United States v. Prof'l Compounding Ctrs. of Am.

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UNITED STATES OF AMERICA Plaintiff v. PROFESSIONAL COMPOUNDING CENTERS OF AMERICA, INC., Defendant

No. SA-14-CV-00212-XR

United States District Court, W.D. Texas, San Antonio Division

May 10, 2024

ORDER DENYING DEFENDANT'S DAUBERT MOTION

XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE

On this date, the Court considered the Defendant's motion to exclude the testimony of the Government's expert witnesses on damages (ECF No. 197), Defendants' response (ECF No. 209), the Government's reply (ECF No. 212), and the parties' arguments at the hearing on May 1, 2024. After careful consideration, the motion is DENIED.

BACKGROUND

Defendant Professional Compounding Centers of America (“PCCA”) sells chemical ingredients to compounding pharmacies. Compounding is a practice in which a licensed pharmacist combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient. PCCA's pharmacy customers (“members”) use these ingredients to prepare and dispense compound medications for patients. The United States of America (the “Government”) intervened in this action under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a), in November 2021, alleging that, from 2012 to 2015, PCCA and its members reported fraudulently inflated prices for its ingredients for reimbursement purposes and thereby enriched themselves at the expense of the federal TRICARE program, which provides health care coverage for activeduty military personnel, military retirees, and military dependents. See ECF No. 66.

The Government asserts that PCCA established and reported fraudulently inflated Average Wholesale Prices (“AWPs”)-the pricing metric frequently used to determine TRICARE reimbursement for compound claims-relative to the price at which it actually sold ingredients to member pharmacies. The Government further alleges that PCCA marketed the large “spreads” between the actual selling prices of its ingredients and their respective AWPs to induce its customers to buy its ingredients in violation of the federal Anti-Kickback Statute (“AKS”), 42 U.S.C §§ 1320a-7b(b). Those customers then submitted claims for compounds containing PCCA ingredients to TRICARE for payment based on PCCA's inflated AWPs, allowing pharmacies to receive “reimbursement” in amounts that were hundreds or thousands of dollars more than what they actually paid to acquire the underlying ingredients in the compound prescription.

In February 2023, PCCA moved to exclude or limit the expert testimony of two experts retained by the Government, Dr Atanu Saha and Mr. Eric Hines. ECF No. 197. After the motion was fully briefed, the Court held a hearing on May 1, 2024. For the reasons stated in open court and set out more fully herein, PCCA's motion is denied.

DISCUSSION

I. Legal Standard

Rule 702 of the Federal Rules of Evidence allows a witness “who is qualified as an expert” to testify if:

a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

b) the testimony is based on sufficient facts or data;

c) the testimony is the product of reliable principles and methods; and d) the expert has reliably applied the principles and methods to the facts of the case.

FED. R. EVID. 702.

The Supreme Court's decision in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), provides the analytical framework for determining the admissibility of expert testimony. Daubert requires the district courts to act as “gatekeepers” to ensure expert testimony meets Rule 702's standards. Id. at 589. As a preliminary matter, a district court “must be assured that the proffered witness is qualified to testify by virtue of his ‘knowledge, skill, experience, training or education.'” United States v. Cooks, 589 F.3d 173, 179 (5th Cir. 2009) (quoting FED. R. EVID. 702). If the expert is qualified, a court must follow Daubert's analytical framework to ensure “that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand.” Daubert, 509 U.S. at 597.

The reliability inquiry entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and can be properly applied to the facts in issue. Id. at 592-93. In Daubert, the Supreme Court enumerated five nonexclusive factors to consider when assessing reliability: (1) whether the expert's theory can be or has been tested; (2) whether the theory has been subject to peer review and publication; (3) the known or potential rate of error of a technique or theory when applied; (4) the existence and maintenance of standards and controls; and (5) the degree to which the technique or theory has been generally accepted in the scientific community. Id. at 593-94; see also Burleson v. Tex. Dep't of Crim. Just., 393 F.3d 577, 584 (5th Cir. 2004). The test for determining reliability is flexible and can adapt to the particular circumstances underlying the testimony at issue. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999). The point of this inquiry “is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.” Id.

The relevance inquiry requires the Court to determine whether expert testimony will “assist the trier of fact to understand the evidence or to determine a fact in issue.” Daubert, 509 U.S. at 591. “Evidence is relevant if . . . it has any tendency to make a fact more or less probable than it would be without the evidence [and] the fact is of consequence in determining the action.” FED. R. EVID. 401. Expert testimony in the form of legal opinion invades the province of the Court and does not assist the trier of fact. While an expert opinion “is not objectionable just because it embraces an ultimate issue” to be decided by the trier of fact, FED. R. EVID. 704(a), experts may not offer legal opinions or advise the Court on how the law should be interpreted or applied to the facts in the case. See Estate of Sowell v. United States, 198 F.3d 169, 171 (5th Cir. 1999); see also Askanase v. Fatjo, 130 F.3d 657, 672-73 (5th Cir. 1997).

A trial court's role as gatekeeper under Daubert “is not intended to serve as a replacement for the adversary system.” Pipitone v. Biomatrix, Inc., 288 F.3d 239, 250 (5th Cir. 2002) (citing Rule 702 advisory committee's note). Thus, in determining the admissibility of expert testimony, the court should approach its task “with proper deference to the jury's role as the arbiter of disputes between conflicting opinions.” Viterbo v. Dow Chem. Co., 826 F.2d 420, 422 (5th Cir. 1987). “Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596. The party proffering expert testimony has the burden of establishing by a preponderance of the evidence that the challenged expert testimony is admissible. Moore v. Ashland Chem. Inc., 151 F.3d 269, 276 (5th Cir. 1998); see also FED. R. EVID. 104.

II. Analysis

A. Testimony of Atanu Saha, Ph.D.

The Government retained Dr. Saha, an economist with pharmaceutical and drug pricing experience, to analyze PCCA's AWPs relative to its selling prices and to provide a range of “reasonable AWPs” that would reflect reasonable markups over PCCA's selling prices.

Dr. Saha analyzed, among other things, PCCA's ingredient costs, selling prices to compound pharmacies, reported AWPs, and markups between its selling prices and AWPs for the 10 PCCA ingredients and 3 PCCA bases at issue. Dr. Saha also examined whether the data demonstrated a nexus between PCCA's conduct and TRICARE's increased expenses for compound drugs from 2012 to 2015. Dr. Saha determined a range of reasonable markups to pharmacies' costs to buy the 13 PCCA products based on generic drug pricing, which he used to identify what he terms “reasonable AWPs” that reflect those markups (43%-167%, respectively).

Dr. Saha then compared those reasonable markups, or reasonable AWPs, with PCCA's reported AWPs. Based on his analysis, Dr. Saha concluded that PCCA's reported AWPs for the 13 products at issue were “vastly higher than, and bore little relationship to,” PCCA's actual selling prices to pharmacies. See id. at 5. He further found that PCCA's AWPs were marked up by thousands of percent (1,146% to 43,143%) over PCCA's actual selling prices, with a median percent markup of 1,815%.

PCCA argues that Dr. Saha's testimony is unreliable because he has “never established anybody's AWP for anything.” ECF No. 197 at 4. But neither Rule 702 nor Daubert and its progeny impose such a requirement. The Court is not aware of any support for PCCA's position that economics experts must have personally set prices used in their damages models.^[1] Indeed, PCCA's own damages experts have never set AWPs. See, e.g., ECF No. 209-3, Carr Dep. at 42:1922, 61:4-18. PCCA's citation to Perez v. Boecken, SA-19-CV-00375-XR, 2020 WL 3074420 (W.D. Tex. June 10, 2020) is inapposite. Perez excluded accident reconstruction testimony by an expert who did not perform an accident reconstruction completely inapposite. Dr. Saha is an economics expert in drug pricing and performed an economic analysis of drug pricing using data/methods commonly used by economists.^[2]

PCCA suggests because its products were “proprietary,” it can establish any AWP whatsoever and that Dr. Saha's opinion cannot be reliable because “[t]here is no authoritative statute, definition, or other guidance as to what an AWP should be.” ECF No. 197 at 4...