In re Lupron® Marketing and Sales Practices Lit.
| Decision Date | 25 November 2003 |
| Docket Number | No. 01-CV-10861-RGS.,No. MDL.1430.,MDL.1430.,01-CV-10861-RGS. |
| Citation | 295 F.Supp.2d 148 |
| Parties | In re: LUPRON® MARKETING AND SALES PRACTICES LITIGATION |
| Court | U.S. District Court — District of Massachusetts |
Deborah S. Birnbach, Joseph F. Savage, Jr., Testa, Hurwitz & Thibeault, LLP, Boston, MA, for TAP Pharmaceutical Products, Inc., Defendant.
Daniel A. Curto, Donald R. Frederico, McDermott, Will & Emery, Boston, MA, for Abbott Laboratories, Defendant.
Michael J. Flannery, The David Danis Law Firm, P.C., St. Louis, MO, Jeffrey L. Kodroff, Spector & Roseman, Philadelphia, PA, Thomas G. Shapiro, Shapiro, Haber & Urmy, LLP, Boston, MA, Thomas M. Sobol, Hagens Berman, Boston, MA, for William M. Porter, Plaintiff.
Martin F. Murphy, Rheba Rutkowski, Fiona S. Trevelyan, Bingham McCutchen LLP, Boston, MA, for Takeda Chemical Industries, Defendant.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS CORRECTED CONSOLIDATED AMENDED CLASS ACTION COMPLAINT AND SECOND AMENDED CONSOLIDATED COMPLAINT1
Plaintiffs, who are cancer patients and health care plans, accuse defendants Abbott Laboratories (Abbott), Takeda Chemical Industries, Ltd. (Takeda), and TAP Pharmaceutical Products, Inc. (TAP) of conspiring to artificially inflate the price of the drug Lupron® in violation of the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962.2 The class action plaintiffs consist of a commercial health insurance carrier (Beacon Health Plan), an ERISA plan (Twin Cities Bakery Workers Health and Welfare Fund), and four patients who paid for all or part of a Lupron® injection. The class action cases were consolidated in this court by the Multi-District Litigation Panel (MDLP). A coalition of Blue Cross/Blue Shield Plans,3 which filed two Lupron®-related non-class action cases in the District of Massachusetts then agreed to coordinate pretrial proceedings with the class action plaintiffs, as did the non-class action plaintiff Cobalt Corporation. The plaintiffs collectively seek to recover from the defendants the alleged overcharges for Lupron® as well as punitive damages. Defendants, challenging the legal sufficiency of the plaintiffs' claims, move to dismiss the combined actions in their entirety.4
The background is summarized from the court's decision in Lupron Marketing and Sales Practices Lit., 245 F.Supp.2d at 283-285. Abbott is a major American pharmaceutical company based in Illinois. Takeda is Japan's largest drug manufacturer. Takeda produces Lupron® (leuprolide acetate), a testosterone suppressor used primarily to treat male prostrate cancer, but also endometriosis, central precocious puberty, and uterine fibroid preoperative anemia. Lupron® is administered by intramuscular injection, typically by a patient's doctor or by a nurse working under the doctor's supervision. Lupron® is distributed in the United States by TAP, an Illinois corporation jointly owned by Takeda and Abbott.
On October 16, 2001, TAP plead guilty to violating the Prescription Drug Marketing Act, 21 U.S.C. §§ 331(t), 333(b).5 TAP admitted that it had encouraged doctors to falsely bill Medicare for free samples of Lupron® as part of a scheme to induce doctors to prescribe Lupron®. TAP was ordered to pay a criminal fine of $290 million. As part of a civil settlement, TAP agreed to pay $559,483,560 in restitution to the United States for losses incurred by Medicare and $25,516,440 in restitution for losses incurred by state Medicaid programs.
Medicare was created in 1965 by Congress to provide medical insurance to senior citizens (ages 65 and older). See 42 U.S.C. §§ 1395—1395ggg. Medicare is overseen by the Secretary of Health and Human Services (HHS) and is administered by the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration [HCFA]). Medicare Part B pays for a number of medical services, including the cost of certain prescription drugs. While Medicare Part B does not for the most part pay for self-administered drugs, it does pay providers for up to 80% of the "allowable cost" of physician-injected drugs like Lupron®. The remaining 20% is paid by the Medicare beneficiary as a "co-payment."6
"Allowable cost" was defined by HHS regulations until 1998 as the lesser of a drug's estimated actual acquisition cost or its national average wholesale price (AWP). 42 C.F.R. § 405.517.7 Medicare administrators historically relied on the AWP in setting the reimbursement rate for Lupron®. The AWP in turn was derived by HHS from the Drug Topics Red Book (Red Book), an industry publication compiling wholesale drug prices. The AWP for Lupron® as it appeared in the Red Book was supplied by TAP. No independent verification of the actual AWP was undertaken by Medicare or by the Red Book itself. The published AWP for Lupron® as reported by TAP ranged from $418.75 in 1992 to $623.79 in 2001.8
After TAP's guilty plea, putative class actions were brought in various courts on behalf of co-paying beneficiaries, direct purchasers of Lupron®, and private health care plans who were not part of the civil settlement negotiated by the United States. The actions pending in the federal district court were consolidated by the MDLP in the District of Massachusetts for pretrial proceedings.9 In addition, two cases filed on behalf of the Blues in the District of Massachusetts were joined as related cases.10
Plaintiffs' core allegation is that the AWPs for Lupron® reported by the defendants bore no resemblance to the actual prices charged by TAP to doctors, nor did they bear any relationship to a reasonable interpretation of the terms "average" or "wholesale." The AWPs rather were deliberately inflated as part of an improper marketing and sales scheme to promote Lupron® at plaintiffs' expense by funneling hidden profits to doctors. As summarized in the Consolidated Complaint:
[t]he improper marketing and sales practices include[d], inter alia: (a) deliberately and falsely overstating the [AWP] for Lupron®, the rate upon which Medicare and private health insurance reimbursement rates are set, so that Medicare, Medicare beneficiaries and the [health care] Plans paid artificially inflated prices for Lupron®; (b) providing free samples of Lupron® to medical providers and instructing them that they could and should bill Medicare and third-party payers for the free samples with the intent that they do so; (c) providing other unlawful financial inducements and hidden price discounts to medical providers to prescribe Lupron®, causing the Plans to pay the artificially inflated price for Lupron®; and (d) actively concealing and causing others to conceal, information about the true price being charged for Lupron®.
Id. ¶ 4.11
Central to the factual allegations of the Amended Complaint is TAP's concession that its sales representatives had distributed some $31 million in "free" Lupron® samples between 1993 and 1999.12 TAP's president, Thomas Watkins, admitted
that TAP provided free samples of Lupron® to a number of physicians, primarily in the early to mid-1990s, with the knowledge that those physicians would seek and receive reimbursement. The billing for free samples is wrong, and it should never have happened.
Class Action Complaint ¶ 83. Dr. Joel Olstein, a urologist in Lewiston, Maine, stated that TAP had presented him with a free sample of Lupron® every time that he started a new patient on the drug. Id. at ¶ 95.
Plaintiffs allege that defendants offered other undisclosed financial inducements to doctors to stimulate the sales of Lupron®, including volume discounts, rebates, purported "education" grants, junkets, off-in-voice pricing, free goods, credit memos, consulting fees and debt forgiveness. In 1996, the Tufts Health Maintenance Organization decided to switch its prostate cancer patients from Lupron® to a less costly competitor drug, Zoladex®. In response, TAP's national accounts manager, Janice Swirski, told Tufts that TAP could not make any further reduction in the price charged to Tufts, as that would affect the price TAP charged the federal government for Lupron®. Instead, TAP offered Tufts unrestricted "educational grants" of up to $25,000 per year if Tufts would continue to prescribe Lupron® to patients. Tufts declined TAP's offer.
TAP also forgave debt as a disguised form of illegal discounting. One urology practice in Boston had $11,000 of prior Lupron® debt cancelled in exchange for switching all of its patients from Zoladex® to Lupron®. In 1995, Kimberlee Chase, a TAP sales representative discharged $ 13,000 of Lupron® debt owed by a urology practice in Fall River, Massachusetts, when the group (which owed TAP in excess of $70,000) threatened to switch its patients from Lupron® to Zoladex®.
Under the guise of business review meetings, TAP devised a so-called "Return to Practice" program to demonstrate how doctors could profit from the spread between the AWP for Lupron® and the actual price that they would be charged for the drug. In one case, a TAP employee left a spread sheet with a Massachusetts urologist who had switched to the less costly Zoladex® showing an additional profit of $7,000 that the doctor could earn by billing the AWP for Lupron®. On another occasion, TAP executives increased the AWP for Lupron® to counter an announced rise in the AWP for Zoladex®.
TAP sales representatives routinely counseled doctors to conceal from patients, insurance carriers, Medicare, and other doctors, the actual price that they paid for Lupron®. Alan Mackenzie, a senior TAP marketing...
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