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From Health Law Daily, June 04, 2013

Drug company’s co-pay subsidy program did not violate RICO, commercial bribery laws

By Paul Clark

A program by Bristol-Myers Squibb (BMS) and Otsuka American Pharmaceutical which offered co-pay subsidies for its drug Abilify ® (aripiprazole), a drug approved to treat schizophrenia, did not violate federal RICO or commercial bribery laws (AFSCME v Bristol-Myers Squibb, June 3, 2013, Oetken, J). The American Federation of State, County and Municipal Employees (AFSCME) District Council 37 Health & Security Plan (“DC 37”) and Sergeants Benevolent Association Health and Welfare Fund (Sergeants), which both administer prescription drug plans for their members, claimed that the co-pay subsidy program undermined the contractual insurance arrangement between the plans and its members by reducing or eliminating the personal cost-share feature of the insurance contract and increased the overall burden on the plans for providing prescription benefits to its members. Further, the plans claimed that “[b]y providing undisclosed kickbacks to reduce or eliminate the cost-sharing mechanism in thousands of health insurance contracts for widely used maintenance prescription drugs, defendants unfairly undermine[d] health benefit providers’ best attempts to control prescription drug costs.”

Background. The prescription drug plans administered by AFSCME and Sergeants include cost-sharing provisions that placed brand name drugs in a less preferred position than other commonly prescribed therapeutic or generic alternatives. By requiring plan members to pay a higher co-pay for brand-name drugs AFSCME and Sergeants tried to incentivize plan members to select cost-effective treatment and medication.

Since 2010, BMS and Otsuka have provided co-pay subsidies—via the Abilify Savings Card—to insured individuals who are prescribed Abilify. Individuals would get $100 off per refill for 17 refills. The drug companies advertised the co-pay subsidy program through the use of the mail and wires (using magazines, the internet, and television commercials), and sent the cards directly to individuals, physicians, and pharmacies. The AFSCME and Sergeants insurance plans did not know which of their plan members got the cards. The plans, however, were liable for their portion of the higher cost of a brand name drug, even while their plan members were paying much smaller co-pays than they would for other brand name drugs under the policies of the prescription drug plans.

RICO claims. The two plans’ made three claims under RICO. First, they claimed that the drug companies “engaged in an intentional scheme to defraud plaintiffs and the class by interfering with their cost-sharing provisions, causing them to pay for prescriptions of the subsidized drug that they would not otherwise have paid for, and causing them to pay an inflated rate for each subsidized prescription.”

The court ruled that none of the case law or federal statutes cited by the two plans supported this claim. The drug companies cannot “waive” a co-pay subsidy because that subsidy is not owed to them, and they do not commit fraud by enabling pharmacies to “waive” co-pays because there is no deception, misrepresentation, or omission involved when they do so.

AFSCME and Sergeants also said the drug companies caused “misrepresentations to be made via the wires at the time of the point of sale transaction.” The court dismissed this claim, noting that two plans alleged nothing that would allow the drug companies to be held liable for a misrepresentation—or omission—made by pharmacists to the plans, as they do not claim that the pharmacists were agents, co-conspirators, or members of a RICO enterprise with the drug companies. Moreover, a pharmacy’s alleged failure to disclose to the plans the fact that a consumer used a co-pay subsidy coupon to pay for part of his or her co-pay cannot plausibly support a claim for fraud because the plans admit that their reimbursement of the pharmacy is separately governed by contract and does not depend on any point-of-sale representation.

Finally, the plans claimed that the drug companies “engaged in an intentional scheme to defraud plaintiffs and the class by reporting benchmark prices to reporting agencies while failing to account for the routine waiver of co-pays.” The court determined that because the benchmark theory pivots on vague and general pleadings, it was impossible to ascertain and evaluate AFSCME’s and Sergeants’ theories of fraud and causation. AFSCME and Sergeants may re-plead this portion of their RICO claim “to add the requisite particularity.”

Commercial bribery. AFSCME and Sergeants also claimed that the co-pay subsidy program violated sec. 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), which, according to the plans, “prohibits the payment by drug manufacturers to, or on behalf of, individual insureds to eliminate or reduce their personal obligations under their prescription drug plans’ cost-sharing plans.” In dismissing this claim, the court said “the relationship between insurer and insured is of a different sort than the principal-agent relationship presupposed by commercial bribery doctrine.” Further, it stated “it would stretch the purpose and precedent of commercial bribery to the breaking point to treat insurer-imposed obligations as the sorts of intermediary relationships that can support a commercial bribery claim due to breach of trust.”

The case number is 12 Civ. 2238 (JPO).

Attorneys: Lauren Guth Barnes (Hagens Berman Sobol Shapiro LLP) for American Federal of State and County Municipal Employees, District Council 37 Health & Security Plan, and Sergeants Benevolent Association Health and Welfare Fund. Andrew David Schau (Covington & Burling LLP) for Bristol-Myers Squibb Co. Jonathan Paul Bach for Otsuka American Pharmaceutical, Inc.

Companies: American Federal of State and County Municipal Employees; District Council 37 Health & Security Plan; Sergeants Benevolent Association Health and Welfare Fund; Bristol-Myers Squibb Co.; Otsuka American Pharmaceutical, Inc.

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