Commercial Litigation and Arbitration

Insurers Suffer No RICO Injury in Covering More Expensive, Off-Label Use of Patented Drug Prescribed Due to Fraudulent Representations of Drug Company to Doctors

From Ironworkers Local Union 68 v. Astrazeneca Pharma., LP, 2011 U.S. App. LEXIS 4960 (11th Cir. Mar. 11, 2011):

These cases involve payments made by health insurers for 1 the prescription drug Seroquel, an antipsychotic medication manufactured and marketed in the United States by AstraZeneca Pharmaceuticals LP ("AstraZeneca"). Seroquel has received Food and Drug Administration ("FDA") approval for the treatment of schizophrenia and bipolar disorder. The drug, however, has been used to treat various other diseases and disorders, even though the FDA has not approved it for such uses. The practice of prescribing a drug for a use not approved by the FDA, commonly referred to as "off-label" use, is both legal and commonplace in the medical community.

The insurers claim that physicians prescribed Seroquel for many of these off-label uses because AstraZeneca fraudulently induced them to do so. Specifically, the insurers say that AstraZeneca, through an illegal off-label marketing campaign, falsely represented that Seroquel was safer and more effective in treating many off-label conditions than less expensive drugs also used to treat those conditions. Physicians, in turn, relying on AstraZeneca's false representations, prescribed Seroquel instead of the cheaper--and sometimes safer or more effective--substitutes to the insurers' insureds ("enrollees"). As a result, because the insurers' insurance policies covered payment for Seroquel — either in full or in part, depending on whether the policies obligated enrollees to pay a prescription drug copayment ("co-pay") — the insurers claim that AstraZeneca's fraud caused them "to unnecessarily pay for [the more expensive] Seroquel off-label prescriptions." Absent the fraud, they say they would have paid less for their enrollees' prescription drugs. Consequently, the insurers seek to recover the difference between the amount that was paid for the off-label Seroquel prescriptions and the amount that would have been paid for the less expensive substitutes. ***

A plaintiff asserting a claim under § 1964(c) of RICO must allege economic injury arising from the defendant's actions. ***

Although there is a dearth of Eleventh Circuit precedent on the issue, for tort-based causes of action, the scope of potential economic injury arising from a patient's — or her health insurer's — purchases of prescription drugs is limited. As the district court noted, when a doctor prescribes a drug, he presumably does so only if, in the exercise of his independent medical judgment, he believes the drug will benefit his patient. *** This presumption applies regardless of whether the prescription is for an FDA-approved or off-label use.

Several considerations shape the physician's medical judgment, including both individual patient concerns and drug-specific information regarding the propriety of a drug's use for treatment of a patient's given condition — that is, a drug's relevant safety and efficacy under the circumstances. *** The physician learns about a drug through multiple sources, only one of which might be the drug manufacturer's promotions and literature. For instance, physicians typically obtain additional information about a drug's putative uses from journals, meetings, and conventions.

In light of physicians' exercise of professional judgment, a patient suffers no economic injury merely by being prescribed and paying for a more expensive drug; instead, the prescription additionally must have been unnecessary or inappropriate according to sound medical practice — i.e., the drug was either ineffective or unsafe for the prescribed use. This is true even when the physician's decision to prescribe the more expensive drug in lieu of a cheaper alternative is the product of fraud. *** To allow recovery based purely on the fact that the prescription was comparatively more expensive than an alternative drug — but otherwise safe and effective — would mean that physicians owe their patients a professional duty to consider a drug's price when making a prescription decision.

No such duty exists. ***

Rather, to assert an economic injury, the plaintiff must allege that her purchase payments were the product of a physician's medically unnecessary or inappropriate prescriptions. The issue of whether prescriptions are medically unnecessary or inappropriate — like most health care delivery questions — depends on the standards of practice in the medical profession. *** Therefore, the prescription allegedly must be one that, in the practice of profession-accepted sound medicine, the physician should not have prescribed because the drug was unsafe or ineffective for its prescribed use. ***

Thus, when a physician's decision to prescribe a drug for a particular use purportedly was caused by false representations concerning the drug's safety and efficacy in that use, a plaintiff must allege that she not only paid for the drug, but also that its prescription was medically unnecessary or inappropriate. To make this showing, the payer-plaintiff must allege a counterfactual: that her physician--had he known all the true information about the medication--would not have prescribed the drug under the standards of sound medical practice because the drug actually was unsafe or ineffective in treating the plaintiff's condition. See, e.g., In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774, 2009 WL 2043604, at *16-20 (D.N.J. 2009) (concluding, in a case with similar facts, that insurers failed to plead RICO injury to their business or property where they failed to allege that their enrollees "'received inadequate [or] inferior [drugs] or even worse, suffered personal injuries as a result of Defendants' alleged misrepresentations.'" (quoting Maio, 221 F.3d at 488)). ***

[W]e find that the insurers have not alleged plausible economic injury arising from their payments for medically unnecessary or inappropriate off-label Seroquel prescriptions caused by AstraZeneca's false representations to physicians. Insurers, to sustain profitability, charge their enrollees an up-front fee, i.e., a "premium," in exchange for insurance coverage. Typically, insurers adjust premiums to compensate for known risks assumed under that coverage. Here, the insurers assumed the risk of paying for all prescriptions of drugs covered by their policies, including medically unnecessary or inappropriate prescriptions--even those caused by fraudulent marketing. The insurers, however, have not pled any facts to suggest plausibly that they did not charge their enrollees premiums or, in turn, adjust those premiums to compensate for this known risk. Furthermore, to the extent the insurers' payments for medically unnecessary or inappropriate off-label Seroquel prescriptions exceeded the premiums they collected, AstraZeneca should not be held liable for the insurers' actuarial errors. ***

Because the value of estimated claims drives the premium rate, the premium charged for a policy largely depends on the scope of coverage under that policy. The broader the coverage offered--i.e., the more health care services indemnified by the insurer--the higher the premiums charged for that policy. In other words, covering more health care services creates a likelihood of more claims and, correspondingly, a greater projected claims value. The insurer will fund these higher costs through escalated premiums. ***

Although placed on the formularies based only upon its FDA-approved uses, Seroquel's placement on those formularies contractually obligated the insurers to pay the drug's price anytime it was prescribed. Therefore, the insurers had to pay regardless of the facts surrounding that prescription; they had to pay if the drug was prescribed for an FDA-approved use or an off-label use--even if the prescription was medically unnecessary or inappropriate.

The insurers, however, could have excluded coverage for medically unnecessary or inappropriate prescriptions of Seroquel and other formulary-listed drugs. The complaint itself suggests one technique available to them: preauthorization review. ***

Here, however, the insurers made the conscious business decision not to require preauthorization review in their policies. *** Instead, they voluntarily assumed the risk of paying for all prescriptions of Seroquel, including prescriptions for off-label uses that were medically unnecessary or inappropriate. ***

We therefore must infer that the insurers do charge premiums established in that conventional manner. As a consequence, because the insurers consciously chose to assume the risk of paying for all medically unnecessary or inappropriate prescriptions of formulary-listed drugs--like Seroquel--we must further infer that they adjusted their premiums upward to reflect the projected value of claims for these prescriptions. 34 Such estimates, when calculated properly, take into account all known risks that might cause the insurers to pay for medically unnecessary or inappropriate prescriptions.

One such risk is fraud within the health care industry. Fraud is a well-known contributor to increased costs for health care services. ***

[T]he risk that fraud--including fraudulent marketing by drug manufactures--might result in insurers paying for medically unnecessary or inappropriate prescriptions is just another cost to be factored into premiums.

***[T]he insurers gambled that their estimates would prove sufficient to cover their payments for all medically unnecessary or inappropriate off-label Seroquel prescriptions. If their estimates exceeded the actual payments for these drugs, then the insurers paid nothing out of pocket to purchase Seroquel; instead, they earned a profit on their bargain.***If the insurers achieved this outcome, then their enrollees lost--having paid for more prescription drug coverage than they needed. If, however, the insurers' estimates fell short of actual payments, their own business mistakes caused their loss. AstraZeneca cannot be held to reinsure the insurers' sophisticated actuarial decisions.

Footnote 35. The Seventh Circuit illustrated this point well in Int'l Bhd. of Teamsters Local 734, stating:

An auto insurer that charges male drivers under the age of 26 an extra premium to reflect the increased probability of dangerous driving can't also sue auto manufacturers for selling cars to these drivers and putting the youths in a position to cause accidents. Logically insurers could collect only for the net outlay produced by the risky activity; but there will be such a net outlay only if the insurers' actuaries are not calculating rates correctly.

196 F.3d at 824 (emphasis added).

Either way, the insurers have not alleged facts suggesting that they plausibly suffered economic injury caused by AstraZeneca's false representations.

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