State v. Abbott Labs.

Decision Date22 June 2012
Docket NumberNo. 2010AP232–AC.,2010AP232–AC.
Citation2012 WI 62,341 Wis.2d 510,816 N.W.2d 145
CourtWisconsin Supreme Court
PartiesSTATE 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.


For the defendant-appellant-cross-respondent, there were briefs filed by O. Thomas Armstrong, Beth J. Kushner, Douglas M. Raines, and von Briesen & Roper S.C., Milwaukee, John C. Dodds, Erica Smith–Klocek, Máire E. Donovan, and Morgan, Lewis, & Bockius, LLP, Philadelphia, and John Clayton Everett, Jr. and Morgan, Lewis, & Bockius, LLP, Washington D.C., and oral argument by John C. Dodds.

For the plaintiff-respondent-cross-appellant, there were briefs filed by Frank D. Remington, assistant attorney general, with whom on the brief was J.B. Van Hollen, attorney general, and George F. Galland, Jr., Charles Barnhill, Jr., Betty Eberle, Barry J. Blonien, and Miner, Barnhill & Galland, P.C., Madison, and oral argument by George F. Galland.

An amicus brief was filed by Donald K. Schott, Elyce Wos, Matthew J. Splitek, and Quarles & Brady, LLP, Madison; William F. Cavanaugh, Adeel A. Mangi, and Patterson, Belknap, Webb & Tyler, LLP, of counsel, New York; and Andrew D. Schau and Covington & Burling, LLP, of counsel, New York, for the Non–Pharmacia Brand Defendants.

An amicus brief was filed by Robert H. Friebert, Shannon A. Allen, and Friebert, Finerty, & St. John, S.C., Milwaukee; and Joseph Angland, Michael J. Gallagher, Heather K. McDevitt, and White & Case, LLP, New York, for the Non–Pharmacia Generic Defendants.


[341 Wis.2d 519]¶ 1 This case comes before us on certification from the court of appeals. The State brought a civil action against Pharmacia Corporation (Pharmacia), alleging that the company reported inflated drug prices to Wisconsin Medicaid. A jury found Pharmacia liable for violating Wisconsin Statutes sections 100.18(1) (1992) 1—the Deceptive Trade Practices Act (“DTPA”)and 49.49(4m)(a)2. (“Medicaid fraud statute). The jury awarded the State $2 million for the DTPA claim and $7 million for the Medicaid fraud claim, totaling $9 million in damages. Answering a special verdict question, the jury also determined that Pharmacia committed 1,440,000 separate violations of the Medicaid fraud statute. In post-trial proceedings, the circuit court vacated that answer and reduced the number of violations to 4,578. See Reyes v. Greatway Ins. Co., 220 Wis.2d 285, 301, 582 N.W.2d 480 (Ct.App.1998) (holding that a circuit court may change a jury answer where it is not supported by credible evidence). Both parties appealed, raising numerous issues.2 The court of appeals certified three to this court: 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. Because each of these issues was correctly resolved in the circuit court, we affirm and remand to the court of appeals.


¶ 2 As with most aspects of this case, many of the facts are sharply disputed by the parties. Here we present only the undisputed facts. In the procedural history below we present in greater detail the parties' differing characterizations of the facts at trial. Because of the volume of facts relevant to the certified issues, we also present additional facts during the course of our analysis.

¶ 3 Medicaid is a program jointly funded and managed by the states and the federal government. Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2701, 65 L.Ed.2d 784 (1980). Its purpose is to facilitate the provision of health care services to those without the means to pay for them. 42 U.S.C. § 1396. At the federal level, Medicaid is administered by the Centers for Medicare and Medicaid Services (“CMS”), an agency within the aegis of the U.S. Department of Health and Human Services. Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565 U.S. ––––, 132 S.Ct. 1204, 1208, 182 L.Ed.2d 101 (2012). In Wisconsin, the program is run by the Department of Health Services (“DHS”). See generally Wis. Stat. ch. 46.

¶ 4 Pursuant to federal law, states participating in the Medicaid program must submit “state plans” to CMS to receive federal funding. 42 U.S.C. §§ 1396a and 1396b(a). Such plans are required to “assure that paymentsare... sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” 42 U.S.C. § 1396a(a)(30)(A); 42 C.F.R. § 447.204. Federal regulations compel state Medicaid agencies to devise procedures for reimbursing pharmacists who dispense drugs to Medicaid recipients. 42 C.F.R. § 447.518. Under the federal guidelines, the reimbursements may not exceed the lesser of 1) the estimated acquisition cost (“EAC”) of the drug, plus a reasonable dispensing fee, or 2) the “usual and customary” price the pharmacy charges to consumers paying for the drug without government assistance. 42 C.F.R. § 447.512(b). The regulations define EAC as the “best estimate of the price generally and currently paid by providers for a drug.” 42 C.F.R. § 447.502. Whenever states change their reimbursement policies, they must seek CMS approval to institute the new plan. See Douglas, 132 S.Ct. at 1208.

¶ 5 In Wisconsin, reimbursement formulae are drawn up by the legislature as part of the biennial budget process and signed into law by the governor. During that process, the legislature and governor receive extensive input from various lobbying interests, as well as from DHS and other state officials. The litigation leading to the case at bar was principally over one part of the reimbursement formula, a figure known in the industry as an “average wholesale price” (“AWP”).3

[341 Wis.2d 522]¶ 6 During the period of time implicated by the complaint, AWP played a different role in Wisconsin Medicaid's 4 reimbursement process depending on whether the drug was a generic or a brand.5 For brand drugs, Medicaid paid pharmacies AWP minus a specific percentage. Cf. In re McKesson Governmental Entities AWP Litig., 767 F.Supp.2d 263, 267 (D.Mass.2011) (“Public payors generally reimburse retail pharmacies for brand name drugs based on a percentage off of AWP.”). The percentage remained constant for all brand drugs until the next legislative revision in the biennial budget process. Thus, for example, if the formula had been set at AWP minus 10% for a given period, and a pharmacy dispensed to a Medicaid recipient a brand drug with an AWP of $10, Medicaid would pay the pharmacy $9 ($10 AWP minus 10%). Over the years covered by the lawsuit, the percentage deducted from AWP in Wisconsin increased incrementally during various biennial budget sessions.

¶ 7 The reimbursement process is different with respect to generic drugs. For such drugs, Medicaid sets a maximum allowable cost, a number determined by state officials or consultants through independent research in the market. We will elaborate further on that process below where it is relevant to our analysis.


¶ 8 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 the DTPA 6 and the Medicaid fraud statute.7After several years of extensive discovery, Pharmacia,8 which manufactures both brand and generic drugs, was the first defendant to go to trial.9

[341 Wis.2d 524]¶ 9 The State sought a jury trial at circuit court, and Pharmacia a bench trial. Applying our case law on the subject, the circuit court concluded that the State was entitled to a jury trial on both statutory claims.

A. The State's Case at Trial

¶ 10 Over the course of a nine-day trial, the two sides presented radically different versions of the Medicaid reimbursement system, and of Pharmacia's role in that system. The State's account is summarized in this section.

¶ 11 Because of the complexity and dynamism of the pharmaceutical industry, Medicaid required a consistent and broadly applicable formula for determining the appropriate reimbursements for pharmacies that dispensed drugs to Medicaid patients. The agency did not have sufficient staff or resources to collect the information necessary to calculate proper reimbursement rates, so it was dependent upon assistance from companies in the industry.

¶ 12 As with other states throughout the country, the solution that emerged was for pharmaceutical manufacturers like Pharmacia to report certain figures relating to the sales of their products, and for Medicaid to use those figures to calculate reimbursements. The most important of those figures was AWP. Pharmacia provided AWPs for its drugs to First...

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