In re Pharmaceutical Industry Average Wholesale

• Decision Date: 01 November 2007
• Docket Number: Civil Action No. 01-12257-PBS.,M.D.L. No. 1456.
• Citation: 520 F.Supp.2d 267
• Parties: In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION. This Document Relates to 01-CV-12257-PBS.
• Court: U.S. District Court — District of Massachusetts

520 F.Supp.2d 267

In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION This Document Relates to 01-CV-12257-PBS.

M.D.L. No. 1456.

Civil Action No. 01-12257-PBS.

United States District Court, D. Massachusetts.

November 1, 2007.

Gary L. Azorsky, Berger & Montague, P.C., Philadelphia, PA, Rebecca Bedwell-Coll, Mascone, Emblidge & Quadra, San Francisco, CA, David J. Bershad, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, Ali Bovingdon, Helena, MT, Jeniphr Breckenridge, Hagens Berman

Sobol Shapiro, LLP, Seattle, WA, James J. Breen, The Breen Law Firm, PA., Alpharetta, GA, Nicole Y. Brumsted, Lieff Cabraser Heimann & Bernstein, LLP, Boston, MA, for Plaintiffs.

Marjory P. Albee, Mager & Goldstein LLP, Terrianne Benedetto, Kline & Specter, Anthony Bolognese, Bolognese & Associates, Philadelphia, PA, C. Jarrett Anderson, Anderson LLC, Austin, TX, P. Jeffrey Archibald, Archibald Consumer Law, Charles Barnhill, Miner, Barnhill & Galland, Madison, WI, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Nancy M. Bonnell, Phoenix, AZ, Thomas W. Breidenstein, Barrett & Weber, Cincinnati, OH, Kenneth J. Brennan, John Anthony Bruegger, Simmons Cooper LLC, East Alton, IL, Charlie Bridgmon, McCutchen, Balnton, Rhodes & Johnson, Columbia, SC, Ross B. Brooks, Milberg Weiss & Bershad LLP, New York, NY, for Consolidated Plaintiffs.

Jeffrey B. Aaronson, Bell, Boyd & Lloyd, Chicago, IL, Pamela Zorn Adams, Sherin and Lodgen LLP, Jessica Vincent, Barnett Foley Hoag LLP, Brandon L. Bigelow, Bingham McCutchen LLP, Scott A. Birnbaum, Birnbaum & Godkin, LLP, Michael P. Boudett, Foley Hoag LLP, Boston, MA, Justin S. Antonipillai, Arnold & Porter, Patrick M. Bryan, Kirkland & Ellis LLP, Washington, D.C., Melissa Aoyagi, Davis Polk & Wardwell, Jennifer Aurora, Sedgwick, Detert, Moran & Arnold LLP, Brian L. Bank, Lara A. Berwanger, Thomas M. Biesty, White & Case LLP, Sheila L. Birnbaum, Skadden, Arps, Slate, Meagher & Flom, New York, NY, Jason E. Baranski, Morgan Lewis & Bockius, LLP, Philadelphia, PA, Steven F. Barley, Hogan & Hartson, LLP, Baltimore, MD, Mark A. Berman, Hartmann Doherty Rosa & Berman, LLC, Hackensack, NJ, Sam B. Blair, Jr., Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C., Memphis, TN, Douglas S. Brooks, Kelly, Libby & Hoopes, P.C., Boston, MA, for Defendants.

Marc E. Ackerman, Harris Beach LLP, Kevin N. Ainsworth, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Edwin Baum, Elise M. Bloom, Proskauer Rose LLP, New York, NY, Joseph G. Adams, Snell & Wilmer LLP, Neil Alden, Curtis Bergen, Bowman and Brooke LLP, Martin A. Aronson, Morrill & Aronson, Phoenix, AZ, Kenneth W. Africano, Harter, Secrest Law firm, Mitchell J. Banas, Jr., Jaeckle Fleischmann & Mugel LLP, Elizabeth M Bergen, Gibson, McAskill Law Firm, Buffalo, NY, Anthony J. Anscombe, Melanie Matison Brown, Sedgwick Detert Moran & Arnold, Chicago, IL, Pamela J. Auerbach, Kirkland & Ellis LLP, Jon Steven Baughman, Stacy D. Belf, Ropes & Gray LLP, Jason Bruno, Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C., Scott A. Barbour, McName, Lochner, Titus & Williams, Lynn M. Blake, Lynn M. Blake, Freidman, Hirschen Law Firm, Albany, NY, Christopher K. Barry-Smith, Office of the Attorney, Daniel J. Bennett, Ropes & Gray LLP, Aimee E. Bierman, Kirkpatrick & Lockhart Preston Gates Ellis LLP, Boston, MA, S. Paul Battaglia, Bond, Schoeneck & King PLLC, Syracuse, NY, P. Ryan Beckett, Butler, Snow, O'Mara, Stevens & Cannada, Felix Lee Bowie, III, Davidson, Bowie & Sims, PLLC, Jackson, MS, Rex Blackburn, Blackburn & Jones, Boise, ID, Jack B. Blumenfeld, Morris, Nichols, Arsht, & Tunnell, Wilmington, DE, George Ian Brandon, Sr., Squire Sanders & Dempsey, LLP, Phoenix, AR, Raymond L. Brown, Brown, Buchanan & Sessoms, PA, Pascagoula, MS, Bill L. Bryant, Jr., Akerman Senterfitt, Tallahassee, F.L., for Consolidated Defendants.

Brooks A. Ames, DLA Piper Rudnick Gray Cary U.S. LLP, Boston, MA, for Interested Party.

Susan Hughes Banning, Hemenway & Barnes, Boston, MA, for Movant.

Steven E. Bizar, Buchanan Ingersoll, P.C., Philadelphia, PA, for Amerisource Bergen Corporation.

Julie B. Brennan, Manchel & Brennan, P.C., Newton, MA, for United Healthcare, Inc. & United HealthCare Insurance Company.

MEMORANDUM AND ORDER

PATTI B. SARIS, District Judge.

Plaintiffs seek multiple damages based on this Court's finding of a violation of Chapter 93A against two defendants, Astra-Zeneca and Bristol-Myers Squibb ("BMS"). See In re Pharm. Indus. Average Wholesale Price Litig., 491 F.Supp.2d 20, 103, 105-08 (D.Mass.2007). The Court found that defendants grossly inflated the Average Wholesale Prices ("AWPs") of certain expensive physician-administered drugs ("PADs"). To recap, I found:

The overwhelming evidence at trial established that AWFs are fictitious and are rarely, if ever, prices paid by doctors for PADs or by pharmacies for [self-administered drugs or SADs]. Nonetheless, defendants argue that they had no intent to deceive the patients or payors who ultimately paid for their products when they caused their AWPs to be published in the compendia. The manufacturers have emphasized that both the government and [third-party payors or TPPs] understood that AWP was a fictitious number and were not deceived by the published AWP.

It is true that by the late 1990's most sophisticated TPPs and the government understood that AWP did not represent a true average of wholesale prices, but that there was a spread of 20 or 25 percent between the AWP and wholesale list (or acquisition) price. However, this knowledge does not exonerate defendants.

I find that the defendants unfairly and deceptively caused to be published false AWPs (or their formulaic counterparts: false [wholesale acquisition costs] or [wholesale list prices] ) knowing that TPPs and the government did not understand the extent of the mega-spreads between published prices and true average provider acquisition costs. Moreover, defendants knew that neither the government nor the TPPs could do much to change the AWP reimbursement benchmark because they were locked into the nationwide reimbursement scheme established by statute or contract.

Unscrupulously taking advantage of the flawed AWP system for Medicare reimbursement by establishing secret megaspreads far beyond the standard industry markup was unethical and oppressive. It caused real injuries to the insurers and the patients who were paying grossly inflated prices for critically important, often life-sustaining, drugs. Defendants caused these injuries by not reporting a true average wholesale price, that approximated provider actual acquisition costs or was within well established industry expectations (i.e., the Hartman 30 percent "speed limit"). Instead, the spreads were as high as 1,000%. This is exactly the sort of false and misleading information for which Chapter 93A is intended to provide relief. See OIG Compliance Program Guidance for Pharmaceutical Manufacturers, 68 Fed.Reg. 23,731 at 23,733 (May 5, 2003) (specifying, at the end of the class period, that manufacturers are under a legal duty not to submit "false, fraudulent, or misleading information" where "reimbursement by Medicare and Medicaid[] for the manufacturer's product depends, in whole or in part, on information generated or reported by the manufacturer, directly or indirectly, and the manufacturer has knowingly ... failed to generate or report such information completely and accurately").

While I find that the mega-spreads prior to 2001 were deceptive as well as unfair, I also find that once the cat was out of the bag, and the mega-spreads became widely known, the conduct was still egregious under the unfairness prong of Chapter 93A because neither the TPPs nor the government could move quickly or effectively to fix the problem. In retrospect, at least, it has become clear that the Medicare statute itself created a perverse incentive by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry, thus putting the proverbial pharmaceutical fox in charge of the reimbursement chicken coop. The different pharmaceutical companies unfairly took advantage of the system by setting sky high prices with no relation to the marketplace.

While establishing mega-spreads itself constitutes egregious misconduct, marketing those spreads so that doctors would choose a drug based on profit rather than therapeutic value is particularly outrageous and unethical. Even the industry understood that spreadmarketing violated industry standards. Both BMS and [Johnson & Johnson] instructed their sales teams that the spread should not be a promotional or marketing tool, although these instructions were often ignored. Moreover, in 2003, the OIG belatedly issued guidelines condemning this practice. Id. at 23,737 ("If a pharmaceutical manufacturer purposefully manipulates the AWP to increase its customers' profits by increasing the amount the federal health care programs reimburse its customers, the anti-kickback statute is implicated."). Although these guidelines were issued at the end of the class period, they defeat any notion that the federal government's failure to change the AWP pricing benchmark signaled acquiescence in spread-marketing or the reporting of mega-spreads.

Throughout the class period, the pharmaceutical industry understood that if the size of the spreads and the marketing of the spreads became public, a public relations nightmare would ensue. As such, the manufacturers insisted on confidentiality in physician contracts and lobbied to undermine government surveys. See In re Lupron Mktg. & Sales Practices Litig., 295 F.Supp.2d 148, 168 n. 19 (D.Mass2003) (pointing out that "[i]f everything [about Lupron] was known to everybody, why did defendants emphasize secrecy?").

Significantly, the defendants well understood the devastating impact the megaspreads had on old and sick patients required to make...