Humana, Inc. v. Biogen, Inc.

666 F.Supp.3d 135

HUMANA, INC., Plaintiff, v. BIOGEN, INC. (f/k/a Biogen Idec, Inc.) and Advanced Care Scripts, Inc., Defendants.

Civil Action No. 21-11578-FDS

United States District Court, D. Massachusetts

Signed March 31, 2023

Scott C. Solberg, Benjamin Waldin, James Joseph, Sarah Catalano, Eimer Stahl LLP, Chicago, IL, Justin P. O'Brien, Lovett O'Brien LLP, Boston, MA, for Plaintiff.

Ashley E. Bass, Pro Hac Vice, Matthew J. O'Connor, Phyllis A. Jones, Pro Hac Vice, Covington & Burling LLP, Washington, DC, for Defendant Biogen, Inc.

Marc Charles Laredo, Mark D. Smith, Laredo & Smith LLP, Boston, MA, Mariellen Dugan, Clapp & Eisenberg, P.C., Newark, NJ, Paul C. Kingsbery, Thomas J. Coghlan, Philip Morrow, Calcagni & Kanefsky, LLP, Newark, NJ, for Defendant Advanced Care Scripts, Inc.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS

SAYLOR, Chief Judge

This is an action arising out of an alleged scheme to increase the number of prescriptions of drugs used to treat multiple sclerosis ("MS") through improper charitable contributions. Plaintiff Humana, Inc. is a health-insurance company. Defendant Biogen, Inc. is a biotechnology company and manufacturer of three different drugs used to treat MS. Defendant Advanced Care Scripts, Inc. ("ACS") is a specialty pharmacy company. According to the complaint, Biogen made unlawful donations to different charities to fund patient copays of its MS drugs, thereby increasing the sales of those drugs.

The complaint alleges ten counts: a claim for violation of the civil provisions of the Racketeer Influenced and Corrupt Organizations ("RICO") statute, 18 U.S.C. § 1961 et seq. (Count 1); a claim for RICO conspiracy (Count 2); claims under the unfair-competition laws of 22 states (Count 3); claims under the consumer-fraud and deceptive-trade-practice laws of 20 states (Count 4); claims for insurance fraud under the laws of five states (Count 5); breach of contract (Count 6); tortious interference with contractual relations (Count 7); fraud (Count 8); conspiracy to commit fraud (Count 9); and unjust enrichment (Count 10). Because the counts lump together state-law claims that should have been broken out separately, the complaint in fact asserts 54 claims, only two of which arise under federal law, and the remainder under the laws of 30 different states. Defendants have moved to dismiss the complaint as to all counts.

The complaint is simultaneously over-pleaded and under-pleaded. It is over-pleaded, among other reasons, because it purports to assert 52 state-law claims arising under the laws of 30 different jurisdictions. And it is under-pleaded because it takes a somewhat indifferent approach to the technical requirements of pleading a civil RICO claim and the underlying predicates of mail and wire fraud. The complaint also presents other challenges, including a serious question as to whether it was timely filed.

The principal issue, however, is whether Humana has standing to assert a civil RICO claim. Although Humana was the ultimate payor of the prescription drugs at issue—putting to one side the requirement of a patient copay—it did not purchase the drugs directly from Biogen. Instead, it paid pharmacies for the drugs, who had purchased the drugs from wholesalers or distributors (or possibly from Biogen itself). Humana was thus an "indirect" purchaser.

Under the "indirect purchaser rule," first developed by the Supreme Court in the antitrust context, only a direct purchaser of goods has standing to assert a claim for violation of the antitrust laws. Every circuit to have considered the issue has held that the rule also applies to civil RICO actions, and that indirect purchasers therefore do not have standing to assert RICO claims. The First Circuit has not yet addressed the question. While there may be practical and policy reasons to question the application of that rule in the health-insurance context, for the reasons that follow, this Court will follow the majority rule. It will therefore dismiss the civil RICO claims for failure to state a claim on that basis. In addition, it will dismiss those claims on the alternate ground that the complaint fails to comply with the technical requirements of the RICO statute and Fed. R. Civ. P. 9(b), and decline to exercise supplemental jurisdiction over the state-law claims.

I. Background

A. Factual Background

The facts are set forth as alleged in the complaint unless otherwise noted.

1. The Parties

Humana, Inc. is a Delaware corporation with a principal place of business in Louisville, Kentucky. (Compl. ¶ 9). It provides health insurance and prescription drug coverage to more than eight million people in the United States. (Id.).

Biogen, Inc. is a Delaware corporation with a principal place of business in Cambridge, Massachusetts. (Id. ¶ 12). Among other things, Biogen manufactures Avonex, Tysabri, and Tecfidra, three drugs used to treat MS. (Id. ¶¶ 39-45). An annual course of treatment for each of these drugs can cost between $50,000 and $80,000 per patient. (Id. ¶ 39).

Advanced Care Scripts, Inc. ("ACS") is a Florida corporation with a principal place of business in Cincinnati, Ohio. (Id. ¶ 13). It operates as a specialty pharmacy and provides patient-management services to pharmaceutical companies. (Id.).

2. Other Relevant Entities

The Assistance Fund, Inc. ("TAF") is a Delaware not-for-profit corporation with a principal place of business in Orlando, Florida. (Id. ¶ 14). It provides copay assistance to patients for pharmaceuticals. (Id.).

Chronic Disease Fund, Inc. ("CDF") is a New Jersey not-for-profit corporation with a principal place of business in Frisco, Texas. (Id. ¶ 15). It also provides copay assistance for pharmaceuticals. (Id.).

3. Medicare Parts C and D

Medicare is a government health-insurance program that primarily covers people aged 65 and over and others with certain disabilities or illnesses. (Id. ¶ 20). Medicare consists of four parts: A (hospital insurance), B (medical insurance), C (a combination of part A and B coverage that is provided by private insurance companies—referred to as "Medicare Advantage"), and D (prescription drug coverage). (Id. ¶ 21). Humana is a provider of Medicare Advantage (Part C) and Medicare Part D insurance plans. (Id. ¶¶ 24-25).

Under Medicare Part C, Humana is paid at a capitated rate for each insured. (Id. ¶ 30). Part C plan sponsors do not submit claims directly to the government, although they are subject to various reporting requirements. (Id.).

Premiums for Part D plans are split between insureds and Medicare funds generated by taxpayers. (Id. ¶ 25). In addition to the cost of premiums, Part D insureds may need to pay for some portion of the cost of their prescription drugs in the form of a copay or deductible. (Id. ¶ 26). Thus, when a pharmacy dispenses pharmaceuticals to an insured, the individual may need to provide a copay. (Id.). The pharmacy then submits a reimbursement claim to the insurer (here, Humana) for the remaining portion of the drug cost. (Id. ¶ 27).

4. The Scheme

According to the complaint, Biogen and ACS engaged in a two-part scheme with TAF and CDF that caused both the number of prescriptions and the price of the MS drugs to increase and, in turn, caused Humana to overpay for those drugs. (Id. ¶¶ 1-3).

In the first part of the alleged scheme, Biogen would "seed" the market. (Id. ¶ 2). In order to increase the use of the MS drugs throughout the market, Biogen would provide free drugs to patients who lacked insurance coverage or whose coverage did not extend to its MS drugs. (Id. ¶¶ 46, 51). According to the complaint, this is because once a patient starts a particular therapy, he or she is more likely to continue that therapy. (Id. ¶ 46). The complaint alleges that Biogen did this because it anticipated that a large portion of patients in its free-drug program would eventually enroll in a government or private drug-coverage program, and this would enable it to make a profit on the insurance reimbursements for its MS drugs. (Id. ¶ 54).

In the second part of the alleged scheme, Biogen worked with TAF and CDF to move patients from its free-drug program into Medicare. (Id. ¶¶ 47, 56-70). To do this, Biogen's Patient Services Department ("PSD"), or a third party, identified which patients in the free-drug program were eligible for Medicare. (Id. ¶ 59). The PSD would then contact eligible patients to obtain their consent to being enrolled in the government-funded program. (Id.).

To keep the MS drugs affordable for patients (and, therefore, increase the likelihood that they continue treatment with the MS drugs), Biogen allegedly coordinated with CDF and TAF to enroll patients using the MS drugs into their patient-assistance programs ("PAPs"). (Id. ¶¶ 47, 60). PAPs cover drug copayments for patients. (Id.). According to the complaint, Biogen would make grant donations to CDF and TAF in exchange for their commitment to enroll patients using the MS drugs into their PAPs. (Id. ¶ 60). After receiving Biogen's grant donations, the PAP would approve the applications of MS drug patients and cover the costs of their copays. (Id. ¶ 64). Medicare insurers such as Humana would then reimburse Biogen for the remaining portion of the drug cost that was not paid. (Id.). The complaint alleges that Biogen tracked every prescription and knew precisely which Medicare prescriptions were covered by a PAP. (Id. ¶ 61).

The complaint alleges that Biogen also coordinated its donations to the PAPs through ACS. (Id. ¶¶ 64-68). It alleges that ACS would transfer patients using the MS drugs from Biogen's free-drug program to a PAP. (Id.). Using specific information provided by Biogen about its Medicare-eligible patients currently using MS drugs, ACS would send a "batch file" of that patient information to the PAPs. (Id.). The complaint alleges that ACS participated in the scheme because it derived revenue from transitioning patients to the PAPs and filling prescriptions of the MS drugs through its...