In re Pharm Indus. Average Wholesale Price Lit.

263 F.Supp.2d 172

In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION

No. 1456,

CIV.A. 01-12257-PBS.

United States District Court, D. Massachusetts.

May 13, 2003.

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David J. Bershad, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, Nicole Y. Brumsted, Lieff Cabraser Heimann & Bernstein, LLP, Boston, J. Douglas Richards, Milberg Weiss Bershad Hynes & Lerach, LLP, Robert G. Eisler, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, Hagens Berman, Boston, Michael J. Flannery, The David Danis Law Firm, P.C., St. Louis, MO, Michael M. Buchman, Milbert, Weiss, Bershad, Hynes & Lerach, LLP, New York, NY, Joseph R. Saveri, Lieff, Cabraser, Heimann & Bernstein, LLP, Boston, Eric B. Fastiff, Leiff, Cabraser, Heimann & Bernstein, LLP, San Francisco, CA, Edward Notargiacomo, Hagens Berman, Boston, Joseph Danis, The David Danis Law Firm, P.C., St. Loius, MO, Steve W. Berman, Hagens & Berman, Seattle, WA, James A. Quadra, Rebecca Bedwell-Coll, Robert D. Sanford, Mascone, Emblidge & Quadra, San Francisco, CA, for Citizens for Consumer Justice, Colorado Progressive Coalition, Florida Alliance for Retired Americans, Health Care for All, Massachusetts Senior Action Council, Masspirg, Minnesota Senior Federation, New Jersey Citizen Action, New York State Wide Senior Action Council, Pennsylvania Alliance for Retired Americans, Vermont Public Interest Research Group, West Virginia Citizen Action, Wisconsin Citizen Action, Citizen Action of New York, Connecticut Citizen Action Group, Gray Panthers of Sacramento, Health Action of New Mexico, Maine Consumers for Affordable Health Care, North Carolina Fair Share, Oregon Health Action Campaign, Oregon State Public Interest Research Group, United Senior Action of Indiana, Inc., Betty Sicher, Joan S. Lee, John Bennett, Pearl Munic, Sue Miles, Jack Douglas, All Plaintiffs, State of Montana, State of Nevada, John B. Rice, Constance Thompson, Plaintiffs.

Tina M. Tabacchi, Jeremy P. Cole, Jones, Day, Reavis & Pogue, Chicago, IL Mark J. MacDougall, Akin, Gump, Strauss, Bauer & Feld, LLP, Washington, DC, Jeffrey I. Weinberger, Munger Tolles & Olson, Nicholas H. Patton, Patton Tidwell Sandefur, Texarkana, TX, Christopher R. Cook, Jones Day, Washington, DC, Daniel E. Reidy, Jones Day, Chicago, IL, Jesse A. Witten, Jones Day, Washington, DC, David F. Graham, Richard D. Raskin, Bruce M. Zessar, David C. Giardina, Sidley Austin Brown & Wood, Chicago, IL, Anastasia M. Fernands, Goodwin Procter LLP, Robert P. Sherman, Nixon Peabody LLP, Boston, Knapp, Petersen and Clarke, Glendale, CA, James C. Burling, William F. Lee, Hale & Dorr, LLP, Frank A. Libby, Jr., Douglas S. Brooks, Kelly, Libby & Hoopes, PC, Boston, Joseph H. Young, Steven F. Barley, Hogan & Hartson, LLP, Baltimore, MD, D. Scott Wise, Davis, Polk & Wardwell, Arthur F. Golden, Kimberley D. Harris, Manisha M. Sheth, Davis Polk & Wardwell, New York, NY, Nicholas C. Theodorou, Scott Garland, Foley Hoag LLP, Michael DeMarco, Jeanne E. Demers, Kirkpatrick & Lockhart, Boston, Robert J. Higgins, J. Andrew Jackson, Dickstein, Shapiro & Morin, Matthew A. Rossi, Akin, Gump, Strauss, Hauer & Feld, Washington, DC, Michael Sennett, Jeffrey B. Aaronson, Paula W. Render, Bell, Boyd & Lloyd, Chicago, IL, Peter E. Gelhaar, Donnelly, Conroy & Gelhaar, LLP, Boston, Andrew J. Jackson, Dickstein Shapiro Morin & Oshinsky LLP, Merle M. Delancey, Jr., Dickstein Morin & Oshinsky LLP, Washington, DC, Thomas E. Dwyer, Jr., Joseph Ernest Haviland, Dwyer & Collora, LLP, Boston, Lyndon M. Tretter, Steven M. Edwards, Hogan & Hartson, LLP, New York, NY, Daniel J. Cloherty, Dwyer & Collora LLP, Robert Wolkon, Wolkon & Pascucci, LLP, Boston, Ronald L. Castle, Arent, Fox, Kintner, Plotkin, Plotkin & Kahn, LLC, Washington, DC, S. Elaine McChesney, for Abbott Laboratories, Allergan Worldwide, Alpha Therapeutic Corporation, American Home Products Corp., Amgen Inc., Astrazeneca US, Aventis Pharmacy, Bayer, AG, Baxter International, Inc., Bristol-Myers Squibb Company, Chiron, Fugisawa Healthcare, Inc., Defendants.

MEMORANDUM AND ORDER

SARIS, District Judge.

I. INTRODUCTION

In this proposed class action, plaintiffs allege that numerous pharmaceutical companies fraudulently overstate the published "average wholesale price" ("AWP") of many of their prescription drugs, which results in inflated payments for such drugs by beneficiaries of the federal Medicare Part B program (through beneficiary copayments), private health and welfare plans, and other end-payors.¹

The Master Consolidated Complaint asserts claims under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C §§ 1964(c) (Counts IV), and the consumer protection statutes of California, Delaware, Florida, Illinois, Louisiana, Minnesota, New Jersey, New York, Pennsylvania, Texas, and Washington (Count V). Plaintiffs also seek declaratory relief on the claim that reporting AWPs above the actual average wholesale price for various drugs is unlawful. (Counts VI and VII.)² The plaintiffs bring this action on behalf of themselves and two Classes: Class One, the Medicare Part B co-payor class,³ and Class Two, the thirdparty payor class.⁴

Acknowledging that their AWPs represent only "undiscounted sticker prices," and not actual average wholesale prices, defendants have jointly moved to dismiss on the following grounds: (1) that the court should abstain because this dispute involves a legislative question; (2) that the plaintiffs fail to allege viable RICO enterprises; and (3) that the state law claims are preempted by the Medicare Act, 42 U.S.C. § 1395-1395qq, and the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001-1461. Individual defendants have raised companyspecific grounds for dismissal.

After hearing and extensive briefing, the Court ALLOWS the motion to dismiss the RICO claims and DENIES the motion to dismiss the state claims on preemption grounds. The Court also dismisses (1) all the association plaintiffs on the ground they lack standing, (2) all claims regarding drugs that are not identified by name with a specified fraudulent AWP, and (3) certain companies from which no plaintiff claims to have purchased a drug with an inflated AWP. The dismissal will go into effect in 30 days if there is no motion to amend.

II. STANDARD OF REVIEW

Generally, for purposes of a motion to dismiss the Court takes as true "the wellpleaded facts as they appear in the complaint, extending [the] plaintiff[s] every reasonable inference in [their] favor." Coyne v. City of Somerville, 972 F.2d 440, 442-43 (1st Cir.1992) (citing Correa-Martinez v. Arrillaga-Belendez, 903 F.2d 49, 51 (1st Cir.1990)). A complaint should not be dismissed under Fed.R.Civ.P. 12(b)(6) unless "`it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief.'" Roeder v. Alpha Indus., Inc., 814 F.2d 22, 25 (1st Cir.1987) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). As to the RICO claims, the Court is mindful of the First Circuit's instruction that while "the pleadings should generally be construed liberally ... a greater level of specificity is required in RICO cases." Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443 (1st Cir.2000) (citing Garita Hotel Ltd. P'ship v. Ponce Fed. Bank, 958 F.2d 15, 17 & n. 1 (1st Cir.1992)).

III. FACTUAL BACKGROUND

The consolidated class action complaint alleges the following facts, many of which are in dispute.

Medicare is the federal insurance program that pays for the medical care of persons 65 and older. See 42 U.S.C. §§ 1395-1395qq. The Medicare program is administered by the Center for Medicare and Medicaid Services ("CMS"), which is under the authority of the Secretary of Health and Human Services. Medicare Part B establishes an insurance program to pay for physicians' services. See id. at §§ 1395j-1395w. Medicare generally does not cover the cost of prescription drugs that a beneficiary self-administers (for example, by swallowing the drug). It does cover approximately 450 outpatient drugs, including ones that are administered by a doctor, and certain oral anticancer drugs. (Compl. ¶ 143.)

Through the Medicare Part B program, the federal government reimburses health care providers, such as physicians, for up to 80 percent of the allowable cost of certain prescription drugs that they administer directly to patients. The remaining 20 percent is paid by the Medicare Part B beneficiary, as a co-payment. 42 U.S.C. § 13951(o); (Compl.¶ 149.) The drug reimbursement rates are based on "the lower of the actual charge on the Medicare claim for benefits or 95 percent of the national average wholesale price of the drug or biological." 42 C.F.R. § 405.517; see also 42 U.S.C. § 1395u(o) ("...the amount payable for the drug or biological is equal to 95 percent of the average wholesale price.").

In setting reimbursement rates, the Medicare program uses the AWPs generated by the pharmaceutical industry. There are no regulations describing how AWPs are to be calculated, nor any regulatory process for approving them. Pharmaceutical companies do not report AWPs directly to the federal government, but instead send their pricing information to independent publishing companies that compile the data and publish the AWPs in trade publications, which are then used by the government, as well as private health plans.⁵ The publishing companies do not independently review the figures for accuracy. The figures are not filed with the CMS.

The pharmaceutical companies vastly overstate the AWPs of many drugs in the data they provide to the trade publications. For example, for one drug called "Acyclovir," defendant Abbott Laboratories reports an AWP to the "Red Book" publication of $1047.38, while the actual average wholesale price is only $349.05. In some instances the reported AWP is more than 10,000 percent...