State v. Abbott Labs.
| Decision Date | 06 February 2013 |
| Docket Number | Cir. Ct. No. 2004CV1709,Appeal No. 2010AP232-AC |
| Court | Wisconsin Court of Appeals |
| Parties | STATE OF WISCONSIN, PLAINTIFF-RESPONDENT-CROSS-APPELLANT, v. ABBOTT LABORATORIES, ASTRAZENECA LP, ASTRAZENECA PHARMACEUTICALS LP, AVENTIS BEHRING, LLC F/K/A ZLB BEHRING, LLC, AVENTIS PHARMACEUTICALS, INC., BEN VENUE LABORATORIES, INC., BOEHRINGER INGELHEIM PHARMACEUTICALS, INC., BOEHRINGER INGELHEIM ROXANE, INC., BRISTOL-MYERS SQUIBB CO., DEY, INC., IVAX CORPORATION, IVAX PHARMACEUTICALS, INC., JANSSEN LP F/K/A JANSSEN PHARMACEUTICA PRODUCTS, LP, JOHNSON & JOHNSON, INC., MCNEIL-PPC, INC., MERCK & CO. F/K/A SCHERING-PLOUGH CORPORATION, MERCK SHARP & DOHME CORP. F/K/A MERCK & COMPANY, INC., MYLAN PHARMACEUTICALS, INC., MYLAN, INC. F/K/A MYLAN LABORATORIES, INC., NOVARTIS PHARMACEUTICALS CORP., ORTHO BIOTECH PRODUCTS, LP, ORTHO-MCNEIL PHARMACEUTICAL, INC., PFIZER INC., ROXANE LABORATORIES, INC., SANDOZ, INC. F/K/A GENEVA PHARMACEUTICALS, INC., SICOR, INC. F/K/A GENSIA SICOR PHARMACEUTICALS, INC., SMITHKLINE BEECHAM CORP. D/B/A GLAXOSMITHKLINE, INC., TAP PHARMACEUTICAL PRODUCTS, INC., TEVA PHARMACEUTICALS USA, INC., WARRICK PHARMACEUTICALS CORPORATION, WATSON PHARMA, INC. F/K/A SCHEIN PHARMACEUTICALS, INC. AND WATSON PHARMACEUTICALS, INC., DEFENDANTS, PHARMACIA CORPORATION, DEFENDANT-APPELLANT-CROSS-RESPONDENT. |
NOTICE
This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.
A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See WIS. STAT. § 808.10 and RULE 809.62.
APPEAL and CROSS-APPEAL from a judgment of the circuit court for Dane County: RICHARD G. NIESS, Judge. Affirmed.
Before Brown, C.J., Neubauer, P.J., and Reilly, J.
¶1 This case has returned to us after certification of three issues to the supreme court. The supreme court answered our questions and remanded the case for us to decide the rest, cautioning that its opinion was not to be construed as deciding the remaining issues, which are many. We heed that caution but our answer to the remaining issues is nonetheless informed by the supreme court's decision on those that were certified. We address each remaining issue ad seriatim and affirm.
¶2 What follows is a general overview of the case based on the supreme court's summary of the facts. See State v. Abbott Labs., 2012 WI 62, ¶¶2-28, 341 Wis. 2d 510, 816 N.W.2d 145. Additional facts will be discussed as necessary to the issues in the discussion section.
¶3 In Wisconsin, Medicaid reimbursement formulas are drawn up by the legislature as part of the biennial budget process and signed into law by thegovernor. Id., ¶5. During that process, the legislature and governor receive input from lobbying interests, Department of Health Services, and other state officials. Id. The litigation in this case is principally over one component of Wisconsin's reimbursement formula, known as an "average wholesale price" (AWP). Id.
¶4 In 2004, the State filed a civil action against several dozen large pharmaceutical manufacturers, alleging that each reported inflated AWPs, thereby causing Medicaid to overpay for drugs and violating WIS. STAT. §§ 100.18 (2009-10)1 (the Deceptive Trade Practices Act, or DTPA) and 49.49(4m)(a)2. (the Medicaid fraud statute). Abbott, 341 Wis. 2d 510, ¶8 & nn.6-7. After extensive discovery, Pharmacia was the first to go to trial. Id., ¶8.
¶5 Over the course of a nine-day trial, the two sides presented different versions of the Medicaid reimbursement system and Pharmacia's role in it. Id., ¶10. The State contended that Medicaid did not have sufficient staff or resources to collect the information necessary to calculate proper reimbursement rates, so it was dependent on assistance from companies like Pharmacia. Id., ¶11. The solution that emerged in Wisconsin and other states was for manufacturers like Pharmacia to report certain figures relating to the sales of their products and for Medicaid to use those figures to calculate reimbursements. Id., ¶12. The most important of those figures was AWP, which Pharmacia provided to First DataBank, an independent company that organized and disseminated informationregarding the pharmaceutical industry to Medicaid. Id. Medicaid then plugged AWP into its reimbursement formula. Id.
¶6 According to the State, during the early days of Medicaid, AWPs tended to reflect what their name implies—the average price paid by the pharmacies—and Medicaid was able to simply reimburse pharmacies those amounts. Id., ¶13. Over time, the manufacturers began reporting inflated AWPs in order to "market the spread." Id., ¶14. Manufacturers reported inflated AWPs to Medicaid and Medicaid then paid the pharmacy more for the drug than what the pharmacy paid the wholesaler. Id. This practice gave pharmacists an incentive to buy products that had the most inflated AWPs because those products gave them the most profit. Id. Thus, manufacturers would "market the spread" and report more and more dramatically inflated AWPs over time. Id.
¶7 Medicaid and other officials in Wisconsin knew that AWPs were no longer an accurate barometer of what pharmacies were paying wholesalers for drugs. Id., ¶15. But the State was confronted with inconsistent and often contradictory information, with considerable disagreement as to how far AWPs were from actual wholesale prices. Id. Because of that, the State was forced to guess as to a reasonable percentage to subtract from AWP in order to derive reimbursement amounts. Id. And the State erred on the side of generosity to ensure that no supplier was shortchanged, so payments were almost universally too high. Id. Because of that, manufacturers and everyone else in the supply chain profited from the inflated AWPs. Id. The State maintains that if officials had known true AWPs, they would have simply reimbursed pharmacies at those prices. Id., ¶17. ¶8 Pharmacia's account differs significantly from the State's. Id., ¶18. It claims that AWPs have always been, and continue to be, benchmark figures. Id. They were never intended to reflect actual prices or averages. Id. The State knew that, and it knew that pharmacists were profiting from reimbursements. Id. Those profits are not evidence of fraud; instead, they are necessary and required by federal law to ensure pharmacy participation in Medicaid. Id. Furthermore, true wholesale prices are no more accessible to Pharmacia than to the State because those prices are between wholesalers and their pharmacy customers. Id., ¶19. Pharmacia calculated its AWPs based on wholesale acquisition cost—the amount that wholesalers paid for its products. Id.
¶9 Moreover, the AWPs relied on by the State were not from Pharmacia but from First DataBank, which was committed to independent verification of the AWPs it provided to the State by conducting surveys of wholesalers. Id., ¶20. Pharmacia was not responsible for AWPs published by First DataBank. Id. And if the State had wanted other pricing information, it could have acquired it. Id., ¶21. Instead it chose to use AWP, knowing what it was and was not. Id. The State also could have gathered information itself rather than relying on First DataBank. Id. It could have even asked Pharmacia for the information it wanted, which it never did. Id.
¶10 Pharmacia also emphasizes that the Medicaid reimbursement formulas were a product of the political process. Id., ¶22. Each time a budget was prepared, various government officials would recommend lowering the rates to generate taxpayer savings and pharmacy lobbyists would vigorously counter those recommendations by claiming that AWPs were more accurate than alleged and that reductions would force pharmacies to withdraw from Medicaid. Id. The legislature and governor took all of that information into account in coming upwith the formulas. Id. Pharmacia contends that it should not be punished for political decisions made by the State. Id.
¶11 The jury found in favor of the State and awarded substantial damages plus attorneys' fees for the State. Id., ¶23. The recent supreme court decision resolved three questions: (1) whether the State was entitled to a jury trial, (2) whether the damages were based on impermissible speculation by the jury, and (3) whether the circuit court properly reduced the number of violations. Id., ¶24. In each instance, the supreme court affirmed the trial court's decision. Id.
¶12 Pharmacia's remaining issues after the supreme court's decision include whether separation of powers should prevent a verdict in this case, causation of damages, various evidentiary issues, and whether the award of attorneys' fees was appropriate. Issues remaining from the State's cross-appeal include the correctness of the circuit court's determination of the forfeiture amount imposed per violation and the breadth of the injunction against Pharmacia.
¶13 Although a plethora of issues remain to be decided, many of them revolve around a central theme: the debate over the degree to which the damages were the product of a political decision by the legislature and other players as opposed to being caused by fraud on the part of Pharmacia. The answer to one of our certification questions—whether the jury was required to speculate as to the existence of damages based on fraud—is part of that central theme. Pharmacia's argument on that issue was that the jury was required to speculate as to damages because the State did not prove that the legislature would have acted differently with accurate AWP. The precursor to that argument is that the legislature did what it did with its eyes open, understanding that it was affording pharmacies aprofit. Although we acknowledge the supreme court's admonition that its opinion is not meant to resolve the remaining issues, we cannot and do not divorce ourselves entirely from its commentary related to that central theme.
¶14 As we...
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