United States v. Regeneron Pharm., Inc.

UNITED STATES OF AMERICA, Plaintiff, v. REGENERON PHARMACEUTICALS, INC., Defendant.

Civil Action No. 20-11217-FDS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

December 4, 2020

MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS

SAYLOR, C.J.

This is a case alleging violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, and False Claims Act, 31 U.S.C. §§ 3729 et seq., by a pharmaceutical company. The United States has brought suit against Regeneron Pharmaceuticals, Inc., the manufacturer of a drug named Eylea, alleging that Regeneron improperly funneled millions of dollars to a purportedly independent foundation to subsidize patients' copays for Eylea, inducing physicians to increase prescriptions of the drug at the expense of the Medicare Part B program and subverting the program's copay requirement. The complaint alleges that Regeneron's actions violated the Anti-Kickback Statute and caused the submission of false claims for payment to Medicare.

Regeneron has moved to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6), for failure to allege fraud with particularity as required by Fed. R. Civ. P. 9(b), and based on constitutional challenges under the First and Fifth Amendments. For the following reasons, the motion will be denied.

I. Factual and Procedural Background

Unless otherwise noted, the following facts are as alleged in the complaint.

A. The Parties and the Medicare Copay Assistance Program

Regeneron Pharmaceuticals is a pharmaceutical company founded in 1988. (Compl. ¶ 28). It manufactures Eylea, a drug to treat neovascular (wet) age-related macular degeneration ("AMD"), an eye disease that primarily affects elderly people. (Id. ¶ 29). Eylea is administered by injection into the eye at a physician's office. (Id.). It costs approximately $1,850 per dose. (Id.). The recommended dose is one injection per eye, once a month for the first 12 months, and 6-7 injections per year thereafter. (Id.). Eylea is presently the best-selling drug in the United States for AMD. (Id. ¶ 31).

Eylea has two primary competitors, Avastin and Lucentis, both made by Genentech. (Id. ¶ 30). All three drugs have comparable efficacy. (Id.). Lucentis costs $2,000 per dose. Avastin costs $55 per dose, but it is only FDA-approved to treat certain types of cancer. Some physicians nonetheless use it "off-label" to treat AMD. (Id.).

Medicare is a federally funded insurance program for people aged 65 or older and for people with certain disabilities or afflictions. (Id. ¶ 11). Medicare Part B covers outpatient medical services and physician-administered drugs, like Eylea. (Id. ¶ 13). Once a beneficiary meets his or her annual deductible (currently $198), Medicare Part B pays 80% of the cost of covered prescription drugs, while the beneficiary is responsible for the remaining 20% copay. (Id. ¶ 14). Some Medicare beneficiaries purchase supplemental insurance, called Medigap, to cover the copays. (Id.).

The purpose of requiring Medicare beneficiaries to pay copays is to give them an incentive to choose the most cost-effective treatment. (Id. ¶ 15). When a physician administersa drug covered by Medicare Part B, he or she submits claim to Medicare for the drug, and then receives a reimbursement from Medicare of 106% of the average sales price of the drug less the 20% copay. (Id. ¶ 16). The physician is then responsible for collecting the copay from the patient. (Id.).¹

The Chronic Disease Fund ("CDF"), now operating as Good Days, is a non-profit foundation that solicits donations from, among others, pharmaceutical companies, and uses that money to cover Medicare copays for prescription drugs. (Id. ¶ 32). Since 2010, CDF has operated an "AMD fund" that covers Medicare copays for patients prescribed AMD drugs. (Id.). Before the FDA approved Eylea in 2011, Genentech, the maker of Lucentis, alone financed the AMD fund. (Id. ¶ 33). Following FDA approval for Eylea in 2011, Regeneron also began to finance the AMD fund, which began to cover copays for Eylea and Lucentis, but not Avastin. (Id.). If a physician administers Eylea to a Medicare patient who indicates that they will have trouble affording the copay, the physician may submit a claim to CDF for the applicable Medicare copay, and CDF will pay that amount directly to the physician. (Id. ¶ 35). Thus, if CDF approves a copay grant for an Eylea patient, the physician does not need to collect the copay from the patient and does not bear the financial risk if the patient cannot afford to pay it. (Id.).

In 2013 and 2014, Regeneron contributed tens of millions of dollars to the AMD fund. (Id. ¶¶ 1, 4). The complaint alleges that Regeneron did so in order to induce physicians to prescribe and submit claims for Eylea, which Medicare then reimbursed. (Id. ¶¶ 3-4). The complaint further alleges that Regeneron continuously communicated with CDF to ensure that itwas donating enough to cover the Medicare copays of Eylea patients only. (Id.). According to the complaint, Regeneron employed a business model under which any increase in the list price of Eylea could benefit Regeneron, at taxpayer expense, if it funneled matching donations to a foundation to cover copays: for every $100 increase in the price of the drug, Regeneron could contribute $20 to a copay assistance foundation to eliminate the financial burden on patients of the 20% copay, while receiving $80 in Medicare reimbursements.

The complaint alleges that the promise, or implicit guarantee, of copay assistance from CDF significantly altered the decision-making of patients and physicians. Because CDF covers copays for Eylea and Lucentis, which cost $1,850 and $2,000 per dose respectively, but not Avastin, which costs $55 per dose, Eylea and Lucentis are actually cheaper out-of-pocket than Avastin for Medicare patients. (Id. ¶ 30). According to the complaint, when physicians knew that copay assistance was not available for Eylea or Lucentis, they often prescribed the cheaper Avastin, in order to avoid the risk of burdening their patients with expensive copays or being unable to collect the copays. (Id.).

Regeneron contends that its donations were charitable in nature and not made to improperly induce patients or physicians to purchase Eylea. (Def. Mem. at 19). It asserts that the AMD fund was structured in such a way as to make it impossible for its donations to influence physicians' prescribing behavior. (Id. at 12). CDF allocated its AMD grants to patients on a first-come, first-served basis. (Id.). Therefore, according to Regeneron, physicians had no way of knowing whether a patient would eventually receive copay assistance from CDF when they made their prescribing decisions. (Id.).

B. Regeneron's Allegedly Improper Behavior

The complaint describes several events from 2011 to 2014 that allegedly demonstrate thatRegeneron donated certain amounts to CDF in order to improperly influence, induce, and increase prescriptions and claims for Eylea in violation of the Anti-Kickback Statute, causing false claims to be submitted to Medicare.

1. The Xcenda Report

Prior to the commercial launch of Eylea in 2011, Regeneron commissioned a report from Xcenda, an outside consultant, to analyze the proposed pricing and reimbursement structures for the drug. (Compl. ¶ 36). Xcenda concluded, based on projected sales and the estimated proportion of patients who would need Medicare copay assistance, that Regeneron should donate approximately $3 million to copay assistance foundations in 2012 to offset the cost of Eylea copays. (Id.).

At that time, Regeneron was considering a price of $1,500 per injection. (Id. ¶ 37). Xcenda's report found that increasing the price to $1,950 would benefit Regeneron financially, because the 43% increase in donations to copay assistance foundations that Regeneron would need to make would be offset by revenue increases from Medicare reimbursements. (Id.). Ultimately, Regeneron set the price of Eylea at $1,850. (Id. ¶ 38).²

The Xcenda report also recommended that Regeneron refer Medicare patients who could not afford Eylea to a copay foundation, rather than providing them with free Eylea. (Id.). The reasoning was that although those two options would both eliminate out-of-pocket expenses for patients, offering free Eylea would generate no revenue for Regeneron, while offering copay assistance would generate revenue from the resulting Medicare claims. (Id.). To date, Regeneron offers free Eylea to patients who cannot afford it only if they do not have insurancecoverage for Eylea, while barring Medicare patients from its free-drug program. (Id.).

2. Regeneron's Donations to and Communications with CDF³

The FDA approved Eylea for treatment of wet AMD on November 28, 2011. (Id. ¶ 41). Regeneron gave CDF $125,000 in 2011 and $600,000 in 2012. (Id.). Cynthia Sherman, the former senior director for reimbursement at Regeneron, testified that the company did "not provide a lot of money the first year because you just didn't know how many—what the uptake of Eylea would be, and Regeneron did not want to pay for Lucentis's copay." (Id.). Eylea sales in 2012 greatly exceeded expectations, causing Regeneron to consider increasing their donations to CDF. (Id. ¶ 42).

On July 9, 2012, Robert Krukowski, a senior manager for reimbursement at Regeneron, asked his direct report, William Daniels, if Daniels had spoken to Clorinda Walley, CDF's executive director, about increasing Regeneron's contribution to CDF and by what amount. (Id. ¶ 44). On July 23, Daniels emailed Walley requesting a meeting, stating that he would "need to justify [his] request for [Regeneron's] 2013 donation." (Id.). On July 24, Walley provided Daniels with a spreadsheet entitled "Regeneron Projections 2013," which projected the number of Eylea patients assisted by the AMD fund and the amount of copay assistance they would need over 2013, concluding that CDF needed $40 million in contributions from...