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New England Carpenters Health and Welfare Fund v. Abbott Laboratories

United States District Court, N.D. Illinois, Eastern Division

September 25, 2014

NEW ENGLAND CARPENTERS HEALTH AND WELFARE FUND, individually and on behalf of all others similarly situated, Plaintiff,
v.
ABBOTT LABORATORIES and ABBVIE, INC., Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT M. DOW, Jr., District Judge.

This matter is before the Court on Defendants Abbott Laboratories and AbbVie, Inc.'s ("Defendants") motion to dismiss [124] Plaintiff's first amended complaint. Defendants manufacture and market two brand name drugs, Humira and AndroGel. Humira treats rheumatoid arthritis and plaque psoriasis, and AndroGel is a replacement therapy for men with low testosterone levels. In 2008, Defendants began offering savings cards or coupons that discount patients' co-pay obligations for the drugs. These savings card programs-or co-pay subsidy programs, as Plaintiff terms them-seek to increase the sales of Humira and AndroGel by encouraging patients to choose Defendants' brand name drugs over less costly generic medications.

Plaintiff provides health benefits to its insureds and seeks to recover damages resulting from Defendants' co-pay subsidy programs. Defendants' alleged malfeasance falls into two categories. First, Plaintiff contends that the co-pay subsidies frustrate pharmacies' contractual obligation to collect co-pays directly from Plaintiff's insureds. Second, Defendants allegedly instruct pharmacies to conceal the use of their co-pay subsidies from Plaintiff by instructing pharmacies to process the subsidies as if they were a form of secondary insurance. Plaintiff alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d), and tortious interference with contract. Defendants move to dismiss the amended complaint in its entirely. For the reasons that follow, the Court grants Defendants' motion as to Plaintiff's RICO claims (counts one through four). The Court will not issue a ruling at this time on the motion as it relates to the tortious interference with contract claims (counts five and six), as it is unclear whether the Court has an independent basis for asserting jurisdiction over those claims. The case is set for status hearing on 10/7/2014 at 9:30 a.m. I. Factual Background[1]

Plaintiff, New England Carpenters Health and Welfare Fund, is a Massachusetts-based employee welfare benefit plan that provides health benefits to 22, 000 eligible beneficiaries throughout New England. It seeks to represent similarly situated third-party payors ("TPPs") that have allegedly spent additional funds on AndroGel and Humira due to Defendants' co-pay subsidy programs. First, Plaintiff contends that the co-pay subsidies have increased the popularity of AndroGel and Humira, causing more of its insureds to fill prescriptions for these brand name drugs, when they would otherwise choose significantly cheaper generic alternatives. See Am. Compl. ¶ 21. Additionally, Plaintiff maintains that it is overcharged for each drug that is purchased with a co-pay subsidy; Plaintiff is made to reimburse the pharmacy for the cost of the drug as if the drug were being sold at full price, rather than a discounted price that would result if the co-pay subsidy were processed as a regular coupon (instead of as secondary insurance). See id. at ¶¶ 21, 29.

A. Plaintiff's Efforts to Impose Cost-Sharing on Its Insureds

Plaintiff's alleged harm stems in large part from Defendants' reduction or removal of co-pays that would otherwise make insureds sensitive to price differences among prescription drugs. Because TPPs cover the majority of the cost of prescription drugs, they require their insureds to share part of the cost (here in the form of co-pays) to incentivize insureds to opt for less costly medications. TPPs accordingly impose higher co-pays for more expensive brand name drugs than they do for cheaper generics. Plaintiff explains:

"Cost-sharing provisions in prescription drug benefit plans unite the financial interests of the health insurer with the interests of its beneficiaries. Requiring health plan members to pay a portion of the high cost of a branded prescription drug-either a co-pay or co-insurance-provides a reasonable, personal incentive for privately-insured individuals to choose less-costly, usually generic, medications, and drives down the cost of the much larger residual portion paid by the TPPs. Absent such incentives, patients have no financial motivation to select lower-cost drugs.

Am. Compl. at ¶ 2.

To implement cost-sharing provisions, pharmacies are contractually obligated to collect the TPP's designated co-pay directly from the patient when a prescription is filled. Specifically, TPPs hire pharmacy benefit managers to manage and administer their prescription drug benefits, including cost-sharing provisions. Id. at ¶ 49. Pharmacy benefit managers, acting on behalf of TPPs, contract with pharmacies to establish retail pharmacy networks that provide prescription drugs to TPP's insureds. Id. Pursuant to these contracts (referred to as pharmacy network agreements), pharmacies must abide by the terms of the TPP's health benefit plan. Id. at ¶ 50. Pharmacy manuals, which supplement the pharmacy network agreements, also are binding and contain terms regarding the collection of co-pays. For example, one such manual, used by Medco Health Solutions, Inc. ("Medco"), Plaintiff's pharmacy benefit manager, states that the pharmacy "acknowledges that the co-payment/coinsurance or other direct payment is an integral part of the plan design selected by the Sponsor [(the TPP)], and Provider [(the pharmacy)] will not waive or discount the applicable co-payment/coinsurance or other direct payment under any circumstances." Id. at ¶ 52 (quoting Medco Pharmacy Services Manual (2011), at 39). The Medco Manual further explains that the co-pay is to be paid directly by the insured. Id. at ¶ 53 (quoting Medical Pharmacy Services Manual (2011), at 10). Pharmacy benefit managers typically use standard form contracts that include the same material terms with respect to co-pays. Such agreements and manuals are ubiquitous in the pharmacy industry and often available online. Id. at ¶ 54.

B. Defendants' Co-Pay Subsidy Programs

With this background in mind, Defendants began offering co-pay subsidies for AndroGel and Humira to compete with less expensive generic drugs. Defendants retained two companies, TrialCard, Inc. and Pharmacy Data Management, Inc. ("PDMI") to administer an AndroGel savings card, which pays $20 of a patient's monthly co-pay for up to twelve times. Am. Compl. ¶ 72. Similarly for Humira, Defendants retained Opus Health to administer the Humira Protection Plan, which reduces patients' co-pays to as low as $5 per month. Id. at ¶ 83. TrialCard, PDMI, and Opus Health are collectively referred to as Defendants' co-pay subsidy administrators.

Patients register for Defendants' savings cards online and use them at pharmacies to discount their co-pays when they fill prescriptions for Humira and AndroGel. The pharmacist first processes the patient's insurance coverage by entering the patient's health insurance information into an electronic "primary insurance" field. Id. at ¶ 58. Per Defendants' instructions and the design of the savings card, there is no indication that a discount will be applied. The electronic "secondary insurance" field is either left blank, or, is populated with a code that indicates that the patient has secondary insurance. Id. at ¶ 89. This information is transmitted to the TPP or its pharmacy benefit manager, and in return, the patient's insurance coverage-including the patient's co-payment obligation-is transmitted back to the pharmacist. Instead of collecting the designated co-pay, however, the pharmacist then processes the savings card in a second transaction by entering the relevant information (that is printed on the savings cards or provided by Defendants' co-pay subsidy administrators in separate instructions) into a "secondary insurance" field. See id. at ¶ 59. The co-pay subsidy is then deducted from the patient's original co-pay obligation, and the pharmacist collects what remains from the patient.

Plaintiff alleges that Defendants' savings cards should be processed as coupon discounts, as opposed to secondary insurance. If processed as a coupon, the overall price of the drug, instead of just the co-pay amount, would be discounted. See id. at ¶¶ 21, 29. In support, Plaintiff points to the fine print of the terms and conditions that patients must accept for the AndroGel savings card. The terms state that the insured "must deduct the value of th[e] offer from any reimbursement requests submitted to [the insured's] insurance plan[.]" Id. at ¶ 78.

Defendants ensure that the co-pay subsidies are improperly processed as secondary insurance (and thus concealed from the TPP) in a couple different ways. First, Defendants' co-pay administrators have designed the savings cards to look like insurance cards and to be treated by pharmacy computers as such. See id. at ¶¶ 99-103. Second, Defendants and their co-pay administrators instruct pharmacies to process the subsidies as secondary insurance and pay them a significant administrative fee to do so. See id. at ¶¶ 103, 130. At least one of ...


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