In re Lupron Marketing and Sales Practices Lit, MDL 1430.

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
Writing for the CourtStearns
Citation245 F.Supp.2d 280
Decision Date24 January 2003
Docket NumberNo. MDL 1430.,No. 01-CV-10861-RGS.,MDL 1430.,01-CV-10861-RGS.

Thomas G. Shapiro, Shapiro, Haber & Urmy, LLP, Boston, MA, Jeffrey Kodroff, Spector & Roseman, Philadelphia, PA, Thomas M. Sobol, Lieff, Cabraser, Heimann & Bernstein, LLP, Boston, MA, for Plaintiff.

Deborah S. Birnbach, Joseph F. Savage, Testa, Hurwitz & Thibeault, LLP, Boston, MA, Daniel A. Curto, McDermott, Will & Emery, Martin F. Murphy, Rheba Rutkowski, Fiona S. Trevelyan, Bingham McCutchen LLP, Boston, MA, for Defendants.


STEARNS, District Judge.

A consortium of patients and health care plans maintains that defendants Abbott Laboratories ("Abbott"), Takeda Chemical Industries, Ltd. ("Takeda") and TAP Pharmaceutical Products, Inc. ("TAP") (an Illinois corporation owned by Abbott and Takeda) conspired to artificially inflate the price for the cancer drug Lupron®.1 The plaintiffs' consolidated class action is grounded on the civil provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962.2 It seeks to recover the alleged overcharges for Lupron® and to impose a treble measure of punitive damages. Defendants deny the conspiracy allegations, question the legal theories on which the RICO claims are based, and, in the case of Takeda, challenge the existence of jurisdiction in the courts of the United States. Consistent with the rule that a trial court should determine whether Article III jurisdiction exists before proceeding to the merits of a claim, the court will in this decision address Takeda's jurisdictional arguments. See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 95-103, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998).


Abbott is a major manufacturer and distributor of prescription drugs. With headquarters in Abbott Park, Illinois, Abbott employs some 60,000 people. It reported sales of $13.7 billion during its fiscal year 2000. Takeda, based in Osaka, Japan, is Japan's largest pharmaceutical company. Takeda reported worldwide sales in 1999 of $8.7 billion. Takeda manufactures Lupron® in Japan for export to the United States. TAP is an Illinois-based corporation jointly owned by Takeda America Holdings ("TAH")3 and Abbott. Lupron® is distributed in the United States by TAP though a subsidiary, TAP Pharmaceuticals, Inc. Plaintiffs concede that TAP is a "separate and distinct" entity in the sense that it "maintains its own employees and operations and conducts its affairs separately from Abbott and Takeda." Corrected Consolidated Amended Class Action Complaint ("Amended Class Action Complaint") ¶ 61. TAP's corporate headquarters are in Waukegan, Illinois.

Lupron® (leuprolide acetate), which acts to suppress the human hormone testosterone, is used primarily in the treatment of male prostrate cancer. It is also effective in treating endometriosis, central precocious puberty, and uterine fibroid preoperative anemia. Lupron® is administered by intramuscular injection, typically in the arm or buttocks, in daily or monthly doses. Consequently, most Lupron® is sold to doctors who administer their patients' injections.

On October 13, 2001, the U.S. Attorney for the District of Massachusetts announced that TAP had agreed to pay $875 million to settle criminal charges and civil claims arising from the fraudulent marketing of Lupron®.4 The primary victim identified in the criminal information filed against TAP was the U.S. Department of Health and Human Services ("HHS") Medicare program. Medicare was created in 1965 by Congress as an extension of the Social Security Act. Medicare reimburses the costs of a number of medical services, including the costs of certain prescription drugs, for enrolled recipients. Beneficiaries are not, as a rule, reimbursed for the costs of self-administered drugs. However, Medicare Part B pays providers 80% of the allowable cost of an injectable drug like Lupron®.5

"Allowable cost" was defined by HHS regulations until 1998 as the lesser of either a drug's estimated acquisition cost or its national average wholesale price ("AWP").6 42 C.F.R. § 405.517. Medicare administrators historically relied on the AWP provided by TAP to the Red Book, an industry compilation of wholesale drug prices, in setting the reimbursement rate for Lupron®.7 The Red Book AWP for Lupron® in 1992 was $418.75— $437.50; in 1993 $437.50; in 1994 $463.75; in 1995 $477.50; in 1996 $496.25-$515.63; in 1997 $515.63; in 1998 $540.63; in 1999 $594.65; in 2000 $623.70; and in 2001$623.79.8 In pleading guilty to violating the Prescription Drug Marketing Act, 21 U.S.C. §§ 331(t) and 333(b), TAP admitted to encouraging doctors to bill Medicare at the Red Book AWP for free samples of Lupron® as part of a scheme to promote "brand loyalty" by permitting doctors to pad their incomes by pocketing the AWP reimbursement.9 "TAP knew that [it] could `raise' the average wholesale price of Lupron at any time by simply forwarding to the Redbook a new and higher average wholesale price. This allowed TAP, in effect, to control the maximum Medicare reimbursement paid to a doctor for [prescribing] Lupron." Government's Sentencing Memorandum, at 12. The Memorandum further acknowledged that the proposed settlement did not include restitution for private insurers and co-paying patients who had also been victimized by the scheme, but noted that "some patients and health insurers have commenced litigation against TAP to recover overpayments caused by the criminal conduct and thus have a forum in which to demonstrate and obtain any appropriate damages." Id. at 4. Plaintiffs are among the health care providers and individual consumers who purchased (or reimbursed the purchase) of Lupron® at the inflated AWP. Nine of the cases transferred to this court by the MDLP for pretrial proceedings were filed as putative class actions in federal courts in Illinois, Massachusetts, Alabama, and Minnesota. For convenience, each will be referred to by the name of the lead plaintiff.10 The direct action filed in Massachusetts by the Blue Cross and Blue Shield Plans will be referred to as the Blues Complaint.11


The essential facts set out in the Amended Class Action Complaint are as follows.12 According to plaintiffs, the AWPs for Lupron® reported by the defendants to the publishers of the Red Book 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 were rather pegged at a grossly inflated level to permit doctors to inflate their incomes by billing co-paying patients for 20% of the AWP or by claiming an AWP reimbursement rate from Medicare for the "free" samples distributed by TAP sales representatives.13 According to TAP's own records, TAP sales representatives gave away some $31 million in "free" Lupron® samples between 1993 and 1999 as measured by the published AWP.14 In pleading guilty to charges that TAP conspired with medical providers to falsely bill Medicare for these samples, 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. Amended Class Action Complaint 1183. Dr. Joel Olstein, a urologist in Lewiston, Maine, testified that TAP gave him a free sample of Lupron for every patient that he started on the drug. "They wanted me to carefully track how many new patients I started on Lupron® and we kept lists. Anybody in practice knows how to bill for free samples." 15 Id. at ¶ 95.

Plaintiffs allege that defendants offered other undisclosed financial inducements to medical providers to stimulate the sales of Lupron®, including volume discounts, rebates, purported "education" grants, junkets, off-invoice pricing, free goods, credit memos, consulting fees and debt forgiveness. In August of 1995, physicians were offered a 2% rebate on all Lupron® purchases. 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®.16 Instead, TAP offered Tufts unrestricted "educational grants" of up to $25,000 per year if Tufts would continue to prescribe Lupron® to its patients.17

The Amended Class Action Complaint also contends that the "TAP into the Future" program was a Potemkin facade concealing kickbacks to doctors in the form of expense-paid stays in luxurious settings. These junkets were labeled as "educational" programs, with the attending physicians thinly disguised as "consultants." TAP spent more than $1 million on the "TAP into the Future" program.

Another form of alleged illegal discounting consisted of the forgiveness of debt. To encourage doctors to continue to order Lupron®, defendants would forgive amounts owed for prior purchases. 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®.18

Under the guise of business review meetings, TAP devised a so-called ...

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