A case filed more than a year ago has taken many turns, landing in a federal court in Trenton, where it has been shaped by a difference of opinion over how to address the role of pharmacy benefit managers (PBMs).
After a year in court, the leading insulin manufacturers and the attorneys suing them agree: Some people with diabetes pay a lot of money out of pocket for the hormone that keeps them alive.
They disagree, however, on whether laws have been broken and who should be blamed. The insulin manufacturers argue the problem of rising prices is beyond the court’s ability to solve.
Soon judges overseeing the 14-month-old suit will decide whether they agree. With a stay lifted in the case, the insulin companies have filed a scathing motion to dismiss the racketeering claims lodged against them.
But in doing so, the drugmakers admit that consumers’ sticker shock is real. It’s just not the manufacturers’ fault, they argue. And it’s definitely not a crime.
“Defendants acknowledge that pharmaceutical pricing is an important issue, especially given how recent trends in the design of insurance benefits have affected certain patients’ out of pocket costs,” states the joint motion filed on March 9, 2018, by attorneys for Novo Nordisk, Sanofi, and Eli Lilly.
If allowed to proceed, the case could finally shed light on the role of pharmacy benefit managers (PBMs), who may be the plaintiffs’ ultimate target. The lead attorneys have followed a strategy that will allow them to gather evidence while fighting the pharmaceutical firms and use it later in a suit against the PBMs. Not everyone agrees with this approach, however.
Attorneys representing 71 patients—who have not been certified as a class—argue that rebates are paid to the nation’s 3 largest PBMs to keep brands on formulary, inflating insulin prices and harming consumers when their health plans do not uniformly pass discounts through at the pharmacy counter. Multiple suits were merged into a case called Insulin Pricing, which claims the transactions between pharmaceutical companies and PBMs amount to a series of illegal schemes. Although PBMs were not sued, their role in the pharmacy chain is discussed at length by both sides. They are drawing scrutiny from well beyond the obscure federal courthouse in Trenton, New Jersey, where the case ended up after it was filed in Massachusetts.
The drug manufacturers say the plaintiffs fail to show how insulin prices reflect rebates, and they portray the current system as something beyond their ability to change. “As plaintiffs recognize, manufacturer rebate payments are not unique to the sales of insulin. It is how the entire branded pharmaceutical industry functions. As a result, the relief plaintiffs seek would not only require this Court to regulate the sales of insulin, but also would have an impact on the entire pharmaceutical industry at large,” the joint motion states.
Against this backdrop, regulators are taking notice. Two days before the manufacturers filed their motion, FDA Commissioner Scott Gottlieb, MD, took aim at rebates and the effect on consumers during an address to America’s Health Insurance Plans (AHIP). Amid proposed mergers between CVS and Aetna and Cigna and Express Scripts, Gottlieb said, “The very complexity and opacity of these schemes help to conceal their corrosion on our system—and their impact on patients. In the long run, the interests of patients, providers, and manufacturers are not well served by these arrangements, precisely because these practices encourage large list price increases to fuel the pricing schemes.”
“And so,” Gottlieb said, “we continue to see a backlash against these Kabuki drug-pricing constructs—constructs that obscure profit taking across the supply chain that drives up costs; that expose consumers to high out-of-pocket spending; and that actively discourage competition.”
The Plaintiffs Line Up
Attorney Steve Berman made headlines in sources from the New York Times to business outlets to medical publications when he filed the putative class action in the US District Court for the District of Massachusetts on January 30, 2017, citing a federal racketeering statute created to go after figures in organized crime. The filing alleged the 3 companies increased “benchmark” insulin prices 150% over 5 years, acting in “lock step” to pay rebates to PBMs.
“People living with diabetes are practically imprisoned under the price hikes and sadly are resorting to extreme measures to afford the medication they need to live,” said Berman, the managing partner of Hagens Berman, best known for his prosecutions that contributed to the $206 billion master settlement agreement with the tobacco companies.
Berman was racing the clock to beat other plaintiffs to court. Another firm based in Seattle, Washington, Keller Rohrback, was preparing an insulin pricing case led by plaintiff Julia Boss, the mother of a child with type 1 diabetes and head of the Type 1 Diabetes Defense Foundation (T1DF). After considering a filing with Hagens Berman, Keller Rohrback filed Boss v. CVS Health in Trenton on March 17, 2017.
Insulin Pricing was delayed for months while various plaintiffs’ attorneys fought for control of the case. Boss’ determination to sue PBMs from the start, not later—and her disagreement with Hagens Berman on this point—was among the reasons she and Charles Fournier, vice president of T1DF, cut ties with Keller Rohrback, causing a stay in late January. Filing pro se, Boss still seeks to add PBMs to the case; on March 16, 2018, she asked to court to reconsider its consolidation order, so that PBMs could be sued on a separate track.
“Our goal is to realign the interests of payers and consumers. That means passing through rebates and basing cost-sharing on actual net cost to plan for specialty/brand drugs and supplies. A payer who has no perverse incentive to inflate list prices can instead use its negotiating power to exert downward pressure on both list and net prices for analog insulin, glucagon and test strips, returning these to competitive levels,” Boss said in an email to The American Journal of Managed Care® (AJMC®).
In February, a group representing Medicare Advantage and other health plans joined the fray, saying it will use big data tools to prove its case. An attorney involved in the entity, MSP Recovery, told AJMC® in an interview that the entity will be aided by an ability to draw insights from data drawn from up to 100 health plans.
Enrique G. Serna, of Serna & Associates of San Antonio, Texas, said the pooled health plan data will allow MSP Recovery to show connections between rising insulin prices and outcomes like incidence of diabetic ketoacidosis, hospital admissions, and prescriptions being abandoned at pharmacy counters. He said the data are especially compelling in regions of the country with high rates of diabetes. Referring to defendants, Serna said, “We have access to information that they don’t.”
A Year of Delays
For people living with diabetes who use insulin, going to court promised a window into pricing—something that Congress tried to achieve without success. During a protest in 2017 at Eli Lilly headquarters, a company spokesperson called insulin pricing “a complex problem to solve” and said that with rebates, net prices have actually gone down. Financial reports have portrayed all 3 insulin manufacturers as under intense pricing pressure in recent years, and the companies laid off thousands of employees in 2016 and 2017.
Days after the Massachusetts filing, the suit was refiled in the US District Court of New Jersey, where it is now assigned to US District Judges Lois H. Goodman and Brian R. Martinotti. Asked about the move, Hagens Berman spokesperson Ashley Klann said in an email the most important reason was a related investors’ suit against Novo Nordisk that was being heard in Trenton. A February 2017 statement from Hagens Berman said filing the insulin case in the same jurisdiction as the existing investors’ suit helped avoid a multidistrict litigation petition, “which would have slowed the case’s progress.”
Berman and James Cecchi of New Jersey—based Carella Byrne refiled the insulin case, while Cecchi was simultaneously representing investors who were suing Novo Nordisk over disappointing earnings, alleging that earlier reports had been inflated through “collusive price fixing” of the company’s insulin with PBMs.
Despite the jockeying for control, Serna said this decision by Berman prevented an even longer delay. Besides Keller Rohrback, both Weitz & Luxenberg, which has ongoing litigation involving sodium-glucose cotransporter-2 inhibitors, and Berman DeValerio also made bids to control the case. The latter 2 firms claimed Berman’s representation of a drug wholesaler, FWK Holdings, against Sanofi in Massachusetts represented a conflict of interest; they said Berman would have to argue that Sanofi had kept the price of insulin artificially high through wholly different behavior than it used to harm consumers during the same time frame. That argument was rejected, and in September 2017, the various insulin cases were consolidated, with Berman and Cecchi named interim co-lead counsel.
A Dispute Causes a Stay
Records show that Keller Rohrback’s efforts to collaborate with Hagens Berman ended when Berman would not agree to include the PBMs as defendants. In fact, Keller Rohrback attorneys told the court this strategy was one reason the firm should be named lead counsel: “We have no objection to working with Hagens Berman in this case, but [Keller Rohrback] and its clients strongly believe that the PBMs play a central role in the conspiracy and must be named defendants.”
Keller Rohrback also brought in one of New Jersey’s best-known trial attorneys, Michael Critchley, as local counsel; his recent cases include a major patent ruling involving pembrolizumab (Keytruda). He remains counsel to several plaintiffs in Insulin Pricing.
As outlined in their January 30, 2018, letter, Berman and Cecchi are using a legal mechanism called a tolling agreement that allows them “to include one or more of the PBMs as party defendants” as long as this is done “within 180 days after this court has adjudicated all motions to dismiss in Insulin Pricing.” The letter says they can gather evidence from PBMs during the Insulin Pricing suit. The MSP Recovery suit uses a tolling mechanism as well.
But in an email to AJMC®, Fournier wrote that he and Boss had hired Keller Rohrback specifically because they disagreed with this approach. Berman and Cecchi’s filings reveal the strain over this issue. Accounts differ on how much the disagreement caused Boss to part ways with Keller Rohrback, which, having not been named colead counsel, ultimately signed on with the tolling strategy. Berman and Cecchi filed a consolidated complaint on December 26, 2017, that left Boss out. While they acknowledged that Boss has a child with diabetes, Berman and Cecchi wrote, “The opinion of one individual with limited experience in the pharmaceutical industry and no proffered experience with complex civil litigation should not dictate the litigation strategy for the entire class.”
The MSP Recovery case runs parallel to the patient claims. After initially filing suit in Texas, on February 15, 2018, MSP Recovery refiled in New Jersey. The insulin filing alleges that defendants and “unnamed co-conspirators” caused prices to increase through a scheme similar to that outlined in the other suits, citing the False Claims Act and the Anti-Kickback Statute. The case reads, “The Affordable Care Act provides that ‘a person need not have actual knowledge…or specific intent to commit a violation.’”
The MSP Recovery Law Firm is the first to certify class actions and reach settlement under the Medicare Secondary Payer Act identifying thousands of potential cases of healthcare reimbursements where a primary payer was responsible. Spokesperson Diana Diaz said in an interview that the act allows health plans to seek damages from groups like auto insurers, who neglected to pay medical claims they were required to pay.
Meanwhile, Keller Rohrback continues to represent other plaintiffs in related cases that involve pricing for glucagon and test strips. Prescott v. CVS Health alleges that Abbott, Johnson & Johnson, Bayer, Roche, and Ascensia, along with the PBMs, took part in a pricing scheme tied to CMS’ competitive bidding program for test strips, which a study in Diabetes Care found put Medicare beneficiaries at risk. As of March 2, 2018, Boss was listed as a pro se litigant on those cases as well.
Asked to comment on the split with their attorney, Fournier wrote in an email, “During our initial case assessment, we identified payers as key actors in that control the allocation of manufacturer rebates,” and that this and other issues had to be explored.
Despite the pro-consumer pitch of the announcement that UnitedHealthcare will directly pass rebates on to consumers—which Gottlieb referenced in his AHIP remarks—Fournier said this development only shows that payer—PBM nexus has everything to do with what is paid at the pharmacy counter. “In light of defendant UnitedHealth’s announcement…on rebate pass-through, our own counsel’s refusal to proceed on our rebate pass-through claims against PBM/insurer defendants makes no sense,” he wrote.
The RICO Act
Insulin Pricing spells out a series of claims against each insulin maker, charging each with “designing and implementing the scheme” that involved sharing information with PBMs to set benchmark prices and establish rebates. “By subsequently failing to disclose such practices to the individual consumers,” each company and the PBMs “engaged in a fraudulent and unlawful course of conduct, constituting a pattern of racketeering activity.” The MSP Recovery case also cites racketeering claims.
But not everyone agrees that the Racketeer Influenced and Corrupt Organizations (RICO) Act is the best tool. In an online paper, economist Larry Abrams, PhD, a critic of PBMs, wrote that he is skeptical of RICO’s applicability in Insulin Pricing. The situation is not pure price fixing, he said, but coordination between pharmaceutical companies and PBMs, on whom they depend for market access.
“We think the coordination is not overt, but a ‘follow-the-leader’ understanding developed independently over the years. Pharma understands that a move to list price significantly below a competitor only reduces their ability to compete on gross rebates in the second round of this two-step bargaining process,” Abrams wrote.
In the motion to dismiss, attorneys led by Michael Griffinger of Gibbons, based in Newark, New Jersey, mounted a multipart objection to the RICO claim—the most basic point being that consumers do not buy insulin from drug manufacturers directly, something they say is an “insurmountable obstacle” under the law. They also argued that “allegedly excessive pricing is not fraudulent” and that nowhere in their complaint do the plaintiffs make a direct tie between benchmark prices and rebates paid to PBMs.
In fact, the drug firms argued, “to the extent that insured consumers are unhappy that they do not receive the benefit of rebates paid to their insurers and PBMs, their complaint is not with defendants.”
The Investors’ Suit
Meanwhile, the investors’ suit, which gave Berman and Cecchi the New Jersey foothold to control Insulin Pricing, has progressed. In November, Seeger Weiss and Carella Byrne filed new arguments on why the case should not be dismissed, alleging that during 2015 and 2016, Novo Nordisk made false statements about the size and role of rebate payments to PBMs and overstated the superiority of its new long-acting insulin, Tresiba.
Novo Nordisk’s attorneys, Davis Polk & Wardwell of New York City and Gibbons, rejected those arguments in a December 18, 2017, statement supporting their earlier motion to dismiss. They argued that Novo Nordisk “met its publicly disclosed financial guidance for 2015 and 2016” and that the plaintiffs failed to make their case that the company intentionally misled investors. “Even accepting as true that individuals in different business units disagreed about some aspect of budgeting or forecasting, that is not indicative of fraudulent intent,” the statement said.
A spokesperson for Hagens Berman said a dismissal of the investors’ suit would have no bearing on Insulin Pricing. The American Journal of Managed Care® sought comments from representatives at Carella Byrne and Gibbons but did not receive a response.