National Ass'n, Drug Stores v. N.E. Carp. Health
| Decision Date | 03 September 2009 |
| Docket Number | No. 09-1579.,No. 09-1577.,No. 09-1580.,No. 09-1578.,09-1577.,09-1580.,09-1578.,09-1579. |
| Citation | 582 F.3d 30 |
| Parties | NATIONAL ASSOCIATION OF CHAIN DRUG STORES, Amicus Curiae-Appellant, Food Marketing Institute, Interested Party-Appellant, v. NEW ENGLAND CARPENTERS HEALTH BENEFITS FUND, Pirelli Armstrong Retiree Medical Benefits Trust, Teamsters Health & Welfare Fund of Philadelphia and Vicinity, Philadelphia Federation of Teachers Health & Welfare Fund, District Council 37 AFSCME Health & Security Plan, June Swan, Bernard Gorter, Shelly Campbell, Constance Jordan, Plaintiffs, Appellees. First Databank, Inc., a Missouri Corporation, Medi-Span, a division of Wolters Kluwer Health, Inc., Defendants, Appellees. Deville Pharmacies, Inc.; Long Term Care Pharmacy Alliance; American Society of Consultant Pharmacists, Interested Parties-Appellants, v. New England Carpenters Health Benefits Fund, Pirelli Armstrong Retiree Medical Benefits Trust, Teamsters Health & Welfare Fund of Philadelphia and Vicinity, Philadelphia Federation of Teachers Health & Welfare Fund, District Council 37 AFSCME Health & Security Plan, June Swan, Bernard Gorter, Shelly Campbell, Constance Jordan, Plaintiffs, Appellees. First Databank, Inc., a Missouri Corporation, Medi-Span, a division of Wolters Kluwer Health, Inc., Defendants, Appellees. National Community Pharmacists Association, Interested Party-Appellant, v. New England Carpenters Health Benefits Fund, Pirelli Armstrong Retiree Medical Benefits Trust, Teamsters Health & Welfare Fund of Philadelphia and Vicinity, Philadelphia Federation of Teachers Health & Welfare Fund, District Council 37 AFSCME Health & Security Plan, June Swan, Bernard Gorter, Shelly Campbell, Constance Jordan, Plaintiffs, Appellees. First Databank, Inc., a Missouri Corporation, Medi-Span, a division of Wolters Kluwer Health, Inc., Defendants, Appellees. Pharmaceutical Care Management Association, Putative Intervenor-Amicus Curiae-Appellant, v. New England Carpenters Health Benefits Fund, Pirelli Armstrong Retiree Medical Benefits Trust, Teamsters Health & Welfare Fund of Philadelphia and Vicinity, Philadelphia Federation of Teachers Health & Welfare Fund, District Council 37 AFSCME Health & Security Plan, June Swan, Bernard Gorter, Shelly Campbell, Constance Jordan, Plaintiffs, Appellees. First Databank, Inc., a Missouri Corporation, Medi-Span, a division of Wolters Kluwer Health, Inc., Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Sheila L. Birnbaum with whom Thomas E. Fox, Matthew J. Matule, Nicholas I. Leitzes and Skadden, Arps, Slate, Meagher & Flom LLP were on brief for appellee First DataBank, Inc.
Thomas M. Sobol with whom Steve W. Berman, Sean R. Matt, Nicholas Styant-Browne, Barbara A. Mahoney, Hagens Berman Sobol Shapiro LLP, Kenneth A. Wexler Jennifer Fountain Connolly, Wexler Wallace LLP, Jeffrey Kodroff, John Macoretta, Spector, Roseman, Kodroff & Willis, PC, Marc H. Edelson, Edelson & Associates, George E. Barrett, Edmund L. Carey, Jr. and Barrett, Johnston & Parsley were on brief for appellee New England Carpenters Health Benefits Fund, et al.
Karl R. Barnickol with whom Katten Muchin Rosenman LLP was on brief for appellee Medi-Span, a division of Wolters Kluwer Health, Inc.
Before BOUDIN, SELYA & DYK,* Circuit Judges.
On these appeals, certain pharmacies, several organizations representing pharmacies and an organization representing pharmacy benefit managers ("PBMs") challenge settlements in two class actions. The actions were brought by purchasers of pharmaceutical drugs against publishers of drug pricing data, as well as a wholesaler not party to these appeals. At issue are both the validity of the settlements approved by the district court and the right of the would-be appellants themselves to contest it on appeal.
In the district court, class actions on behalf of drug purchasers were brought against the two publishers, First DataBank and Medi-Span, as well as McKesson—a major drug wholesaler that also owns pharmacy-related businesses. The class was comprised of third-party payors ("TPPs")—such as health insurers like Blue Cross—who pay for all or a portion of the cost of drugs used by their beneficiaries; also included were consumers whose "co-payments" were calculated as a percentage of the price of the drugs, and consumers who were un-insured and paid for drugs out-of-pocket.
Some PBMs may have been included in the plaintiff class. TPPs often contract with PBMs to handle contracting with pharmacies, monitoring and related administrative tasks needed to have the pharmacies supply TPP beneficiaries; depending on its agreement, the PBM may act as an agent for the TPP or on its own behalf. The class in this case excluded PBMs except where the PBM was the TPP's fiduciary or bore the insurance risk of the TPP's drug benefit. However, in this case PBM interests are in many instances aligned with the pharmacies in opposition to a principal aspect of the settlements. See note 5, below.
The case is one about drug pricing and some background as to the setting is required.1 The drugs in question are ordinarily sold by manufacturers to wholesalers who resell them to pharmacies, who then dispense them to consumers. Where the consumer is insured, customarily the TPP or a PBM reimburses the pharmacy for the drug cost and for a dispensing fee pursuant to a contract with the pharmacy, less any required co-payment made by the consumer directly to the pharmacy.
Drug manufacturers typically sell to drug wholesalers at a list price—called in the industry the "wholesale acquisition cost" ("WAC")—although discounts may be provided to the wholesaler (e.g., for volume sales). Wholesalers add a mark-up in selling the drugs to retail pharmacies and other purchasers like hospitals. Pharmacies then add a mark-up of their own when they sell the drugs to consumers, some of whom are insured as to their drug purchases and others not.
For drug purchases that are covered by health insurance, the insurer pays for the drugs, apart from any co-payment borne by the consumer; and the consumer is charged only the co-payment. The insurer or its agent typically contracts with the pharmacy to reimburse the latter for the drugs it supplies to the beneficiary based on a discount (which will vary) from a notional benchmark price called the "average wholesale price" ("AWP"). The AWP figure is usually derived by applying a multiplier to the WAC for the drug, and publishers of AWP lists normally obtained their AWP figures from manufacturers or wholesalers. Historically, AWPs were derived by applying different mark-ups to different drugs, the most common multiplier being 1.2 or 1.25 — percentage mark-ups of 20 and 25 percent, respectively.2
Contracts between pharmacies and a TPP or PBM typically incorporate AWP prices by reference. Because the TPP or PBM normally contracts to reimburse pharmacies at a discount from AWP figures, the AWP supplied by a publisher for a drug is likely to be higher than the reimbursement paid by any TPP or PBM; but, given the pharmacy-TPP (or pharmacy-PBM) contract incorporating the AWP as the starting point, an increase in the published AWP means that the TPPs will pay more and the pharmacy will receive more. If the consumer co-payment is a percentage of the drug price, the consumer also pays more. And, to the extent that the pharmacy uses the AWP to set prices for un-insured consumers (see note 2, above), those customers too pay a higher price if the AWP is artificially inflated.
The complaints in this case rest on the premise that McKesson agreed wrongfully with First DataBank to inflate the AWP on over 1,400 drug products from and after August 2001.3 The method used was to inflate the AWP published by First DataBank by using a mark-up of 1.25 over WAC instead of the 1.2 figure that historically had been used for those products. This, in turn, generated higher revenues for pharmacies and higher costs for TPPs and many consumers. This claim, whose merits are not central to this appeal, is more fully described elsewhere. New England Carpenters Health Benefits Fund v. First DataBank, Inc., 244 F.R.D. 79 (D.Mass.2007).
The complaint against First DataBank and McKesson was filed on June 2, 2005, and charged a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (2000). Claims were made on behalf of TPPs, possibly some PBMs, consumers whose co-payments were a percentage of a drug price, and un-insured consumers who were charged prices based on AWP figures. How long the harm has continued and how much it has varied over time are less easily determined for reasons that will appear.
In October 2006, a proposed settlement embracing the class claims against First...
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