HARRISBURG, Pa. — (Mealey’s) The Pennsylvania Supreme Court on June 16 vacated a $27.7 million drug pricing judgment against drug maker Bristol-Myers Squibb Co. (BMS) because a trial court failed to account for billions of dollars in drug rebates paid to the state government (Commonwealth of Pennsylvania v. TAP Pharmaceutical Products, et al., No. 85 MAP 2011, Pa. Sup.).
(Majority opinion available. Document #28-140620-017Z. Concurring opinion available. Document #28-140620-018Z.)
However, rather than end the case, the court accepted the suggestion of Justice Max Baer to remand the case to the Commonwealth Court for reconsideration in light of the Supreme Court’s decision.
In 2004, the Commonwealth of Pennsylvania sued BMS and 13 other drug manufacturers in the Commonwealth Court, alleging that they engaged in deceptive trade practices between 1991 and 2008 by causing inflated average wholesale prices (AWPs) for brand-name drugs to be published in price lists used to determine how much state health programs pay for drug prescriptions. They allege that the inflated costs resulted in overpayments by the state.
The state alleged negligent misrepresentation, fraud, civil conspiracy, unjust enrichment and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).
Defense Verdict, Then Trade Penalties
As part of its defense, BMS argued that it was entitled to a setoff for drug rebates if any damages are awarded against it. The trial court denied the state’s attempt to exclude evidence about rebates.
The case against BMS went to trial, and at the end of the state’s case, the trial court granted BMS’s motion for nonsuit for unjust enrichment. The jury found for BMS on the fraud and negligent misrepresentation claims and did not have to decide on civil conspiracy.
After the trial, the court found that BMS violated the UTPCPL by engaging in unfair and deceptive trade practices. The court enjoined BMS against reporting AWPs to state agencies and promoting “marketing spreads” for drugs paid for by the state.
$27.7M ‘Restoration Damages’
The court also awarded the state “restoration damages” of $27,617,952. The court said that although the jury had issued a defense verdict on other counts, the standard for UTPCPL claims is different than common law actions.
BMS filed a motion for post-trial relief, and a three-judge Commonwealth Court panel changed the wording of the injunction and, sua sponte, increased the restoration damages to $27,715,904 due to a mathematical error.
BMS appealed to the Supreme Court, arguing that the methodology used to calculate damages was fundamentally flawed because unrebutted defense evidence demonstrated that BMS paid the state more than $164 million in rebates in the relevant time period, amount that exceed the restoration damages.
Ignored Rebates ‘Disturbing’
The Supreme Court majority said that while it has concerns about the Commonwealth Court’s witness credibility judgments, the rebate question is a straightforward matter of law. “If it is not already clear from the above, we are disturbed by the Commonwealth’s failure to account in this litigation for the billions of dollars of rebate monies it has received from defendant drug manufacturers in the relevant time period.”
Despite “obfuscatory” evidence from the state, the majority said “this Court is not in need of a body of evidence to apprehend that a rebate operates to reduce the net price of a commodity.”
The majority also said the state’s economist did not explain why he ignored rebates, only saying he chose not to consider them. The majority said it is “astonishing” that the Commonwealth Court “could permit the Commonwealth to accept a billion dollars in rebates relative to social welfare reimbursements while giving no credit to the payers.”
Remedial Measures Not Used
“The Commonwealth may have many grievances about how convoluted pricing has become in the pharmaceutical trade and various manipulative practices on the part of participant actors which may be masked by such complexity,” the majority said. “Nevertheless, federal and state law have provided very specific remedial and compensatory measures — laid squarely at the feet of drug manufacturers — and, in the present case, the Commonwealth failed to so much as attempt to show that these were in any sense inadequate.”
“The Commonwealth Court might have cabined the ten-year course of this litigation by recognizing — earlier on — the significance of rebates to prices, and, failing that, it should have taken good guidance from the jury which was empaneled,” the majority continued. “By the Commonwealth’s abject failure to account responsibly for rebates taken from the defendants it sued, it has proved no harm as a result of pharmaceutical-company pricing practices, and we decline to sustain any judgment in the circumstances as they have come before us here.”
The majority said its justices “would bring this protracted litigation to a close,” but the concurring opinion of Justice Baer convinced them that the matter should be remanded to the Commonwealth Court for further consideration in light of the Supreme Court’s analysis.
Remand To Avoid Bad Result
“Notably, this sort of impasse has yielded troubling results in previous cases,” the majority said. “Solely in order to avoid an untenable result here, we will accede to the remand which Justice Baer proposes, on the terms which he specified.”
In his concurring opinion, Justice Baer said he is not certain that the errors articulated in the majority opinion “necessarily nullify the judgment upon liability and conclude this case entirely concerning alleged violations of consumer protection and trade practices in terms of damagers, counsel fees or costs.”
He said he favored remanding the case so that the Commonwealth Court “may decide if the rebate issue as discussed in the [opinion announcing the judgment of the court] puts an end to the litigation.” He said a remand would provide the parties and the court with “a full opportunity for hearing in order to consider how the rebate issue affects the verdict and all aspects of this complex litigation.”
Justice Thomas G. Saylor wrote the majority opinion. Chief Justice Ronald D. Castille and Justice J. Michael Eakin joined the opinion announcing the judgment of the court.
Judge Baer wrote the concurring opinion and was joined by Justices Debra McCloskey Todd and Seamus McCaffrey.
Justice Correalle F. Stevens did not participate in the decision.
BMS is represented by Robert C. Heim, William T. McEnroe, Albert Suh and Jennings Fuqua Durand of Dechert in Philadelphia; Steven M. Edwards, Lyndon M. Trotter and James S. Zucker of Hogan Lovells in New York; David Newmann of Hogan Lovells in Philadelphia; Stephen Loney Jr. of Hogan & Hartson in Philadelphia; C. Michael Moore of Sonneschein, Nath & Rosenthal in Dallas and Jack M. Stover, Jayson R. Wolfsen of Buchannan, Ingersoll & Rooney in Harrisburg.
Pennsylvania is represented by Donald E. Haviland Jr. and Dean R. Phillips of Haviland Hughes in Philadelphia; Attorney General Kathleen G. Kane, Joseph S. Betsko, James A. Donahue and Norman W. Marden of the Pennsylvania Attorney General’s Office in Harrisburg; William O. Crutchlow of Eichen, Levinson & Crutchlow in Edison, N.J.; John M. Elliott of Elliott, Greenleaf & Siedzilkowski in Blue Bell, Pa.; and Judith Pinsof Meyer of J.P. Meyer Associates in Haverford, Pa.
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