In re Pharmaceutical Industry Average Wholesale
| Decision Date | 02 November 2006 |
| Docket Number | Civil Action No. 01-12257-PBS.,M.D.L. No. 1456. |
| Citation | 460 F.Supp.2d 277 |
| Parties | In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION. |
| Court | U.S. District Court — District of Massachusetts |
Jeffrey B. Aaronson, Bell, Boyd & Lloyd, Chicago, IL, Lead Attorney.
THIS DOCUMENT RELATES TO: ALL ACTIONS REGARDING CLASS ONE AND TWO OF TRACK ONE.
Plaintiffs bring this consumer and third-party payor class action against forty-two pharmaceutical defendants, alleging that they fraudulently inflate the average wholesale price ("AWP") of drugs paid by Medicare beneficiaries and third-party payors in violation of state consumer protection statutes. In the first phase of this litigation involving four defendants, the parties have filed cross-motions for summary judgment on the meaning of the term AWP in the Medicare statute, 42 U.S.C. § 1395u(o) (West 1998). The United States Department of Justice, on behalf of the Secretary of Health and Human Services, has filed an amicus brief. Trial is scheduled to begin on November 6, 2006. After hearing, the Court construes the statutory term according to its plain meaning and holds that AWP means the average price at which wholesalers sell drugs to their customers, including physicians and pharmacies.
Pursuant to 28 U.S.C. § 1407, the Judicial Panel on Multidistrict Litigation has transferred ninety-eight cases to this Court involving AWP.
On May 13, 2003, the Court allowed in part the defendants' motions to dismiss the original master consolidated complaint. In re Pharm. Indus. Average Wholesale Price Litig. (Pharni.l), 263 F.Supp.2d 172 (D.Mass.2003).1 After the plaintiffs filed an amended master consolidated complaint and the defendants again moved to dismiss, the Court allowed in part the motions to dismiss on February 24, 2004. In re Pharm. Indus. Average Wholesale Price Litig. (Pharm.II), 307 F.Supp.2d 196 (D.Mass.2004). On March 25, 2004, the Court structured the master consolidated class action into two separate tracks of defendants for purposes class certification, summary judgment, and trial. (Docket No. 756.)2 On January 30, 2006, the Court certified three classes: (1) a nationwide class of Medicare beneficiaries who made co-payments for Medicare Part B drugs, (2) a Massachusetts class of thirdparty payors that provide Medigap insurance which reimbursed Medicare beneficiaries for their co-payments for Medicare Part B drugs, and (3) a Massachusetts class of customers and third-party payors that made payments based on AWP for (non-Medicare Part B) physician-administered drugs. In re Pharm. Indus. Average Wholesale Price Litig. (Pharnall), 230 F.R.D. 61 (D.Mass.2005); In re Pharm. Indus. Average Wholesale Price Litig. (Ph,cirm.IV), 233 F.R.D. 229 (D.Mass.2006) (class certification order). The Court assumes close familiarity with these opinions, which set forth the factual background of the allegations as well as the appropriate legal standards.
Congress created Medicare Part B in 1965 to establish a supplemental medical insurance program for senior citizens. See 42 U.S.C. §§ 1395j-1395w-4. The Secretary of the Department of Health and Human Services ("DHHS") oversees and the Centers for Medicare and Medicaid Services ("CMMS"), formerly the Health Care Financing Administration ("HCFA"), administers the program. Medicare Part B provides insurance for physician services, outpatient hospital services, and other health services. See id. §§ 1395j-1395w-4. Medicare has historically paid the "reasonable charge" for physicians' services by limiting Part B payments to the lowest of: (1) the physician's actual charge, (2) the physician's customary charge,4 or (3) the prevailing charge5 in the physician's locality for similar services. See 42 U.S.C. §§ 13951(a), 1395u(b); 42 C.F.R. §§ 405.500 et seq.
Medicare Part B covers a limited number of prescription drugs, including intravenous cancer treatment drugs, drugs that are administered through a covered item of durable medical equipment, immunosuppressive drugs, certain oral anti-cancer drugs, and influenza and hepatitis vaccines. See 68 Fed.Reg. 50,428, 50,429 (Aug. 20, 2003). Through Medicare Part B, the federal government reimburses health-care providers for up to 80 percent of the allowable cost of covered prescription drugs. The remaining 20 percent is paid by the Medicare Part B beneficiary, as a co-payment. See Montana v. Abbot Labs., 266 F.Supp.2d 250, 252 (D.Mass. 2003).
Prior to 1991, Medicare did not expressly use AWP as a basis for payment of Part B drugs. Like the other items and services under Part B, Medicare generally paid a "reasonable charge" for covered drugs. See 42 U.S.C. §§ 13951, 1395u(o).
In 1991, the term "average wholesale price" first appeared in the Medicare Part B drug payment regulations. After considering several options for drug payments, the Secretary concluded:
We believe that ultimately there should be a national fee schedule allowance for all `incident to' drugs. However, given the large number of different drugs and the myriad of dosage levels, we have decided that it is not practical for us to consider establishing a national drug fee schedule at this time.
56 Fed.Reg. 25,792, 25,800 (June 5, 1991) (proposed rule). Instead, the Secretary elected "to continue to pay for ['incident to' drugs] under the current `reasonable charge' system." Id.
The Secretary initially proposed that drug payments be based on "85 percent of the national wholesale price" because it
believe[d] that the Red Book and other wholesale price guides substantially overstate the true cost of drugs. The OIG reports indicate that pharmacies are getting an average discount of 15.9 percent off the published wholesale price. We have no reason to believe prices paid by physicians are any higher than pharmacies pay.
Id. DHHS, however, "received a great many comments on this issue, primarily from oncologists indicating that our 85 percent standard was inappropriate" because "many drugs could be purchased for considerably less than 85 percent of AWP ... while others were not discounted" and individual physicians were unable to get the same discounts as pharmacies and large practices. 56 Fed.Reg. at 59,524. Thus, the Secretary, "[a]fter considering all of the comments on this issue, ... decided to modify the proposed policy" in the final rule. Id. at 59,525.
On November 25, 1991, DHHS promulgated the final rule, which "set[ ] forth a fee schedule for payment for physicians' services beginning January 1, 1992." 56 Fed.Reg. at 59,502. In specifying the services to be included in the fee schedule, the regulation included drugs furnished incident to a physician's service. The final rule provided as follows:
(b) Methodology. Payment for a drug described in paragraph (a) of this section is based on the lower of the estimated acquisition cost or the national average wholesale price of the drug. The estimated acquisition cost is determined based on surveys of the actual invoice prices paid for the drug. In calculating the estimated acquisition cost of a drug, the carrier may consider factors such as inventory, waste, and spoilage.
(c) Multiple-Source drugs. For multiple-source drugs, payment is based on the lower of the estimated acquisition cost described in paragraph (b) of this section or the wholesale price that, for this purpose, is defined as the median price for all sources of the generic form of the drug.
56 Fed.Reg. at 59,621 (promulgating 42 C.F.R. § 405.517 (1992)) (emphasis added). To determine a drug's estimated acquisition cost, the Secretary recommended that "[c]arriers could survey a sample of the physicians who furnish the drugs to obtain cost information" or "could request that physicians periodically provide cost information when they submit claims for payment for the drugs." Id. at 59,525.
The 1991 regulatory language dictated how Medicare reimbursed for drugs until the Balanced Budget Act of 1997, Pub.L. No. 105-33, 111 Stat. 251 ("1997 Act"). In February and March of 1997, the Senate Committee on Finance heard testimony that "the AWP is not the average price actually charged by wholesalers to their customers ... [r]ather, it is a `sticker' price set by drug manufacturers and published in several commercial catalogs." President's Fiscal Year 1998 Budget Proposal for Medicare, Medicaid, and Welfare: Hearing Before the S. Comm. on Finance, 105th Cong. 265 (1997) ().
On June 24, 1997, in introducing the bill that became the 1997 Act, the House of Representatives Committee on the Budget issued a report explaining why drug payments should be changed from "national average wholesale price" to "95 percent of the average wholesale price." The report stated:
The Inspector General for the Department of Health and Human Services has found evidence that over the past several years Medicare has paid significantly more for drugs and biologicals than physicians and pharmacists pay to acquire such pharmaceuticals. For example, the Office of Inspector General reports that Medicare reimbursement for the top 10 oncology drugs ranges from 20 percent to nearly 1000 percent per dosage more than acquisition costs. The Committee intends that the Secretary, in determining the average wholesale price, should take into consideration commercially available information including such information as may be published or reported in various commercial reporting services. The Committee will monitor AWPs to ensure that this provision does not simply result in a 5% increase in AWPs.
H.R.Rep. No. 105-149, at § 10616 (1997).
On August 5, 1997, Section 4556 of the 1997 Act placed the term "average wholesale price" in the Medicare statute for the first time by...
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