In re Epipen Direct Purchaser Litig.
| Decision Date | 15 January 2021 |
| Docket Number | File No. 20-cv-0827 (ECT/TNL) |
| Parties | In re: EpiPen Direct Purchaser Litigation THIS DOCUMENT RELATES TO: ALL ACTIONS |
| Court | U.S. District Court — District of Minnesota |
Noah Silverman, Bruce E. Gerstein, and Joseph Opper, Garwin Gerstein & Fisher LLP, New York, NY; David F. Sorenson, Caitlin Coslett, Andrew C. Curley, Aurelia Chaudhury, E. Michelle Drake, and Nicholas Urban, Berger & Montague PC, Philadelphia, PA; David S. Golub and Steven Bloch, Silver Golub & Teitell LLP, Stamford, CT; Susan C. Segura and David C. Raphael, Jr., Smith Segura & Raphael, LLP, Alexandria, LA; Russell Chorush, Eric Enger, and Christopher M. First, Heim Payne & Chorush LLP, Houston, TX; Joseph T. Lukens and Peter Kohn, Faruqi & Faruqi, LLP, Philadelphia, PA; Stuart Des Roches, Andrew Kelly, Amanda Leah Hass, Chris Letter, Dan Chiorean, and Thomas Maas, Odom & Des Roches, LLC, New Orleans, LA, for Plaintiffs Rochester Drug Co-Operative, Inc., and Dakota Drug, Inc.
Adam K. Levin, Carolyn A. DeLone, Christine A. Sifferman, Justin Bernick, Kathryn Marshall Ali, Charles A. Loughlin, and David M. Foster, Hogan Lovells US LLP, Washington, DC; Peter H. Walsh, Hogan Lovells US LLP, Minneapolis, MN; and Katherine Booth Wellington, Hogan Lovells US LLP, Boston, MA, for Defendants Mylan Inc. and Mylan Specialty L.P.
John W. Ursu and Isaac B. Hall, Faegre Drinker Biddle & Reath LLP, Minneapolis, MN; Daniel M. Dockery and Enu A. Mainigi, Williams & Connolly, LLP, Washington, DC, for Defendants CVS Health Corporation, CaremarkPCS Health LLC, Caremark LLC, and Caremark Rx LLC.
Donald G. Heeman, Jessica J. Nelson, and Randi J. Winter, Spencer Fane LLP, Minneapolis, MN; Jonathan G. Cooper, Carolyn L. Hart, Michael J. Lyle, and Eric C. Lyttle, Quinn Emanuel Urquhart & Sullivan LLP, Washington, DC, for Defendants Express Scripts Holding Company, Express Scripts Inc., and Medco Health Solutions, Inc.
Kadee J. Anderson and Andrew Glasnovich, Stinson LLP, Minneapolis, MN; Elizabeth Broadway Brown, D. Andrew Hatchett, and Bradley Harder, Alston & Bird LLP, Atlanta, GA; and Brian D. Boone, Alston & Bird LLP, Charlotte, NC, for Defendants United Health Group Incorporated, United Healthcare Services Inc., Optum, Inc., OptumRx Holdings, LLC, and OptumRx Inc.
This is a case about prescription-drug prices. Plaintiffs Rochester Drug Co-Operative, Inc., and Dakota Drug, Inc., are drug wholesalers. On behalf of a proposed class, Plaintiffs claim that Defendants Mylan Inc. and Mylan Specialty L.P. (collectively, "Mylan"), the manufacturers of a device called the "EpiPen," paid bribes and kickbacks to a group of pharmacy benefit managers—referred to collectively as CVS Caremark, Express Scripts, and OptumRx (or "PBM Defendants")1—to ensure that Mylan could raise the price of the EpiPen with impunity while also keeping a monopoly share of the market. In doing so, Plaintiffs claim, all Defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), and Mylan violated the Sherman Antitrust Act, 15 U.S.C. § 2. Mylan and the PBM Defendants have filed separate motions to dismiss for failure to state a claim. The PBM Defendants argue that Plaintiffs have not alleged plausible RICO claims, that the claims are time-barred, and that the claims against the PBMs' corporate parent entities should be dismissed. Mylan raises substantially similar arguments about the RICO claims and adds that Plaintiffs have not alleged a timely or plausible antitrust monopoly claim.
Both motions to dismiss will be denied in substantial part. The PBM Defendants' motion will be granted only as to the PBMs' corporate parents because Plaintiffs have not alleged a plausible basis for holding those entities liable. In all other respects, both motions will be denied. Plaintiffs have stated plausible claims under RICO and the Sherman Act,and while discovery may reveal that the statute of limitations has run on those claims, it would be inappropriate to dismiss them as untimely at this stage.
To understand the specific allegations in this case, it is necessary to start with the basic structure of the prescription-drug market and to describe how drugs make it to patients. The process begins with pharmaceutical companies, who "develop, manufacture, market, and sell prescription drugs." Consolidated Class Action Compl. ("Compl.") ¶ 44 [ECF No. 76]. The manufacturer sells the drugs to a wholesaler, like the Plaintiffs in this case, for a "published list price" known as the "Wholesale Acquisition Cost" ("WAC"). Id. ¶ 45.3 The wholesaler then sells the drugs to a pharmacy, and the pharmacy dispenses them to individual patients. Id. ¶ 44.
Sometimes, a patient simply pays cash out of pocket for a prescription drug. Id. ¶ 47. More frequently, however, a third party—usually a health plan—pays some or all of the cost on the patient's behalf. Id. ¶ 47. The net cost that the health plan pays is determined by offsetting the gross cost of the drug with the patient's co-pay, if any, and any rebates or discounts to which the manufacturer has agreed. Id. ¶ 49. So, while multiplefactors affect the amount that patients and plans actually pay, the list price is certainly one of them; if the list price goes down, patients and insurers usually pay less. Id. ¶¶ 49-50.
An insurer will only pay for drugs that it covers. See id. ¶ 49. Covered drugs appear on a published list called a "formulary." Formularies define both "which drugs are covered by an insurer or health plan, and the scope or restrictions for such coverage." Id. ¶ 48. And they typically contain "multiple tiers of coverage," which determine the amount of a patient's copay or conditions that must be met to obtain coverage. Id. In effect, these tiers can favor some drugs over others.
This background sets the stage for PBMs. PBMs generally do not purchase or sell drugs themselves,4 but instead are "hired by various types of entities to design, manage, and administer prescription drug benefit programs." Id. ¶ 51. Health plans and other third-party payors hire PBMs for a variety of functions, but two are especially relevant to this case: (1) negotiating with manufacturers to obtain rebates that offset the list prices of drugs; and (2) "designing, developing and managing formularies and formulary compliance programs." Id. ¶ 52.
Health plans wield substantial "collective purchasing power" because of all the individual patients they cover, and manufacturers, unsurprisingly, want to tap into this business. Id. ¶ 54. To do so, they need to secure favorable placement on insurers' formularies, which "can be used to steer patients toward certain drugs over others." Id. ¶ 64. In order to achieve this, manufacturers may be inspired to make two types ofconcessions. First, they might simply lower (or stop raising) the list prices of their drugs. Second, even if the list price remains unchanged, a manufacturer may offer rebates that effectively lower a drug's cost for the individual health plans that cover it. See id. ¶¶ 49-50.
PBMs market their services as a means of lowering costs for their health plan clients. Id. ¶¶ 93-97. "[I]t is typical to have a large PBM negotiating with several drug manufacturers on behalf of a large number of relatively small health plans," id. ¶ 59, and rather than negotiate a separate agreement for each of its individual clients, a PBM will often seek a "master agreement" that applies to many or all of its clients, id. ¶ 60. The result is that health plans' already substantial collective purchasing power becomes even more "highly concentrated" in the hands of PBMs. Id. ¶ 60. PBMs, in other words, are often in a better negotiating position than their clients would be as individuals.
PBMs wield this leverage through their control over their health plan clients' formularies. Although health plans retain "nominal control" over their formularies, PBMs have "substantial day-to-day control" over them. Id. ¶¶ 66, 70. For example, Plaintiffs cite a form contract for Express Scripts, a major PBM and a Defendant in this case, providing that its health plan client will presumptively "adopt" the PBM's formulary choices unless the health plan affirmatively opts out of them. Id. ¶ 67. Some contracts also contain provisions that allow PBMs to "penalize" their clients with rebate reductions if the client "override[s] the PBM's formulary decisions." Id. ¶ 69. In practice, then, health plans typically just rely on their PBMs' formulary recommendations. Id. ¶ 68.
Recent industry changes have raised the stakes of formulary negotiations even further. Until the 2010s, PBMs generally used "open formularies," which "offer[ed] varying degrees of plan coverage and benefits for virtually all available FDA-approved drugs." Id. ¶ 74. In the 2010s, PBMs began a shift to "closed formularies," which not only provide varying degrees of coverage but also "restrict the overall number of drugs" that receive coverage in the first place. Id ¶ 74. In the last several years, PBMs have also begun to publish "annual lists of drug exclusions." Id. ¶ 75. These changes give PBMs even greater power to "drive health and insurance plan participants and beneficiaries to (or away from) specific drugs." Id. ¶ 75. Favorable placement on a closed formulary can substantially increase a drug's sales, while placement on an exclusion list can "dramatically hobble" them. Id. ¶ 75 (quoting Johanna Bennett, CVS Health Takes "an Audacious Step" With 2017 Drug Formularies, Barron's (Aug. 2, 2016), https://www.barrons.com/articles/cvs-health-takes-an-audacious-step-with-2017-drug-formularies-1470169569). Unsurprisingly, formulary and exclusion placements are a "major factor" in negotiations and can result in substantial rebates. Id. ¶ 76.
Finally, there is the manner in which PBMs are paid. Generally, at least as relevant to this case, PBMs receive payments from drug manufacturers.5 These payments fall into several buckets. Some are the rebates that...
To continue reading
Request your trial