On March 7, 2012, four health benefit plans—the New England Carpenters Health and Welfare Fund, the Plumbers and Pipefitters Local 572 Health and Welfare Fund, the Sergeants Benevolent Association, and the AFSCME District Council 37 Health and Security Plan Trust—filed six class action lawsuits against eight pharmaceutical manufacturers—Abbott Laboratories, Amgen, Inc., AstraZeneca, Bristol-Myers Squibb, Co., GlaxoSmithKline, Merck & Co., Inc. Novartis Pharmaceutical Corp., and Pfizer, Inc.—in four different federal courts—the Eastern District of Pennsylvania, the District of New Jersey, the Northern District of Illinois, and the Eastern District of New York. These suits allege the manufacturers’ sponsorship of co-payment assistance programs and their provision of co-payment assistance to individuals violate the Racketeer Influence and Corrupt Organizations Act (RICO) and constitute illegal kickbacks in violation of the Robinson Patman Act. The lawsuits are being coordinated by the Community Catalyst Prescription Access Litigation project.

Under the manufacturer-sponsored programs at issue, the manufacturer of a brand name drug pays some or all of the co-payment and/or co-insurance obligations of individuals under their health plans when they fill a prescription for the drug covered by the company’s program. Prescription drug claims submitted to the co-payment assistance programs by dispensing pharmacies are adjudicated in a manner similar to secondary insurance coverage. To receive coverage under most co-payment assistance programs, individuals must enroll in the program. They then are provided a benefit card to present to the dispensing pharmacy. The pharmacy uses the information on the benefit card to process the pharmacy claim and it is paid directly by the manufacturer for the patient’s co-payment or co-insurance obligation. In most cases, the patient’s health plan is unaware that the required cost sharing amount was paid by the manufacturer, not the patient.

Pharmacy benefit managers, third party insurance administrators, and health plans have long criticized the existence of such manufacturer-sponsored co-payment assistance programs as undermining the health plan design features intended to align the financial interests of individual insured members and their health plans. Tiered formularies and stepped co-payments and/or co-insurance are employed by plans to encourage their members to utilize generic and less costly brand medications instead of more costly brands in a given therapeutic class. However, when a manufacturer-sponsored co-payment assistance program pays all or a substantial portion of an individual’s cost sharing for a more costly brand name drug, the individual’s financial incentive to use a less costly therapeutic alternative is eliminated. The health plan’s cost for the more expensive branded drug in a higher formulary tier is greater, but the patient’s out-of-pocket cost for the medication is typically lower than that for a generic or a less costly brand alternative.

The virtually identical complaints allege that the payments for individual co-payment and/or co-insurance obligations by the defendants’ coupon programs amount to illegal bribes in violation of Section 2(c) of the Robinson Patman Act. That provision broadly prohibits brokers, agents, and other intermediaries between sellers and buyers from receiving payments that are not for services rendered. The plaintiffs argue health plans represent the buyers of prescription drugs for their insured members while the individual insureds are akin to intermediaries between the health plan buyers and the pharmaceutical manufacturer sellers. In addition, the plaintiffs allege the defendant manufacturers have utilized United States mail and wires to perpetrate insurance fraud in violation of RICO. They argue insurance fraud occurred because health plans were billed for prescription drugs at rates that included co-payment or co-insurance amounts that were in effect “waived” by the underlying pharmaceutical manufacturers through their co-payment assistance programs.

This case has potentially significant implications for the marketing strategies used by many brand manufacturers when new products are launched or when competition within a therapeutic class is particularly intense. Arent Fox intends to monitor the case carefully and to keep our clients apprised of major developments.