Average Wholesale Price Litigation in the Wake of United States v. TAP Pharmaceuticals Products Inc.
TAP Pharmaceutical Products Inc.'s $875 Million Settlement
As we noted in our October 16, 2001, Client Alert, TAP Pharmaceutical Products Inc. ("TAP"), a major pharmaceutical manufacturer that is a joint venture between Abbott Laboratories ("Abbott") and Takeda Chemical Industries, Ltd. ("Takeda"), agreed on October 3, 2001 to pay $875 million to settle criminal charges and civil liabilities with regard to its pricing and marketing of the drug Lupron. Notably, the settlement also provided that a total of approximately $95 million is to be shared with whistleblowers under the "qui tam" provisions of the federal False Claims Act. Lupron, along with various other drugs that must be administered under medical supervision, is reimbursed in part by governmental programs including Medicare and Medicaid.
Among the conduct that the United States alleged gave rise to such liability was TAP's marketing to physicians of "Return to Practice" income. This income, the government alleged, represented the spread between a TAP inflated Average Wholesale Price ("AWP"), used by Medicare and others to reimburse providers for certain drugs such as Lupron, and a discounted price that TAP actually charged providers for the drug. Unsurprisingly, given the civil litigation described below, TAP has stated that it "fundamentally disagree[s] with government claims regarding TAP's pricing and reimbursement policies."
The First Wave of Class-Action AWP Litigation
Early cases filed after the announcement of the TAP settlement demonstrate the broad implications of that investigation. Primarily, TAP, Abbott, and Takeda as well as several other pharmaceutical companies, have been named as defendants in putative private class-action lawsuits premised upon alleged inflation of the AWP for various drugs. The alleged private losses are based on Medicare's reimbursement scheme, in which Medicare Part B pays 80% of the allowed reimbursement (which is generally 95% of the AWP), while the remainder is the responsibility of the Medicare beneficiary. The lawsuits generally allege that illegal manipulation of the AWP damage the plaintiff classes by causing class members to pay inflated co-payments for their share of the drug's costs. Plaintiffs' attorneys have stated that the damages from such conduct run in the millions of dollars. Plaintiffs' attorneys also have broadened the legal bases of their claims to include Racketeer Influenced and Corrupt Organizations Act ("RICO") and antitrust allegations.
For example, in United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Abbott Laboratories, No. 01C 8827 (N.D. Ill. 2001) (complaint filed November 15, 2001) plaintiffs brought a putative class action against Abbott under, inter alia , the RICO and the Sherman Act, seeking injunctive and declaratory relief premised on this AWP manipulation theory. The plaintiffs allege that Abbott directly controlled and overstated the AWP, marketed certain drugs based on doctors' ability to collect payments based on the difference between the AWP and the price at which they were sold the drugs, and provided doctors with free samples and other financial incentives to over-prescribe the drugs. The complaint alleges Abbott violated the Clayton Act by engaging in such unlawful conduct in an attempt "extend its monopoly powers beyond any lawful boundaries." In addition, the complaint alleges that the pharmaceutical company is engaged in an unlawful "Prescription Enterprise" with independent medical providers to derive illegal profits from the marketing of the benefits to be gained from this inflated AWP.
Similar class action lawsuits have been filed against other pharmaceutical companies, including GlaxoSmithKline, Bristol-Myers Squibb Co., Pharmacia Corp. and Dey, Inc. The potential damages in these cases are substantial. For example, plaintiff's attorneys in the suit against Glaxo claim that consumers and insurers overpaid $175 million because of the company's alleged inflation of its drugs' reported AWP. In the lawsuit against Bristol-Myers Squibb Co., the lead plaintiff in the suit, the Teamster Health & Welfare Fund of Philadelphia and Vicinity, seeks to represent the class of all persons who relied on the nationally published AWP when paying for certain drugs, including the widely used breast cancer drug Taxol.
The Next Wave
These class actions are likely to be the tip of the AWP iceberg. As one the plaintiffs' attorneys involved in the recent wave of private class action litigation stated, "[n]ext you're going to see the suits filed by the states over Medicaid. There are a lot of levels of AWP lawsuits that are going to be filed." One such level is likely to be suits against wholesalers and others in the distribution chain that base their prices on AWP. In addition, health care providers, who, as noted in our October 16, 2001 Client Alert, have already been the target of several related criminal investigations, also may find themselves subject to increased civil litigation. On the plaintiffs' side, in addition to union health and welfare funds and Medicare beneficiaries (plaintiffs in two of the cases brought against Abbott), private insurers and other third party payors are likely to become more involved in this litigation. In addition, the extraordinary recoveries by the whistleblowers in the TAP litigation will likely generate qui tam lawsuits against other pharmaceutical companies, based on similar theories.
Continued Government Scrutiny
What's more, continued high government scrutiny of the sales, marketing, and pricing practices of pharmaceutical companies is assured. For example, the U.S. Attorney's Office in Boston (which was responsible for the TAP settlement) has reportedly begun AWP investigations against 20 drug companies. Similar probes have been initiated by other state and federal investigators. Congressional scrutiny also appears likely as several of the class action lawsuits have made use of statements made by representatives expressing concern over abuse of the AWP pricing mechanism and cited Congressional hearings and reports on the issue.
This document is intended as an informational reminder and does not constitute legal advice. If you have any questions or would like to discuss a particular situation, you should contact your usual W&D attorney or either one of us. Our phone numbers and e-mail addresses are:
David B. Fein – 203-363-7603 or [email protected]
Gates Garrity-Rokous – 203-498-4310 or [email protected]
Dylan S. Calsyn – 203-498-4506 or [email protected]