or with another entity involved in drug reimbursement; and (3) that used First DataBank or Medispan for determining the AWP of the marked up drugs. The Marked Up Drugs are all drugs identified in Exhibit A and consist of brand-name drugs only.
Excluded from the Class are (a) each defendant and any entity in which any defendant has a controlling interest, and their legal representatives, officers, directors, assignees and successors; (b) any co-conspirators; and (c) any governmental entities that purchased such drugs during the class period.
At this juncture, Class 1 is certified for liability and for damages, but Class 2 is only certified for liability and for
equitable relief. I defer deciding whether to certify the TPP class for purposes of damages until plaintiffs propose a feasible aggregate damage methodology for TPPs.
The importance of this case cannot be overstated — a massive fraud was allegedly perpetrated by two pharmaceutical industry middlemen that virtually no consumers were aware even existed. McKesson Corporation, not exactly a household name, had $88 billion in annual revenues last year, and was 18th on the Fortune 500 list. This puts them ahead of AT&T (#27), Procter & Gamble (#25), Costco (#32), and Target (#33), among many other more well-known companies. This alleged conspiracy caused consumers, health plans, employers and taxpayers to unnecessarily pay billions more for prescription drugs. This case illustrates how the arcane world of prescription drug pricing, which is so important to the well-being and pocketbooks of millions of Americans, resembles a lawless wild west sorely in need of a new Sheriff. The Judge’s certification of these two classes allows the case against McKesson to go forward.
The Judge’s order can be found here and it provides an interesting and readable overview not just of this alleged scheme but also of the bizarre world of how drug prices are determined. More about this case can be found here. The press release issued by the plaintiffs’ co-lead counsel can be found here.