The Commonwealth of Mass. v. Schering–plough Corp..
| Citation | 779 F.Supp.2d 224 |
| Decision Date | 27 April 2011 |
| Docket Number | Civil Action No. 03–11865–PBS. |
| Court | U.S. District Court — District of Massachusetts |
| Parties | The Commonwealth of MASSACHUSETTS, Plaintiff,v.SCHERING–PLOUGH CORPORATION, Schering Corporation, & Warrick Pharmaceuticals Corporation, Defendants. |
OPINION TEXT STARTS HERE
Peter A. Mullin, K. Nathaniel Yeager, Robyn P. Dollar, John Pina, III, Steven T. Sharobem, Assistant Attorneys General, Attorney General's Office, Boston, MA, for Plaintiff.John T. Montgomery, Douglas H. Hallward-Driemeier, John P. Bueker, Amanda L. Lydon, Ropes & Gray LLP, Boston, MA, for Defendants.
The Commonwealth of Massachusetts claims that Schering–Plough Corporation, Schering Corporation, and Warrick Pharmaceuticals Corporation caused the Massachusetts Medicaid Program to overpay for the generic drug Albuterol by fraudulently inflating the “Wholesale Acquisition Cost” (“WAC”) of the drug. The Commonwealth argues that the spreads between defendants' reported prices and “true” WACs ranged from 100% to 700%. Albuterol is a drug used to prevent and treat respiratory problems caused by lung diseases such as asthma.
After a lengthy trial, the jury returned a verdict in favor of the Commonwealth, finding that defendants committed fraud and violated the Massachusetts False Claims Act (“MFCA”) and the Massachusetts Medicaid False Claims Act (“MMFCA”), causing the Commonwealth damages in the amount of $4,563,328. ( See Jury Verdict, Docket No. 934.) Both sides have filed post-trial motions. Defendants seek judgment as a matter of law in their favor or, alternatively, a new trial. (Docket No. 936.) The Commonwealth seeks entry of judgment in its favor, along with trebled damages and an award of civil penalties. (Docket No. 946.) In addition, the parties agreed during trial that the Commonwealth's claim of breach of the implied covenant of good faith and fair dealing could be resolved by the Court as a matter of law based upon the jury's findings on the other counts. Accordingly, the Court must rule on that outstanding claim.
After a hearing and a review of the record, the Court ALLOWS defendants' motion for judgment as a matter of law to the extent it pertains to Prong 1 of the Massachusetts False Claims Act and to the claim of breach of the implied covenant of good faith and fair dealing. The Court also finds that application of the Massachusetts False Claims Act to conduct that occurred prior to the MFCA's passage in July 2000 would be impermissibly retroactive. This Court DENIES the remainder of defendants' motion. The Court ALLOWS the Commonwealth's motion for entry of judgment in its favor on the jury's verdict (with the exception of the verdict on Prong 1 of the MFCA), but DENIES the motion as it pertains to breach of the implied covenant of good faith and fair dealing.
The Court assumes familiarity with the drug pricing issues discussed in its previous decisions in this case and in the related multi-district litigation. See Massachusetts v. Mylan Labs., Inc., 608 F.Supp.2d 127 (D.Mass.2008); Massachusetts v. Mylan Labs., Inc., 357 F.Supp.2d 314 (D.Mass.2005); see also In re Pharm. Indus. Average Wholesale Price Litig., 685 F.Supp.2d 186 (D.Mass.2010); In re Pharm. Indus. Average Wholesale Price Litig., 478 F.Supp.2d 164 (D.Mass.2007); In re Pharm. Indus. Average Wholesale Price Litig., 460 F.Supp.2d 277 (D.Mass.2006).
The facts below are found in the trial record, and are recited in the light most favorable to the verdict. See Grajales–Romero v. Am. Airlines, 194 F.3d 288, 292 (1st Cir.1999).
The Massachusetts Medicaid Program, MassHealth, is a means-tested government entitlement program, jointly financed by the federal and state governments, that provides healthcare to low-income residents in Massachusetts. MassHealth covers 1.2 million people in the Commonwealth.
MassHealth uses a pricing algorithm to reimburse pharmacies for prescription drugs dispensed to members. The algorithm reimburses based on the lowest of four calculations: (1) the Federal Upper Limit (“FUL”) set by the federal government; (2) the Massachusetts Upper Limit Price (“MULP”) set by the Commonwealth; (3) the Estimated Acquisition Cost (“EAC”), defined as a price generally paid by providers to wholesalers and estimated using WAC + 10% 1; and (4) the Usual and Customary price (“U & C”), which is determined by the “billed amount” reported by the pharmacy submitting the claim. The algorithm identifies which of the four prices is the lowest and adds a dispensing fee to determine the “allowed amount” that MassHealth will reimburse the pharmacist for prescription drug sales to MassHealth beneficiaries.
At all relevant times, defendant Schering–Plough was a publically-traded pharmaceutical holding company headquartered in New Jersey. It had no employees, but owned various subsidiary corporations, including defendant Schering. Schering is wholly owned by Schering–Plough and is its principal operating subsidiary. It engages in the manufacture and sale of brand-name pharmaceutical products. (Trial Exhibit (“TX”) 2.) In 1993, defendant Warrick was incorporated as a wholly-owned subsidiary of Schering. Its function was to act a generic pharmaceutical manufacturer. Warrick was designed to “[p]rotect and extend the life cycle of [Schering's] branded products as patents expire” and “create leverage in our Managed Care business,” through bundling brand and generic products. (TX 12.)
On November 3, 2009, Schering–Plough merged with Merck & Co, Inc. to form the world's second-largest pharmaceutical company. (TX 2.)
During the mid–1990s, Schering's largest-selling drug was Proventil, a brand-name version of the drug albuterol that is used to treat asthma and other respiratory diseases. Patent protection for Proventil expired in late 1995. In order to prevent deterioration of albuterol sales after the launch of generic competition, Schering set up Warrick Pharmaceuticals to sell generic versions of Proventil. At issue in this case are three Warrick drugs: Albuterol Sulfate (.083%), Albuterol Sulfate (.5%), and an Albuterol inhaler (90 mcg).
In December 1995, prior to launching its albuterol inhaler as a generic product, Warrick sent letters to various customers, including MassHealth, announcing the product's launch and listing its launch price as $16.06 per unit of the inhaler. This price is described as the “direct wholesale” price. The letter written to MassHealth explained that “[t]his information is being provided in the event it is required for reimbursement purposes.” (TX 8.) The $16.06 direct wholesale price was also provided to First DataBank, a company that publishes pharmaceutical pricing information. First DataBank published this direct wholesale price in its WAC field.
Warrick expected that this initial launch price would drop and provided “price protection” for its wholesale and retail pharmacy customers, meaning that if they purchased albuterol at $16.06 per unit and the price later fell, they would receive a rebate. Within six months, the price for the albuterol inhaler had fallen to $12 for all major wholesalers, and by May 2000 the price fell to $5.00 or less. Warrick did not report these price changes to MassHealth or to First DataBank.
On October 12, 1993, shortly after the launch of Warrick's albuterol solution products, Warrick sent a letter to First DataBank notifying it of a change in AWP for one of the albuterol products. The last sentence of letter said, “Please delete direct price listings from your publication or database.” (TX 16.) While First DataBank did delete the direct price field from its electronic database, it did not delete the WAC prices, which were still listed at $16.06 for the albuterol inhaler. Warrick knew that First DataBank continued to publish WAC prices for Warrick's albuterol products in its electronic database.
Throughout the time period at issue in this case, First DataBank sent notices to Warrick, listing the prices that were currently published for the three albuterol products and asking Warrick to update its prices—particularly the WAC listings. These notices stated that WACs were increasingly being used by state Medicaid program for reimbursement purposes. ( See, e.g., TX 19–20, 91.) Warrick did not update its prices.
Warrick did, however, provide WAC prices to Medicaid programs in other states, such as Arkansas and Texas. For example, in 1997 Warrick sent a letter to the Texas Medicaid program listing the inhaler's WAC at $10.71. (TX 88.)
Throughout the relevant time period, 1995–2003, the WAC used by the Commonwealth, as listed by First DataBank, to reimburse for Warrick's albuterol drugs was significantly higher than the “true” WAC. For example, in the third quarter of 2002, the price paid by MassHealth for the albuterol inhaler was 690% of the true WAC. (TX 4.) The Commonwealth's expert, Dr. Raymond Hartman, found that the Commonwealth overpaid for Warrick's albuterol drugs as a result of the false WAC prices in the amount of $4,563,328 from 1995 through 2003. (TX 5.)
The jury found in favor of the Commonwealth on all counts, and awarded full damages as calculated by Dr. Hartman.
Defendants move for judgment as a matter of law or, alternatively, for a new trial. “A party seeking to overturn a jury verdict faces an uphill battle.” Marcano Rivera v. Turabo Med. Ctr. P'ship, 415 F.3d 162, 167 (1st Cir.2005). “Courts may only grant a judgment contravening a jury's determination when ‘the evidence points so strongly and overwhelmingly in favor of the moving party that no reasonable jury could have returned a verdict adverse to that party.’ ” Rivera Castillo v. Autokirey, Inc., 379 F.3d 4, 9 (1st Cir.2004) (quoting Keisling v. SER–Jobs for Progress, Inc., 19 F.3d 755, 759–60 (1st Cir.1994)). In...
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