Pharmaceutical Fracas: Can Misrepresentation Count as Proximate Cause in a Pharma RICO Claim?

BACKGROUND

Pharmaceutical drugs cause side effects – with that notion, there is no dispute. However, the issue of whether patients, physicians, or payors (underwriting insurance companies) are adequately informed of those side effects is often up for dispute. In 2017, Takeda Pharmaceuticals Company finalized a Master Settlement Agreement (MSA), in which it agreed to pay damages to patients who took Actos, a Type II Diabetes medication, and later developed bladder cancer.

In 2017, several additional patients and multiple insurance companies filed a civil Racketeering Influence and Corrupt Organizations Act (“RICO”) action against Takeda for its misrepresentation of Actos’s side effects to prescribing physicians and patients. In Painters and Allied Trades District Council 82 Healthcare Fund v. Takeda Pharmaceuticals Co. (2019), the plaintiffs alleged that neither the patients nor the payors knew the cancer risks associated with Actos at the time of purchase and that neither would have paid for the drug had they known of the risks. The District Court for the Central District of California dismissed the action for failure to state a claim under FRCP 12(b)(6). Plaintiffs appealed to the Ninth Circuit.

To satisfy the standing requirement of a civil RICO claim under 28 U.S.C. § 1964(c), the Ninth Circuit has held that a “plaintiff must show: (1) that [their] alleged harm qualifies as injury to his business or property; and (2) that [their] harm was ‘by reason of’ the RICO violation.” The latter has been interpreted by the Supreme Court to require both proximate and but-for causation in these matters.

In applying these principles to Painters and Allied Trades, the Ninth Circuit reasoned that the patients and the payors were “the most direct victims . . . who suffered economic injury” and thus had sufficiently alleged proximate cause. The Court remanded to the district court for further proceedings. Contention arises on the issue of the standing of the payor, specifically whether a payor can sufficiently allege proximate cause as a result of misrepresentation to prescribing physicians.

THE ISSUE

Is the proximate cause element of a RICO matter satisfied where a third-party payor alleges they would not have underwritten a prescription for a pharmaceutical drug if the drug manufacturer had not misrepresented safety risks to prescribers?

THE SPLIT

In addition to the Ninth Circuit, the First, Second, Third, and Seventh Circuit Courts of Appeals have weighed in on the proximate cause requirements of a RICO matter. The First and Third Circuits both take a similar approach to the Ninth Circuit in Painters and Allied Trades. The Second and Seventh Circuits have held that such an allegation is not a sufficient showing of proximate cause for a RICO case.

The First Circuit ruled similarly to the Ninth Circuit in In re Neurontin Marketing and Sales Practices Litigation (2013), where a jury awarded Kaiser Foundation Health Plan damages for misrepresentation of a drug’s off-label use. Kaiser made its allegations as an insurance company covering the cost of prescriptions (“third-party-payor”). The drug, Neurontin, was manufactured and sold by Pfizer. The FDA approved Neurontin for the treatment of shingles-related seizures and pain. However, Kaiser alleged that Pfizer had misrepresented and promoted the drug to payors and providers as an effective treatment of bipolar disorder, neuropathic pain, and migraines. A public health and economics expert testified that, nationally, approximately 99.4% of Neurontin prescriptions for bipolar disorder, 70% of Neurontin prescriptions for neuropathic pain, and 27.9% of Neurontin prescriptions for migraines, would not have been written if Pfizer had not engaged in a fraudulent misrepresentation campaign. Kaiser thus alleged that its underwriting was a direct result of the misrepresentations. The First Circuit found this allegation, and the chain of causation, to be adequate for proximate cause under RICO. The Supreme Court denied Pfizer’s petition for writs of certiorari addressing this and two other similar matters.

Likewise, the Third Circuit ruled in favor of a class of payors that sued GlaxoSmithKline under RICO for deceptive marketing of Type II diabetes medications. The plaintiffs in In re Avandia Marketing, Sales Practices & Products Liability Litigation (2016)were union health and welfare funds that underwrote Avandia prescriptions for members instead of less expensive alternatives. This decision to cover was based on GSK’s representations to physicians about Avandia being safer than less expensive alternatives (of which Actos was one). Years of regulations and studies proved that this was patently false. In 2010, the Senate concluded that GSK had failed to warn the FDA and the public of the side effects of Avandia, and that GSK had attempted to downplay and misrepresent the potential heart-related risks. The plaintiffs alleged that there was a sufficient connection between the manufacturer’s years-long misrepresentation of Avandia and its underwriting of prescriptions for the drug. The Third Circuit deemed this reliance to be sufficient for the RICO proximate cause requirement. The Supreme Court denied certiorari.

Unlike the First and Third Circuits, the Second Circuit declined to find underwriting as a result of misrepresentation sufficient to allege proximate cause. In UFCW Local 1776 vs. Eli Lilly & Co. (2010), it summarily rejected doctor reliance national misrepresentation campaigns as a sufficient showing of but-for causation. There, Eli Lilly & Co. had minimized the drug Zyprexa’s risk of diabetes and hyperglycemia to patients and prescribers across the United States, Europe, and Asia. It also made “excessive claims of utility” and overcharged for the drug. The Second Circuit ruled that because doctors do not “generally consider the price of a medication when deciding what to prescribe for an individual patient[,]” the doctors’ reliance on misrepresented utility and potential side effects was not a proximate cause of the price that the third-party payors ultimately paid for the drug. This, the Second Circuit reasoned, was too attenuated to award damages to payors under RICO. In combination with other matters against Eli Lilly & Co., the Supreme Court denied certiorari.

The Seventh Circuit in Sidney Hillman Health Center of Rochester v. Abbott Laboratories (2017) made a conclusion similar to that of the Second Circuit. Plaintiffs in Sidney Hillman were insurers that underwrote member off-label prescriptions for Depakote. The drug, manufactured by Abbott Laboratories, was approved by the FDA for treatment of seizures, migraines, and certain conditions related to bipolar disorder. Abbott marketed the drug to physicians as effective in treating schizophrenia, dementia, and attention deficit hyperactivity disorder (ADHD). In 2012, Abbott pleaded guilty to criminal actions and settled civil actions resulting from this off-label promotion. In an opinion by Judge Easterbrook, the Seventh Circuit panel ruled that payors’ claims were too attenuated since the misrepresentation was directed only at physicians. Payors were “several levels removed in the causal sequence[,]” and thus could not satisfy the RICO proximate cause requirement.

LOOKING FORWARD

In the age of increasing opioid litigation, the debate over payor recovery for drug company misrepresentations to prescribing physicians is a debate ripe for review. The Supreme Court has denied certiorari from parties on both sides of this split. However, given the increased scrutiny of pharmaceutical companies as a result of the national opioid crisis, the Court may soon be forced to consider proximate cause requirements in civil RICO matters of “payor versus pharma.”

Having Your Healthcare and Paying For It Too: The Use of Federal Funds at Planned Parenthood

Background

On December 14, 2017, as then-President Obama prepared to leave office, he issued a rule prohibiting states from withholding federal family-planning funds from health clinics that perform abortions, such as Planned Parenthood.  Four months later, on April 13, 2017, President Trump signed a bill reversing that rule.  These actions reflect an ongoing battle over funding for Planned Parenthood and similar clinics.

The Split

Following the release of controversial video footage in 2015, which purported to show Planned Parenthood officials trying to sell fetal tissue for profit, the Arkansas Department of Human Services terminated its Medicaid provider agreements with Planned Parenthood of Arkansas and Eastern Oklahoma.  Three Jane Does—Planned Parenthood patients—sued the Director of the Department under 42 U.S.C. § 1983, alleging that the Department violated their federal right to choose any “qualified” provider under the Medicaid Act.  The district court entered an injunction preventing DHS from suspending payments for services rendered to a class of Medicaid beneficiaries.  In Does v. Gillespie, the Eighth Circuit vacated the injunction on August 16, 2017.  It held that § 23(A) of the Medicaid Act does not create an enforceable right for patients to receive services from any “qualified” provider, and found three significant difficulties with such a contention.  First, it found that the Act is “two steps removed from the interests of the patients” seeking services from a provider through Medicaid:

“A statute that speaks to the government official who will regulate the recipient of federal funding ‘does not confer the sort of ‘individual entitlement’ that is enforceable under § 1983.’…Even where a subsidiary provision includes mandatory language that ultimately benefits individuals, a statute phrased as a directive to a federal agency typically does not confer enforceable federal rights on the individuals.”

Second, the Eighth Circuit found that it could reasonably conclude that Congress did not intend to create such an enforceable right under § 1983 because through the withholding of federal funds, Congress provided another means of enforcing a state’s compliance.  Third, the Eighth Circuit held that “statutes with an ‘aggregate’ focus do not give rise to individual rights.”

The Fifth, Sixth, Seventh, and Ninth Circuits disagree.  All have held that there is a right of action for enforcement of the Medicaid Act’s choice-of-provider provision.  The Seventh Circuit held in Planned Parenthood of Indiana, Inc. v. Commissioner of the Indiana State Department of Health (2012) that § 23(a) of the Medicaid Act “is individual-rights language, stated in mandatory terms.”  It continued:

“Although Indiana has broad authority to exclude unqualified providers from its Medicaid program, the State does not have plenary authority to exclude a class of providers for any reason—more particularly, for a reason unrelated to provider qualifications. In this context, ‘qualified’ means fit to provide the necessary medical services—that is, capable of performing the needed medical services in a professionally competent, safe, legal, and ethical manner. The defunding law excludes Planned Parenthood from Medicaid for a reason unrelated to its fitness to provide medical services, violating its patients’ statutory right to obtain medical care from the qualified provider of their choice.”

The Ninth Circuit agreed with the Seventh Circuit in Planned Parenthood Arizona Inc. v. Betlach (2013).  Notably, it found it “evident” that “Congress intended the free-choice-of-provider requirement to create an individual right.”

Looking Forward 

Whether there is an individual right to enforce the provision of the Medicaid Act allowing a patient’s choice of any “qualified” provider under 42 U.S.C. § 1983 is an issue ripe for review by the Supreme Court.  Given the Trump administration’s stance on women’s healthcare, including the rollback of President Obama’s last effort to safeguard federal family-planning funds for Planned Parenthood and similar clinics, this is a highly contentious and controversial issue.

Planned Parenthood is a politically, religiously, and emotionally charged subject in the U.S. culture war, and is often a partisan matter.  In 2012, the Obama administration filed an amicus brief in support of the organization in Planned Parenthood of Indiana.  The Trump administration’s differing position, combined with the addition of Justice Gorsuch on the Supreme Court, make this an even more prominent issue.  The dissent Justice Gorsuch wrote in Planned Parenthood Association v. Herbert (10th Cir. 2016) leave many “freedom of choice” supporters fearful of the accessibility of women’s healthcare options in the future.