Blue Cross of Cal. Inc. v. Insys Therapeutics Inc.

• Decision Date: 14 May 2019
• Docket Number: No. CV-17-02286-PHX-DLR,CV-17-02286-PHX-DLR
• Citation: 390 F.Supp.3d 996
• Parties: BLUE CROSS OF CALIFORNIA INC ORPORATED, et al., Plaintiffs, v. INSYS THERAPEUTICS INCORPORATED, Defendant.
• Court: U.S. District Court — District of Arizona

390 F.Supp.3d 996

BLUE CROSS OF CALIFORNIA INC ORPORATED, et al., Plaintiffs,

v.INSYS THERAPEUTICS INCORPORATED, Defendant.

No. CV-17-02286-PHX-DLR

United States District Court, D. Arizona.

Signed May 14, 2019

Andrew Joel Crowder, Geoffrey Holmes Kozen, Jamie R. Kurtz, Jeffrey Sullivan Gleason, Joshua Buchanon Strom, Thomas C. Mahlum, Robins Kaplan LLP, Minneapolis, MN, Keith Beauchamp, Coppersmith Brockelman PLC, Phoenix, AZ, for Plaintiffs.

Brian H. Benjet, Ilana Hope Eisenstein, Matthew A. Goldberg, DLA Piper LLP, Philadelphia, PA, Cameron Ailes Fine, DLA Piper LLP, Phoenix, AZ, for Defendant.

ORDER

Douglas L. Rayes, United States District Judge

Before the Court is Defendant Insys Therapeutics Incorporated's ("Insys") motion to dismiss (Doc. 97), which is fully briefed.¹ For the reasons stated below, Insys' motion is granted in part and denied in part.

I. Background²

Anthem insures and administers employer-sponsored group health insurance benefits plans.³ (Doc. 84 ¶ 53.) Anthem offers fully insured and self-funded plans. For the fully insured plans, Anthem directly insures the plan, resolves benefit claims, and makes benefit payments from its own assets. (¶ 54.) In contrast, self-funded plans are funded by the employer sponsor, while Anthem operates as the claims administrator for the plans. (¶ 55.)

As part of Anthem's benefit plans, members may be entitled to prescription drug coverage. Plan members with prescription drug coverage may be reimbursed for medications if certain conditions are met, including that the drug is available on Anthem's drug list. (¶ 47.) Subsys, an opioid manufactured, marketed, and sold by Insys, is not on Anthem's drug list. (¶¶ 1, 47.) Anthem's plan members, however, still may be reimbursed for Insys prescriptions if: (1) the prescription meets the Food and Drug Administration ("FDA") approved indication (commonly referred to as "on-label use") and (2) the prescriber or patient obtain a prior authorization from Anthem. (¶¶ 49-51.) To obtain prior authorization, Anthem requires the prescriber to confirm that the patient has a diagnosis of cancer with breakthrough pain and that the patient is already receiving opioids and is tolerant to opioid therapy, which is the only approved FDA use. (¶¶ 39, 52.)

Subsys' profitability is constrained by the limited number of patients with a qualifying diagnosis for on-label use. (¶ 3.) If, however, Insys were able to successfully have Subsys prescribed for off-label uses it could expand the eligible patient population and increase its profitability. Off-label refers to use of an FDA approved drug for any purpose, or in any manner, other than what is described in the drug's labeling. (¶¶ 3, 36.) Anthem, like many insurers, will not reimburse for off-label use of Subsys. (¶¶ 2, 4.)

Faced with the limited on-label patient population and insurers unwilling to reimburse for off-label use, Insys developed a scheme to unlawfully obtain reimbursements from insurers, including Anthem, for off-label prescriptions of Subsys.

A. Efforts to Induce Prescribers to Write Off-Label Prescriptions

A major part of Insys' scheme was to convince prescribers to write off-label prescriptions for Subsys.⁴ Insys paid illegal kickbacks to prescribers identified as high-volume high-dose prescribers. (¶¶ 67, 112-18.) Insys ranked its targeted prescribers without screening for eligible patient populations. (¶¶ 65-66.) Several Subsys' prescribers have been criminally convicted of accepting kickbacks, at least two of which prescribed Subsys to Anthem members that did not have an underlying cancer diagnosis. (¶¶ 112-18, 130.)

Aside from kickbacks, Insys also offered free administrative services to prescribers. Specifically, Insys' reimbursement unit handled the prior authorization process on behalf of prescribers. (¶ 131.) Aware that Anthem, like many other insurers, prohibits anyone other than plan members, member representatives, or the prescriber to request prior authorization, employees in Insys' reimbursement unit took efforts to conceal or misrepresent their identity when seeking prior authorization for Subsys. (¶¶ 133-34.) For instance, in an attempt to mislead insurers about the nature of their employment, Insys' employees would call from blocked phone numbers and represent that they were calling from the prescriber's office. (¶¶ 135-36.) Moreover, by offering to handle the prior authorization process for prescribers Insys controlled the fraudulent representations made to insurers, including Anthem. (¶¶ 131-32.)

B. Efforts to Induce Insurers to Reimburse for Off-Label Prescriptions

As part of its scheme, Insys drafted and disseminated letters of medical necessity to prescribers. (¶ 99.) Ordinarily, these letters are provided to aid insurers in their coverage decision for benefit claims. (¶ 99.) Insys adapted its template letters to maximize the likelihood of garnering prior authorization. (¶ 99.) For instance, Insys' self-proclaimed "strong" letter included representations about the provider's experience with Subsys, the patient's need for Subsys, and the provider's expectation that the patient's medical necessity for Subsys would "continue for a long-long period." (¶¶ 101-02.)

To further alleviate the burden of the prior authorization process on prescribers and elicit coverage for off-label Subsys prescriptions, Insys provided free administrative services like handling prior authorization requests for prescribers. Because Insys understood that insurers would not approve prior authorizations for off-label uses of Subsys, Insys employees would represent to the insurer that the patient had a cancer diagnosis and was tolerant to opioids even when that was not the case. (¶¶ 142, 146.) Insys employees were directed to falsely confirm lists of tried and failed medications that would help qualify the patient for prior-authorization to try Subsys. (¶ 147.)

In an effort to mislead insurers, Insys also provided employees with scripts and training on how to answer prior-authorization questions. One such script, which Insys called "the spiel," read: "The physician is aware that the medication is intended for the management of breakthrough pain in cancer patients. The physician is treating the patient for their pain (or breakthrough pain, whichever is applicable)." (¶¶ 143-45.) Strategically and deliberately omitted from the script was the phrase cancer diagnosis. (Id. ) Elizabeth Gurrieri, the Insys employee who managed the reimbursement unit and later pleaded guilty to federal crimes for her role in Insys' illegal scheme, admitted that she "specifically directed employees to lie using a number of different methods to mislead insurers ... [and] that multiple employees as well as Ms. Gurrieri actually lied to insurers ... in order to gain prior authorization."⁵ (¶ 148.)

C. Efforts to Eliminate Co-Payment Obligations

The co-payment obligations of Anthem's plan members presented a final hurdle. Anthem, like most insurers, contractually requires that plan members pay for a portion of the medical services or prescriptions consumed by that member. This obligation, which is commonly referred to as a co-payment or co-pay, is ordinarily a percentage of the total cost for the medical service or prescription consumed by the member. (¶¶ 155-56.) That means that the more expensive the treatment or prescription, the higher the co-payment obligation. This requirement creates an incentive for members to be sensitive to the cost of their healthcare and to act prudently in choosing services and prescriptions. (¶¶ 157-58.)

Subsys is extremely expensive, especially as dosage strengths are increased. (¶ 46.) Aware that co-pay obligations limit the willingness of patients to use Subsys rather than more affordable opioids, Insys habitually eliminated patient co-pay obligations for the drug. (¶ 154.) One way in which Insys eliminated co-pay obligations was to issue a super voucher to the pharmacy, in which Insys paid the co-pay obligation on behalf of the patient. (¶¶ 91-98, 159-60.) With their co-pay obligations eliminated, Anthem's members disregarded their contractual incentive to seek a less expensive alternative and filled Subsys prescriptions they otherwise would not have filled. (¶¶ 154, 161-63.) In doing so, Anthem was forced to reimburse for Subsys prescriptions it otherwise would not have paid for had the members incurred the co-payments. (¶¶ 154, 161-63.)

D. Harm Caused by Insys' Scheme

Anthem conducted a retrospective review of all claims for reimbursement for Subsys prescriptions and determined that 54% of members with Subsys prescriptions that had been reimbursed by Anthem did not actually have an underlying cancer diagnosis. (¶ 196.) This equates to over $ 19 million in reimbursements Anthem made for Subsys prescriptions that were not covered by Anthem's plans. (¶ 198.)

II. Discussion

Anthem filed an amended complaint in the instant action on July 23, 2018, asserting multiple claims against Insys, including: statutory claims for deceptive, unfair, and unlawful business practices (Count I), and common law claims for fraud (Count II), negligent misrepresentation (Count III), unjust enrichment (Count IV), civil conspiracy (Count V), and tortious interference with a contract (Count VI). (Doc. 84.)

Insys now moves to dismiss all of Anthem's claims. First, Insys contends that Anthem's claims should be dismissed because they are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. , and the Federal Drug and Cosmetics Act ("FDCA"), 21 U.S.C. § 301 et seq. Next, Insys argues that Anthem lacks Article III standing to bring its claims. Finally, Insys argues that Anthem fails to state a claim for which relief can be granted under Rule 12(b)(6).

A. Preemption

1. ERISA

There are two strands to ERISA's powerful preemptive force. First, ERISA section 514(a) expressly preempts all state laws that "relate to any employee benefit plan." 29 U.S.C. § 1144(a). Second, ERISA section...