Am. Fed'n of State v. Bristol-Myers Squibb Co.

• Citation: 948 F.Supp.2d 338
• Decision Date: 03 June 2013
• Docket Number: No. 12 Civ. 2238(JPO).,12 Civ. 2238(JPO).
• Court: U.S. District Court — Southern District of New York
• Parties: AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES DISTRICT COUNCIL 37 HEALTH & SECURITY PLAN and Sergeants Benevolent Association Health and Welfare Fund, individually and on behalf of all others similarly situated, Plaintiffs, v. BRISTOL–MYERS SQUIBB CO. and Otsuka America Pharmaceutical, Inc., Defendants.

948 F.Supp.2d 338

AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES DISTRICT COUNCIL 37 HEALTH & SECURITY PLAN and Sergeants Benevolent Association Health and Welfare Fund, individually and on behalf of all others similarly situated, Plaintiffs,

v.BRISTOL–MYERS SQUIBB CO. and Otsuka America Pharmaceutical, Inc., Defendants.

No. 12 Civ. 2238(JPO).

United States District Court,

S.D. New York.

June 3, 2013.

Lauren Guth Barnes, Thomas Matthew Sobol, Hagens, Berman, Sobol, Shapiro, LLP, Cambridge, MA, Jason Allen Zweig, Hagens, Berman, Sobol, Shapiro, LLP, New York, NY, Jeffrey L. Kodroff, Mary Ann Giorno, Spector, Roseman & Kodroff, Willis, P.C., Philadelphia, PA, Kenneth A. Wexler, Wexler Toriseva Wallace, LLP, Chicago, IL, Steve W. Berman, Hagens, Berman, Sobol, Shapiro, LLP, Seattle, WA, for Plaintiffs.

Andrew David Schau, Covington & Burling, LLP, Jonathan Paul Bach, Cooley Godward Kronish, LLP, Nicholas Andrew Flath, Rachel Brothman Kane, Cooley, LLP, New York, NY, John W. Nields, Jr., Covington & Burling, L.L.P., Washington, DC, Emily Anna Hayes, Fred N. Knopf, Wilson, Elser, Moskowitz Edelman & Dicker, LLP, White Plains, NY, Mazda K. Antia, Cooley, LLP, Ryan E. Blair, Cooley, Godward, Kronish, L.L.P., San Diego, CA, for Defendants.

MEMORANDUM AND ORDER

J. PAUL OETKEN, District Judge.

This case arises from the latest chapter in an ongoing dispute between health insurers and branded drug manufacturers. Insurers are keen to control drug costs, while manufacturers are determined to maintain market share while competing with generics and therapeutic alternatives. In recent years, manufacturers have launched programs through which they offer to cover the cost of co-payment obligations for their branded drugs. Insurers, which create tiered co-pay obligations to encourage plan members to select cheaper drugs, oppose these programs and argue that they increase overall drug costs. That policy dispute produced this lawsuit, which is one of several similar suits pending in jurisdictions across the country. Plaintiffs argue that the co-pay subsidy program is illegal under the federal racketeering and antitrust laws. Defendants have filed a motion to dismiss pursuant to Rules 9(b) and 12(b)(6). The Court held oral argument on this motion on May 10, 2013. For the reasons that follow, Defendants' motion is granted and Plaintiffs are granted leave to re-plead with respect to a portion of their RICO claim. ¹

I. Background²

Plaintiff American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan (“DC 37”) administers a variety of self-insured health and welfare benefits to its more than 125,000 members, including a prescription drug benefit plan that contains cost-sharing provisions for plan members. Plaintiff Sergeants Benevolent Association Health and Welfare Fund (“Sergeants”) is an employee welfare benefit plan that provides comprehensive health care benefits to approximately 12,000 individuals. Its prescription drug benefit plan also contains cost-sharing provisions for plan members.

These cost-sharing provisions are intended to place a personal financial obligation on plan members through a tiered co-payment (“co-pay”) scheme that places branded drugs in a less preferred position than other commonly prescribed therapeutic or AB-rated generic alternatives. By requiring plan members to provide a higher co-pay for drugs in higher tiers, third party payers (“TPPs”) such as Plaintiffs seek to incentivize plan members to select cost-effective treatment and medication. Therapeutic alternatives and AB-rated generics are often more cost-effective than brand name drugs because, on average, generic prescriptions cost payers $16, preferred brand prescriptions cost $118, and non-preferred brands cost $124.³

Defendants Bristol–Myers Squibb Co. (“BMS”) and Otsuka American Pharmaceutical, Inc. (“Otsuka”) jointly market the branded drug Abilify (aripiprazole), a drug approved to treat schizophrenia. Since 2010, Defendants have provided co-pay subsidies—via the Abilify Savings Card—to insured individuals who are prescribed Abilify.⁴ McKesson Corporation administersthe co-pay subsidy program for Abilify; this program is known as Loyalty–Script and serves more than 17,000 patients every day. McKesson is not a defendant in this action, but is alleged to be an unnamed coconspirator. In December 2011, as part of their co-pay subsidy program, BMS and Otsuka extended an offer of $100 off per refill for seventeen refills, though patients are not eligible if they have filled more than one prescription for Abilify in the past sixty days. Plaintiffs allege that the purpose of this co-pay subsidy scheme, whereby Defendants knowingly offer and pay remuneration in the form of co-pay subsidies to patients to induce them to purchase Defendants' brand name drug, is to encourage patients and doctors to choose Abilify rather than less expensive therapeutic alternatives.⁵

The existence of co-pay subsidy schemes is “open and notorious.” Indeed, co-pay subsidy administration has become a “cottage industry,” and BMS is not the only branded drug manufacturer to maintain a co-pay subsidy program. Though the details vary, co-pay subsidy programs all work the same way. Individuals enroll in drug-specific programs online and provide basic information. The drug company then mails them a wallet-sized card that includes instructions to pharmacists on how to process covered prescriptions. First, the pharmacist enters information into a computerized data management system. Information about the patient, including the patient's personal co-pay obligation, is transmitted to the pharmacist from the insurance company or its pharmacy benefit manager (“PBM”). After learning what the patient owes, the pharmacist then enters information from the co-pay card system into the secondary insurer field. The plan member pays the out-of-pocket difference between his or her co-pay and the amount subsidized by Defendants. Thus, the TPP—e.g., Plaintiffs—pays the full amount of its usual payment for the branded drug in question, but the plan member pays only part (or none) of his or her ordinary co-pay. The patient's TPP is never told, and has no way of knowing, that a third party—such as BMS—has paid all or nearly all of the personal co-pay obligation.

Defendants not only determine the price at which wholesalers or large retailers will purchase prescription drugs from them, but also control the reimbursement benchmark used to determine the amount to be paid for the drugs by public and private health benefit providers. BMS sets the Wholesale Acquisition Cost (“WAC”) for its drugs, and either BMS or a reporting agency causes to be published the Average Wholesale Price Price (“AWP”) for its drugs. Plaintiffs allege that “[w]hen cost sharing is routinely waived, the true acquisition cost for the medical service or product is not the stated or reported price being charged to health benefit providers, but rather the price after deduction for the routinely waived co-payment.” (emphasis in original).

Plaintiffs allege that Defendants' co-pay subsidy programs “undermine the contractual insurance arrangement between the insurer and the insurer's member by reducing or eliminating the personal cost-share feature of the insurance contract” and “increase the overall burden on the plan for providing benefits to its members.” Further, “[b]y providing undisclosed kickbacks to reduce or eliminate the cost-sharing mechanism in thousands of health insurance contracts for widely used maintenance prescription drugs, defendants unfairly undermine health benefit providers' best attempts to control prescription drug costs.” Indeed, “Defendants offer such sweeping bribes that they often effectively reduce the co-pay for their branded drug to less than the average co-pay for therapeutic or AB-rated generic alternatives,” and, in so doing, “intend to interfere with health plans' cost-sharing provisions.” (emphasis in original)

Defendants' co-pay subsidy programs require use of the mail and wires, as Defendants advertise their co-pay subsidy programs on the Internet, in magazines, and on network television, and send the physical co-pay cards to individuals, doctors, and pharmacies via the mail.

II. Standard of Review

Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” To survive a motion to dismiss pursuant to Rule 12(b)(6), a plaintiff must plead sufficient factual allegations “to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court must accept as true all well-pleaded factual allegations in the complaint, and “draw[ ] all inferences in the plaintiff's favor.” Allaire Corp. v. Okumus, 433 F.3d 248, 250 (2d Cir.2006) (quotations omitted). That said, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citation omitted); see also id. (“A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” (quotation marks and citations omitted) (alteration in original)).

III. RICO ClaimsA. Definition of RICO

Congress enacted RICO in 1970 as part of the Organized Crime Control Act “to seek the eradication of organized crime...