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Commonwealth of Pennsylvania v. Tap Pharmaceutical Products

August 31, 2011

COMMONWEALTH OF PENNSYLVANIA, PLAINTIFF
v.
TAP PHARMACEUTICAL PRODUCTS, INC.; ABBOTT LABORATORIES; ASTRAZENECA PLC; ASTRAZENECA, HOLDINGS, INC.; ASTRAZENECA PHARMACEUTICALS LP; ASTRAZENECA LP; BAYER AG; BAYER CORPORATION; SMITHKLINE BEECHAM CORPORATION D/B/A GLAXOSMITHKLINE; PFIZER, INC.; PHARMACIA CORPORATION; JOHNSON & JOHNSON; ALZA CORPORATION; CENTOCOR, INC.; ETHICON, INC.; JANSSEN PHARMACEUTICAL PRODUCTS, L.P.; MCNEIL-PPC, INC.; ORTHO BIOTECH, INC.; ORTHO BIOTECH PRODUCTS; L.P.; ORTHO-MCNEIL PHARMACEUTICAL, INC; AMGEN, INC.; IMMUNEX CORPORATION; BRISTOL-MYERS SQUIBB COMPANY; BAXTER INTERNATIONAL INC.; BAXTER HEALTHCARE CORPORATION; IMMUNO-U.S., INC.; AVENTIS PHARMACEUTICALS, INC.; AVENTIS BEHRING, L.L.C.; HOECHST MARION ROUSSEL, INC., BOEHRINGER INGELHEIM CORPORATION; BOEHRINGER INGELHEIM PHARMACEUTICALS, INC.; BEN VENUE LABORATORIES; BEDFORD LABORATORIES; ROXANE LABORATORIES; SCHERING-PLOUGH CORPORATION; WARRICK PHARMACEUTICALS CORPORATION; SCHERING SALES CORPORATION; DEY, INC., DEFENDANTS



The opinion of the court was delivered by: BY Judge Simpson

Argued: May 9, 2011

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE ROBERT SIMPSON, Judge (P) HONORABLE BARRY F. FEUDALE, Senior Judge

OPINION

OPINION re POST-TRIAL MOTIONS

of the COMMONWEALTH of PENNSYLVANIA and BRISTOL-MYERS SQUIBB COMPANY

TABLE OF CONTENTS

I. BACKGROUND..........................................................................6

A. Opening.............................................................................6

B. History...............................................................................9

1. Average Wholesale Price - Origin & Evolution.......................9

2. Plaintiff Agencies.........................................................15

a. DPW/Pennsylvania Medicaid....................................15

b. Department of Aging/PACE.....................................17

3. BMS........................................................................19

C. Procedural History...............................................................20

II. BMS' CHALLENGE TO STATUTORY INJUNCTION......................26

A. Summary of BMS‟ Argument..................................................26

B. Sufficiency of Evidence.........................................................28

1. Contentions................................................................28

2. Analysis.....................................................................29

C. Alleged Irreparable Harm to Others...........................................36

1. Alleged Irreparable Harm to Innocent Third Parties.................36

a. Contentions.........................................................36

b. Analysis............................................................37

i. Waiver.......................................................37 ii. Failure of Proof............................................39 iii. Modification of Injunction...............................41

iv. Failure of Legal Support.................................42

2. Alleged Procedural Defect...............................................47

a. Contentions.........................................................47

b. Analysis............................................................47

3. Alleged Interference with Statutory/Regulatory Schemes..........49

a. Contentions.........................................................49

b. Analysis............................................................51

4. Alleged Irreparable Harm to BMS......................................53

a. Contentions.........................................................53

b. Analysis............................................................54

2

5. Alleged Commerce Clause Violation..................................57

a. Contentions.........................................................57

b. Analysis............................................................58

6. Balancing the Harm......................................................61

a. Contentions.........................................................61

b. Analysis............................................................62

D. Alleged Lack of Urgent Necessity.............................................63

1. Alleged Inconsistency in the Decision.................................63

a. Contentions...................................................... .63

b. Waiver...............................................................63

c. Standard for Injunction under CPL..............................64

d. Urgent Necessity...................................................69

2. Alleged Lack of Ongoing Injury........................................79

a. Contentions.........................................................79

b. Analysis............................................................80

3. Alleged Failure to Provide Meaningful Relief........................80

a. Contentions.........................................................80

b. Analysis.............................................................82

i. Waiver.......................................................82 ii. AWP Confusion...........................................83 iii. OIG Reports, Surveys and Price Audits................91

iv. AMPs and ASPs...........................................92

v. Conclusion..................................................93

4. Alleged Harm Compensable by Monetary Damages.................94

a. Contentions.........................................................94

b. Analysis............................................................95

E. Alleged Lack of Clear Right to Relief.........................................96

1. Alleged Inconsistency with Jury Verdict..............................97

a. Contentions.........................................................97

b. Analysis............................................................99

2. Alleged Lack of Fraudulent or Deceptive Conduct.................105

a. Contentions.......................................................105

b. Analysis...........................................................106

3. Alleged Inconsistency of Decision with MDL 2007 Opinion.....108

a. Contentions.......................................................108

b. Analysis...........................................................110

4. Alleged Lack of Proof of Overpayment..............................114

a. Contentions.......................................................114

b. Analysis...........................................................115

5. Alleged Lack of Proof of Spread Marketing........................118

a. Contentions.......................................................118

3

b. Analysis...........................................................118

III. BMS' CHALLENGE TO STATUTORY RESTORATION................120

A. Alleged Lack of Statutory Basis for Restoration...........................120

1. Contentions...............................................................120

2. Analysis...................................................................122

B. Alleged Inconsistency with Dismissal of Unjust Enrichment Claim....124

1. Contentions...............................................................124

2. Analysis...................................................................125

C. Alleged Absence of Overpayment............................................126

1. Contentions...............................................................126

2. Analysis...................................................................127

D. Alleged Flawed Damage Estimate...........................................129

1. BMS Contentions........................................................129

a. Drugs Not in the Case...........................................129

b. Challenge to "But For" Methodology........................129

c. Rebates............................................................130

2. Analysis...................................................................130

a. Generally..........................................................130

b. Drugs Not in the Case...........................................132

c. Challenge to "But For" Methodology.........................133

d. Rebates............................................................135

E. Alleged Inconsistency with Jury Verdict.....................................136

1. Contentions...............................................................136

2. Analysis...................................................................137

F. Alleged Impropriety of Award in Suit on behalf of DPW and PACE...138

1. Contentions...............................................................138

2. Analysis...................................................................140

IV. OTHER EVIDENTIARY ISSUES...............................................144

V. BMS' REQUEST FOR STAY......................................................145

A. Generally........................................................................145

B. Likely to Prevail on Merits....................................................145

C. Irreparable Injury without Stay................................................148

4

D. Stay Not Harm Other Parties...................................................................................................................................................................... ...148

E. Stay Not Adversely Affect Public.....................................................149

F. Conclusion........................................................................ .149

VI. COMMONWEALTH'S CHALLENGE TO VERDICT ON

COMMON LAW CLAIMS............................................................... .150

A. Standards for Analyzing Motions for JNOV and New Trial.....................150

B. Elements of Negligent Misrepresentation Claim/Section 552 of the

Restatement (Second) of Torts........................................................151

C. Preliminary Matters....................................................................154

D. JNOV - Negligent Misrepresentation...............................................155

1. Waiver..................................................................... .156

a. Contentions...............................................................156

b. Analysis............................................................ ...156

2. Merits.............................................................................157

a. Entitlement to JNOV based on the sufficiency of the evidence...157

i. Contentions................................................... .157

ii. Analysis...........................................................158

b. JNOV "as a matter of law".............................................162

i. Contentions........................................................162 ii. Analysis...........................................................163

c. Practical Considerations................................................165

E. New Trial - Negligent Misrepresentation............................................166

1. General, non-particularized evidence regarding knowledge...............167

a. Contentions................................................................167

b. Analysis....................................................................167

2. Reasonable reliance evidence...................................................169

a. Contentions................................................................169

b. Analysis....................................................................169

3. Evidence beyond the relevant time period....................................171

a. Contentions................................................................171

b. Analysis....................................................................172

4. Evidence of wrongful conduct.................................................175

a. Contentions................................................................175

b. Analysis....................................................................175

5. Practical Considerations........................................................176

5

F. Conspiracy - Motions for JNOV and New Trial...........................176

1. Contentions...............................................................176

2. Analysis...................................................................178

a. Waiver.............................................................178

b. Merits..............................................................180

3. Alleged Evidentiary Errors.............................................181

VII. COMMONWEALTH'S REQUEST FOR MODIFICATION

OF DECISION REGARDING CPL..................................................182

A. Contentions......................................................................182

1. Costs.......................................................................183

2. Attorney Fees............................................................184

3. Civil Penalties............................................................185

B. Analysis..........................................................................186

1. Costs.......................................................................186

2. Attorney Fees............................................................189

3. Civil Penalties............................................................189

VIII. CONCLUSION.....................................................................190

I. BACKGROUND

A. Opening

This complex original jurisdiction action, which comes before a panel of this Court for a third time, involves the pricing of pharmaceuticals reimbursed by the Pennsylvania Department of Public Welfare (DPW), which administers Pennsylvania‟s Medicaid program, and by the Department of Aging, which administers the Pharmaceutical Assistance Contract for the Elderly (PACE) program, based on Average Wholesale Price (AWP) between 1991 and 2008.

In particular, the Commonwealth, through its Attorney General, filed suit against numerous pharmaceutical companies, including defendant Bristol- Myers Squibb Co. (BMS), which, the Commonwealth claimed, engaged in improper conduct that caused DPW and PACE (collectively, "Plaintiff Agencies") to pay inflated prices for pharmaceuticals the defendant pharmaceutical companies manufactured, marketed and sold. Among other things, the Commonwealth alleged the defendant pharmaceutical companies, including BMS, reported or contributed to the reporting of inflated AWPs for certain specified drugs that are published in commercial publications and that these inflated prices caused overpayment by DPW and PACE, which relied on these reported prices.

Central among the Commonwealth‟s claims is that the published AWPs for BMS‟ drugs are fictitious because they do not reflect an accurate average wholesale price charged by wholesalers to providers, including physicians and pharmacists. Because AWP was the predominant benchmark for reimbursement by government and third-party payors, including DPW and PACE, the Commonwealth asserted BMS and other pharmaceutical companies inflated or contributed to the inflation of each drug‟s AWP to create a "spread" between a provider‟s actual acquisition cost and the fictitious, published AWP, and that pharmaceutical companies, including BMS, market this spread in order to gain market share over a competitor‟s drug.

The Commonwealth‟s suit against Defendant BMS, which asserted claims of common law fraud or misrepresentation and civil conspiracy, as well as violations of the Unfair Trade Practices and Consumer Protection Law (CPL),*fn1 culminated in a five-week jury trial. After the close of evidence, issues relating tothe Commonwealth‟s claims of fraud or misrepresentation and civil conspiracy were submitted to the jury, while issues relating to the statutory claims were submitted to the trial judge for non-jury decision.

Ultimately, the jury returned a verdict in favor of BMS on the common law claims. Shortly thereafter, the trial judge issued a Decision Awarding Injunction and Restoration (Decision) against BMS, finding that BMS violated the CPL. As to the remedy for the CPL violations, the Decision provided for injunctive relief, which essentially restrains BMS from contributing to the reporting of inflated AWPs for its drugs and from creating, marketing or promoting the spread for its drugs. In addition, the trial judge ordered BMS to restore to the Commonwealth the amount of $27,617,952.

Both the Commonwealth and BMS filed post-trial motions. For its part, the Commonwealth seeks judgment non obstante veredicto (JNOV) or, alternatively, a new trial on its negligent misrepresentation and civil conspiracy claims as well as modification of the trial judge‟s Decision on its statutory claims, to provide for relief in addition to that granted by the trial judge.

On the other hand, BMS challenges the Court‟s determinations that it violated the CPL. It therefore requests the Court vacate its Decision awarding injunctive relief and restoration.

For the following reasons, we deny the Commonwealth‟s post-trial motions. In addition, we decline BMS‟ request to vacate the award of injunctive relief and restoration; however, as explained more fully below, we modify the injunction.

B. History

1. Average Wholesale Price - Origin & Evolution

The AWP-based system for drug reimbursement is inherently a complicated system in which "average wholesale price" or "AWP" is the cornerstone of a larger pricing infrastructure.

Since the late 1960s, nearly every branded prescription drug sold in the United States has an AWP, which is published in commercial pricing compendia like Red Book, First DataBank, and Medispan. See In re Pharm. Indus. Average Wholesale Price Litig., 491 F. Supp. 2d 20 (D. Mass. 2007), aff‟d, 582 F.3d 156 (1st Cir. 2009), cert. dismissed sub. nom., AstraZeneca Pharm. LP v. Blue Cross Blue Shield of Massachusetts, ___ U.S. ___, 131 S.Ct. 60 (2010) (MDL 2007). During the period covered by this lawsuit, AWP is provided in a current, digital format for each available branded pharmaceutical, in each dosage and packaging size. The digital format and the constantly updated value facilitate use in the computer-dominated reimbursement systems, such as those used by the Plaintiff Agencies. See BMS Trial, Notes of Testimony (N.T.), 8/24/10, at 1903- 04 (Thomas Snedden, Director of PACE); 2020 (Dr. Terri Cathers, Director of Pharmacy for the Fee-for-Service Program of DPW‟s Office of Medical Assistance Programs).

The federal government used AWP as the pricing benchmark for Medicare reimbursement until the 2005 effective date of the Medicare Prescription Drug, Improvement & Modernization Act of 2003.*fn2 MDL 2007. By statute and regulation, it has also been the pricing benchmark used by the Plaintiff Agencies for Medicare Part B and Medicaid drug reimbursements.

Neither the federal government‟s Centers for Medicare and Medicaid Services (CMS) (and its predecessor, the Healthcare Finance Administration, also known as HCFA), nor the Plaintiff Agencies regulate or set the AWPs; rather, they entrusted the pharmaceutical companies with the task of reporting the AWPs accurately to the publications. Id.

Initially, AWP was, in fact, the average price charged by wholesalers to providers, like doctors and pharmacies. N.T., 8/16/10, at 673-75. It was derived from the markup charged by wholesalers over their actual acquisition cost, sometimes called the "wholesale acquisition cost" or "WAC." Id. at 675.

However, the market evolved.

In general, and on the specific topic of evolution of the AWP-based pricing system, the trial judge accepted the testimony of the Commonwealth‟s expert witness on liability and causation, Dr. William Comanor, currently Professor of Economics at UC Santa Barbara, and Professor of Health Services at UCLA, and Director of the research program of pharmaceutical economics and policy at UCLA.

Dr. Comanor testified WAC (or in BMS‟ case, "Wholesale List Price," or WLP) is a conventional term that signifies the price paid by the wholesalers before discounts. N.T., 8/16/10, at 672. In contrast, the AWP is the average wholesale price, which is the basis under which most reimbursement payments are made to pharmacies and other providers. Id. at 682.

Originally, the AWP was 20-25% higher than the WAC/WLP because that reflected the typical costs at the outset of the distribution process of pharmaceuticals. Id. at 675-76. However, competition and improved efficiency forced wholesale prices to decrease. Id. at 676. Eventually, the markup was eliminated in the market, so that prices paid to wholesalers approached WAC/WLP values. Id.

BMS often sold its branded drugs to wholesalers at WLP less 2%, reflecting a prompt pay discount. N.T., 8/19/10, at 1370 (Zoltan Szabo, BMS‟ Vice President of Global Pricing). In addition, through various arrangements with wholesalers, BMS offered high volume purchasers, such as Group Purchasing Organizations (GPOs), significant discounts off the WLPs for its drugs. Id. at 1380-85. BMS also offered substantial discounts below its WLPs to long term care pharmacies such as Omnicare, resulting in higher volume sales of BMS drugs, and, as a direct result, an increased market share for BMS. Id. at 762, 764-770; PX-8962; PX-8963.

It is undisputed that wholesalers‟ profit margins were very thin or nonexistent. N.T., 8/19/10, at 676 (Comanor) ("there‟s essentially no difference between the manufacturer‟s price and the wholesaler‟s price because of the improved efficiency of the wholesaler.") From all these circumstances the trial judge inferred that an actual average of wholesale prices for BMS branded drugs was below WAC/WLP. Evidence to the contrary was rejected, and the trial judge declined to draw inferences favorable to BMS.*fn3

Despite the greatly reduced prices in sales from wholesalers to pharmacies, BMS and manufacturers of other branded drugs did not change the process for determining and reporting AWP. Id. at 678. Indeed, pharmaceutical manufacturers, including BMS, understood the AWPs for their branded drugs would be subject to a markup of approximately 25 percent over their reported WACs/WLPs. Id. at 678; 683-86. Thus, despite market changes, the AWPs continued to be set equal to the WAC/WLP plus an established markup. Id. In other words, although the market changed, the mechanism by which AWPs were set did not change, so there became an increasing disconnect between reality and price-setting. Id. at 680-81. In reality, AWP "was not the actual price that [a] pharmacist purchased the drug." N.T., 8/26/10, at 2421 (Love). This resulted in AWP being a "fictitious number." N.T., 8/24/10, at 2072 (Cathers).

The trial judge found no believable evidence that any Pennsylvania pharmacy or physician ever paid full AWP to acquire BMS branded drugs. Nevertheless, for years the Plaintiff Agencies reimbursed Pennsylvania pharmacies and other providers at full AWP for BMS branded drugs. Gradually, the Plaintiff Agencies were able to convince other parties involved in setting reimbursement rates to lower rates to reflect discounts off AWP. Only recently was DPW able to escape an AWP-dominated reimbursement regime.

BMS recognized that AWPs were "the legacy of a distribution system which ceased to exist in the early 1980s," and were previously used to represent the price at which wholesalers sold drugs to pharmacies and physicians. PX-491. BMS also understood that AWPs continue to play a pivotal role in the overall prescription drug pricing and reimbursement systems. Id. BMS further understood the high costs of reimbursement for prescription drugs by public payors placed pressure on state budgets. See PX-548; PX-580.

In addition, BMS recognized that general confusion existed over AWP. See PX-491 ("The media often refers to AWP as the cost of the drug. Generally implying that this is the amount that manufacturers charge.") Indeed, at times there was confusion among BMS executives and employees regarding AWP. See, e.g., N.T., 8/19/10, at 1418, 1460-62 (testimony of Rose Crane, former BMS President of U.S. Primary Care, regarding her belief that AWP was a price paid by wholesalers); N.T., 8/11/10, at 324 (testimony of Paul Norris, BMS‟ Regional Business Director for the Northeast Region, Oncology Division, that some BMS employees within the global marketing organization believed AWP was "representative of the price that we sold the product.")

Further, while the testimony of DPW and PACE witnesses reveals they had some knowledge that AWP represented a flawed reimbursement benchmark, their testimony also showed they did not definitively understand the extent of the inaccuracy as it pertained to the BMS branded drugs at issue here. These witnesses never testified they knew WAC/WLP represented a price that providers actually paid for BMS drugs and, in any event, there was evidence that providers paid less than WAC/WLP. The testimony of DPW and PACE witnesses shows that although they knew problems existed within the existing AWP system, substantial confusion existed, and they lacked an awareness of an actual average of wholesale prices for BMS branded drugs. More importantly, DPW and PACE witnesses did not have an accurate estimate of acquisition costs in a format suitable for calculating the tens of thousands of claims they receive each day.

Also, BMS emphasized it reported WLPs for its branded drugs to the pricing compendia, rather than AWPs, and sought to distinguish itself in that regard from the conduct of other defendant pharmaceutical manufacturers who reported AWPs; nevertheless, BMS understood, expected and intended that the pricing compendia would apply a standard markup to its WLPs to derive an AWP.

See N.T., 8/19/10, at 1374-76, 1385-86 (Szabo); N.T., 8/17/10, at 1019-20 (Douglas Soule, Senior Territory Representative for BMS); PX-491; N.T., 8/11/10, at 158-162, 170-71, 173, 189-92, 194-95, 198-99, 218-19, 220-21, PX-133, PX- 487, PX-478, PX-474, PX-476 (Denise Kaszuba, BMS Senior Pricing

Analyst/Associate Manager of Pricing Support); N.T., 8/11/10, at 247-49 (Norris); N.T., 8/16/10, at 678 (Comanor).

2. Plaintiff Agencies

As noted above, the Commonwealth, through its Attorney General, filed this action on behalf of DPW and PACE.*fn4 A brief description of the roles of the Plaintiff Agencies is helpful.

a. DPW/Pennsylvania Medicaid

DPW administers Pennsylvania‟s Medicaid program. Medicaid is a joint state-federal funded program for medical assistance in which the federal government approves a state plan for the funding of medical services for the needy and then subsidizes a significant portion of the financial obligations the state has agreed to assume. See N.T., 8/24/10, at 2017, 2021; Eastwood Nursing & Rehab. Ctr. v. Dep‟t of Pub. Welfare, 910 A.2d 134 (Pa. Cmwlth. 2006). Once a state voluntarily chooses to participate in Medicaid, the state must comply with the requirements of Title XIX of the Social Security Act, 42 U.S.C. §§1396-1396(q), and applicable regulations. Eastwood Nursing.

According to Dr. Terri Cathers, who testified as designee for DPW, and who serves as the Director of Pharmacy for the Fee-for-Service Program of DPW‟s Office of Medical Assistance Programs:

Medicaid covers the poorest of the poor in Pennsylvania and the sickest of the sick. Roughly today two-thirds are children. Many of those children are either very poor or very ill. We cover the blind, the disabled. And it‟s at a hundred percent of the federal poverty level, so these people are very poor and desperately need good quality health care coverage and pharmacy benefits, and that‟s what the Medicaid program provides.

N.T., 8/24/10, at 2017.

With regard to prescription reimbursement, Pennsylvania Medicaid processes roughly 30,000 claims per day, which are submitted electronically. The Medicaid fee-for-service program covers approximately 25,000 national drug codes (NDCs).

Pennsylvania Medicaid benefits are delivered through two systems: the "fee-for-service" system and the managed care system. In Pennsylvania, 42 counties operate under the fee-for-service program. These counties are located in the center and the northern tier of the state (configured in a "T" formation). The fee-for-service program reimburses providers on a "claim-by-claim" basis." N.T. 8/24/10, at 2032.

Pennsylvania‟s lower southeast and southwest regions are known as "mandatory managed care" zones; nine managed care organizations (MCOs) contract with DPW to provide Medicaid benefits and services. Id. DPW reimburses these MCOs on a monthly, fixed fee basis per recipient.*fn5

DPW reimburses drug providers, like pharmacies, at the lesser of estimated acquisition cost, which is DPW‟s best estimate of the rate that ensures access to the provider, or a "usual and customary" charge, which is the amount a pharmacy would submit or charge a cash-paying customer.

The "baseline" for DPW reimbursement is AWP, which is listed in the national pricing compendia, including First DataBank, Red Book and Medispan. The national pricing compendia receive their data from drug manufacturers. Id. at 2022.

The reimbursed formula for Medicaid is fixed by state regulation. Between 1991 and 1995, DPW reimbursed providers at 100% of AWP. From 1996 through 2004, DPW reimbursed providers at a rate of AWP-10%. Id. at 2025-26.

b. Department of Aging/PACE

PACE provides a comprehensive prescription drug benefit to qualified, older Pennsylvania residents throughout all of the state‟s 67 counties. PACE is available to Pennsylvania residents, aged 65 or older, with limited incomes. PACE eligibility requirements are based on income, residency and age.

PACE is funded through revenue generated by the Pennsylvania Lottery. PACE has an annual budget that exceeds $200 million, approximately 96- 97% of which is used to pay for prescription drugs for its beneficiaries.

Thomas Snedden, who has served as the Director of PACE for over 25 years, gave partly credible testimony as to the program. He believably explained the typical PACE beneficiary is a 78-year-old, widowed female who lives alone in a private residence, who has less than a 10th grade education, who has four or five different disease states, and who takes five or six prescription medications daily.

PACE reimburses providers for a drug‟s ingredient cost and a dispensing fee. When a pharmacy fills a PACE beneficiary‟s prescription, it collects a small co-payment from the beneficiary and bills PACE, which, in turn, reimburses the pharmacy for the balance of the prescription price.

Because of the complex administration of the PACE program, claims are handled and processed electronically. To that end, Snedden credibly explained:

[O]ur foremost concern with the PACE program is [to]

make sure that people don't get medications that are inappropriate for them, that the dose might be too high, the duration too long, the mix of medications could cause them to be hospitalized. So the pharmacy, when the prescriptions are presented, they have to be input by the pharmacist into a computer, which comes into the PACE main frame, where they are scanned and checked to ensure that there won't be any drug misadventure. All of that happens within about one second from the time the pharmacist inputs prescriptions. There‟s just no practical way you could do that in a paper environment.

N.T., 8/24/10, at 1903.

Approximately 300 drug companies have participated in the PACE program, and PACE covers roughly 30,000 drugs.

PACE‟s reimbursement formula is fixed by statute. AWP is the "price basis" upon which PACE reimburses pharmacies. N.T., 8/24/10, at 1913. PACE initially reimbursed providers at 100% of AWP. After 12 years of reimbursing providers at 100% of AWP, the statutory reimbursement rate changed to AWP-10%. In 2003, PACE‟s reimbursement formula changed to AWP-12%. PACE uses the pricing publication Red Book.

3. BMS

Defendant BMS is a Delaware corporation engaged in the business of manufacturing, distributing, marketing and selling brand-name pharmaceutical drugs.

The specific BMS branded drugs at issue in this case are: Etopophos, Vepesid, Avapro, Blenoxane, Buspar, Cefzil, Coumadin, Cytoxan, Glucophage, Monopril, Monopril HCT, Paraplatin, Plavix, Pravachol, Rubex, Serzone, Sustiva, Taxol, Tequin, Videx, Zerit, and Abilify.

Most of the claims by the Plaintiff Agencies involve self-administered branded drugs, such as pills. Self-administered branded drugs are usually obtained from pharmacies, which are reimbursed for their cost through the Medicaid and PACE programs. During the period of Plaintiff Agencies‟ claims, reimbursement for these drugs was based on estimated acquisition cost paid by the pharmacies, for which some variation of AWP was a proxy. Pharmacies were also paid a dispensing fee.

A small percentage of the Plaintiff Agencies‟ claims here involve Medicare Part B drugs. These are injectable or infusible drugs which require administration by a physician. Eighty percent of the cost is reimbursed by the government. See 42 U.S.C. §1395l; MDL 2007, 491 F. Supp. 2d at 33. Patients or someone on their behalf (such as an insurer) are responsible for a 20% co-payment. Id. Since 1992, reimbursement and co-payment for Medicare Part B drugs has been based on a formula which included an AWP factor (plus an allowance for other costs, such as a dispensing fee). See MDL 2007, 491 F. Supp. 2d at 33-34.

There are no generic drugs involved in this case.

BMS sells its branded drugs to wholesalers or specialty distributors at a price around the drug‟s WLP, as discussed more fully elsewhere. In turn, these wholesalers sell BMS branded drugs to providers, such as pharmacies and physicians. In some instances, BMS sells its branded, Medicare Part B injectable drugs directly to physicians.

C. Procedural History

The initial procedural background to this complex litigation is set forth in this Court‟s two prior en banc decisions at the preliminary objection stage. See Commonwealth ex rel. Pappert v. TAP Pharm. Prods., Inc., 885 A.2d 1127 (Pa. Cmwlth. 2005) (TAP II); Commonwealth ex rel. Pappert v. TAP Pharm. Prods., Inc., 868 A.2d 624 (Pa. Cmwlth. 2005) (TAP I).

Briefly, in March 2004, the Commonwealth filed its original complaint against 14 pharmaceutical companies alleging the companies engaged in improper conduct that caused certain Commonwealth entities, including DPW and PACE, to pay inflated prices for various pharmaceuticals the companies manufacture, market and sell. In response, the companies filed preliminary objections. In TAP I, we sustained the defendant pharmaceutical companies‟ preliminary objections challenging the sufficiency of the factual averments in the Commonwealth‟s original complaint, but granted the Commonwealth leave to amend.

Shortly thereafter, the Commonwealth filed a corrected amended complaint, to which the defendant pharmaceutical companies again filed preliminary objections. The Commonwealth‟s corrected amended complaint pled four causes of action: fraud or misrepresentation, civil conspiracy, unjust enrichment and violations of the CPL.

In TAP II, we overruled the defendant pharmaceutical companies‟ global preliminary objections that challenged the sufficiency of the corrected amended complaint. We directed the defendant pharmaceutical companies to file answers, which they did.

This case then proceeded through a lengthy period of robust discovery administered in part by a discovery master. Counsel for BMS served as liaison counsel for all remaining defendants. By order, discovery closed on July 30, 2010.

In late-May 2010, the trial judge scheduled the case for jury trial in Northampton County on August 9, 2010. The pharmaceutical company defendants filed motions seeking separate trials.

After status conference with all remaining defendants, the trial judge granted in part, and deferred in part, the defendants‟ motion for separate trials. In particular, the trial judge granted BMS‟ motion so that only BMS would be involved in the August 9, 2010 jury trial. *fn6

After final pretrial conference, the trial judge issued an order indicating his intention to submit issues related to the Commonwealth‟s fraud and misrepresentation and civil conspiracy claims to the jury. The judge also indicated he would render a non-jury decision on the Commonwealth‟s unjust enrichment and CPL claims.*fn7 Additionally, shortly before trial, the trial judge disposed of 18 motions in limine, filed by the Commonwealth and BMS.

Trial commenced as scheduled on August 9 and continued over the ensuing five weeks. More than a dozen witnesses testified, prior testimony by more than 20 witnesses was read or presented by videotape, and over 300 exhibits, many voluminous, were received.

In addition to numerous trial rulings, at the close of the Commonwealth‟s case-in-chief, the trial judge granted BMS‟ motion for compulsory non-suit on the Commonwealth‟s unjust enrichment claim on the ground the Commonwealth did not identify any fund to which a common-law equitable remedy would apply.

Consistent with the pretrial order, following the close of evidence the trial judge submitted issues relating to the Commonwealth‟s claims of negligent misrepresentation, fraudulent misrepresentation and civil conspiracy to the jury. Additionally, issues relating to the Commonwealth‟s claims under the CPL were submitted to the trial judge for non-jury decision.

Ultimately, the jury returned verdicts in favor of BMS on the Commonwealth‟s claims for negligent and fraudulent misrepresentation. See Verdict Form, Phase I (Attachment A). More specifically, the jury answered "no" to the question of whether BMS was liable for negligent misrepresentation or fraudulent misrepresentation. Based on its response to these questions, the jury did not answer questions concerning causation. Additionally, the jury did not answer any questions relating to civil conspiracy, to damages or to outrageous conduct.

The next day, the trial judge heard oral argument on the Commonwealth‟s claims under the CPL. Shortly thereafter, the judge issued his Decision, finding BMS violated the CPL by engaging in unfair or deceptive practices. See Decision Awarding Injunction and Restoration of 9/10/10

(Attachment B).

Consistent with Pa. R.C.P. No. 1038, the trial judge did not issue findings and conclusions, but he did dispose of all issues. In addition, he added sufficient explanation so that the parties could understand why he did not follow the jury verdict and how he calculated restoration amounts.

In particular, the trial judge acknowledged the jury verdicts finding neither negligent misrepresentation nor fraudulent misrepresentation. However, the trial judge concluded that a different standard applied in a CPL enforcement action. See Weinberg v. Sun Co., Inc., 565 Pa. 612, 777 A.2d 442 (2001). Specifically, the judge indicated that, unlike claims for common law fraud or misrepresentation, a plaintiff‟s knowledge of the inaccuracy of a representation and a plaintiff‟s lack of reliance, while factors to be considered, are not necessarily complete defenses in an enforcement action brought in the public interest under Section 4 of the CPL, 73 P.S. §201-4. See MDL 2007; see also Com. v. Parisi, 873 A.2d 3 (Pa. Cmwlth. 2005) (CPL to be liberally construed to effectuate legislative goal of consumer protection).

Ultimately, the trial judge issued a perpetual injunction restraining BMS from: contributing in any manner, directly or indirectly, to the reporting to DPW or to PACE of inflated AWPs for BMS drugs; and, contributing in any manner, directly or indirectly, to the creation, promotion or marketing of spreads for BMS drugs that are reimbursed by DPW or PACE.

In addition, pursuant to Section 4.1 of the CPL,*fn8 73 P.S. §201-4.1, the trial judge directed BMS to restore to the Commonwealth money in the amount of $27,617,952. To that end, the trial judge credited the damage methodology set forth in Exhibits 6A, 6B and 6C of the revised report of Commonwealth damage expert Frederick R. Warren-Boulton, Ph.D., for the period 1991 through 2004, with one exception. Specifically, the trial judge credited only that portion of the testimony of BMS expert Gregory K. Bell, Ph.D., that Dr. Warren-Boulton‟s estimates were inflated by inclusion of drugs not in the case. To account for this problem, the trial judge reduced Dr. Warren-Boulton‟s estimates by 40%.

The trial judge further found BMS willfully used practices declared unlawful by the CPL; however, the trial judge determined he lacked sufficient information to calculate civil penalties; as such, he declined to award any civil penalties under Section 8(b) of the CPL, 73 P.S. §201-8(b). The trial judge credited Dr. Warren-Boulton‟s civil penalty methodology that assumed a CPL violation occurred each time the reported AWP changed for a BMS drug, and assessing each violation at $1000. However, the trial judge indicated Dr. Warren- Boulton‟s calculations were not limited to the period 1991-2004 for which restoration was awarded and could be inflated by drugs not in the case. As such, the trial judge declined to award civil penalties. The trial judge also declined to award any sums under Section 9.2 of the CPL,*fn9 73 P.S. §201-9.2.

As a final point, the trial judge indicated the Decision was not immediately effective and would not become effective until the completion of post-trial practice. See Pa. R.A.P. 311(a)(4).

Shortly thereafter, both the Commonwealth and BMS filed post-trial motions. For its part, the Commonwealth seeks JNOV or, alternatively, a new trial on its negligent misrepresentation and civil conspiracy claims as well as modification of the Decision under the CPL to include an award of civil penalties, costs and attorney‟s fees.

On the other hand, BMS challenges the trial judge‟s findings that it violated the CPL and, therefore, requests the Court vacate its Decision awarding injunctive relief and restoration under the CPL.

II. BMS' CHALLENGE TO STATUTORY INJUNCTION

A. Summary of BMS' Argument

Through its Brief in Support of Its Motion for Post-Trial Relief or in the Alternative for a Stay, BMS asks this Court to change the Decision by vacating both the injunction and the order of restoration. BMS argues there is no evidence to support the relief granted, and it is inconsistent with the jury‟s conclusion that BMS was not liable for negligent misrepresentation or fraud. Specifically, it contends the proposed injunction should be vacated for the following 15 primary reasons (with numerous sub-arguments):

 It will cause irreparable harm to innocent third parties.

 It is procedurally defective and violates due process.

 It interferes with the legislative and regulatory scheme.

 It will cause BMS irreparable harm.

 It unconstitutionally interferes with interstate commerce.

 Greater harm will come from entering the injunction than not entering it.

 It is not justified by any urgent necessity since, as the Court acknowledges in its Decision, the

Commonwealth was not damaged after 2004.

 There is no threat of ongoing injury.

 The proposed injunction will not give the

Commonwealth any information it does not already have.

 Even if they were harmed, DPW and PACE could be adequately compensated by monetary damages.

 The Decision is inconsistent with the jury‟s verdict.

 BMS‟ conduct is not in fact fraudulent or deceptive, or even unfair.

 The Decision is inconsistent with Judge Saris‟

decision in MDL 2007 on which the Court relies.

27

 There is no proof of causation because pharmacies are not overpaid.

 There is no proof that would support an injunction against marketing the spread because the practice makes no sense in the context of this case.

BMS‟ Br. in Support of its Mot. for Post-Trial Relief or in the Alternative for a Stay at 8-9 (BMS‟ Br.).

Of particular concern, BMS asserts, is the harm the injunction will cause to innocent third parties, including patients who rely on BMS drugs. BMS maintains the proposed injunction requires it to take steps to ensure the AWPs for its drugs are equal to their acquisition costs. It contends pharmacies will refuse to stock BMS drugs if they will lose 12 to 14 percent on every drug, which is the percentage below AWP that PACE and DPW currently reimburse pharmacies for drugs.

B. Sufficiency of Evidence

1. Contentions

BMS begins by reciting the common law elements necessary to obtain permanent injunctive relief. It then argues there is no proof that would justify the relief awarded here. Specifically, BMS maintains there was no proof that it made any misrepresentation to the Plaintiff Agencies. It contends there was no proof that DPW or PACE relied on anything BMS said or did. In fact, BMS asserts, Thomas Snedden, the Director of PACE, affirmatively testified he did not rely on BMS, and he was not defrauded or deceived by BMS. N.T., 8/24/10, at 1936-38, 2005-2006.

BMS maintains all present and former DPW and PACE employees testified they knew AWPs were not acquisition costs. See N.T., 8/24/10, at 1914;

N.T., 8/24/10, at 2057-60; N.T., 8/26/10, at 2420-22; N.T., 8/30/10, at 2736; N.T., 8/30/10, at 2763-64; N.T. 8/30/10, at 2791-93; N.T., 8/31/10, at 2994. BMS argues there was overwhelming and unrebutted testimony and documents demonstrating DPW and PACE knew what acquisition costs were. See DX 1, DX 3-6, DX 8-12, DX 405, DX 482, DX 501, DX 514, DX 551, DX 553, DX 558, DX 564. BMS asserts the reimbursement formulas used by the Plaintiff Agencies were the product of choice, not any fraud or deception.

In addition, BMS maintains there was unrebutted testimony that pharmacies were not overpaid. BMS argues the Commonwealth‟s own expert agreed pharmacies are not overpaid. N.T., 8/16/10, at 853 (Comanor). BMS contends there is no proof here that it caused the Commonwealth any harm.

For these reasons alone, BMS argues, the Decision should be vacated. It maintains an award under the CPL is improper where no evidence exists to support it. See, e.g., Braccia v. Arlington Capital Mortg. Corp., Civ. Action No. 08-1370, 2009 WL 3756351, at *12 (E.D. Pa. Nov. 9, 2009); Sheikh v. Travelers Pers. Ins. Co., Civ. Action No. 06-1477, 2007 WL 2571451, at *4 (E.D. Pa. Aug. 31, 2007).

2. Analysis

The remedy of entry of judgment in a party‟s favor is proper only where a party successfully challenges the sufficiency of the evidence. On the other hand, the remedy of a new trial is proper when the verdict rendered by the trial court indicates the trial court abused its discretion when weighing the evidence. Morin v. Brassington, 871 A.2d 844 (Pa. Super. 2005). "This distinction is crucial and is repeated ad nauseum by the appellate courts of this Commonwealth in both civil and criminal cases." Id. at 851. Here, BMS does not ask for a new trial.

A sufficiency analysis must begin by accepting the credibility and reliability of all evidence, viewed in the light most favorable to the verdict winner regardless of whether the losing party thinks the evidence was believable. Id.*fn10

"In Pennsylvania, a permanent injunction will issue if the party establishes [a] clear right to relief. The party need not establish either irreparable harm or immediate relief, as is necessary when seeking a preliminary injunction, and a court may issue a final injunction if such relief is necessary to prevent a legal wrong for which there is no adequate redress at law." Bd. of Revision of Taxes, City of Phila. v. City of Phila., ___ Pa. ___, ___, 4 A.3d 610, 627 (2010) (citations and quotations omitted).

Here, however, the remedy of injunctive relief is explicitly provided by statute. Specifically, Section 4 of the CPL, which relates to "Restraining prohibited acts," states, as pertinent:

Whenever the Attorney General ... has reason to believe that any person is using or is about to use any method, act or practice declared by section 3 of this act to be unlawful, and that proceedings would be in the public interest, he may bring an action in the name of the Commonwealth against such person to restrain by temporary or permanent injunction the use of such method, act or practice.

73 P.S. §201-4 (footnote omitted) (emphasis added). By the plain terms of the statute, the Attorney General must prove: 1) that a person is using or about to use a practice declared unlawful by the CPL; and 2) that proceedings would be in the public interest.

Although BMS relies on the common law elements necessary to obtain an injunction, the basis for the injunction entered here is statutory. As a result, BMS‟ arguments lack merit. This point is discussed in more detail below.

The proper analysis is set forth in Commonwealth v. Burns, 663 A.2d 308 (Pa. Cmwlth. 1995), a case involving a post-trial challenge to a permanent injunction under the CPL. There, this Court accepted the Attorney General‟s argument that whenever a violation of a statute is found, such violation constitutes irreparable harm per se, and injunctive relief is appropriate. The only issue therefore is whether the record adequately supports the findings and conclusions.

Review of the record here reveals ample support for the trial judge‟s determinations that BMS violated the CPL by engaging in unfair or deceptive acts or practices within the meaning of the "catchall provision" in Section 2(4)(xxi) of the CPL, 73 P.S. §201-2(4)(xxi) ("Engaging in any other ... deceptive conduct which creates a likelihood of confusion or of misunderstanding."). Based on his determinations that BMS violated the CPL, see Section 3 of the CPL, 73 P.S. §201-3, ("Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce as defined by subclauses (i) through (xxi) of clause (4) of section 2 of this act ... are hereby declared unlawful), the trial judge had a duty to issue an injunction to restrain BMS‟ unlawful practices.

More specifically, similar to Judge Saris‟ decision in MDL 2007, the trial judge first determined BMS engaged in unfair or deceptive practices by contributing to the reporting of inflated AWPs for its drugs to the Plaintiff Agencies. The record clearly supports this determination. To that end, as in MDL 2007, BMS claimed to be unique among drug manufacturers in that it did not directly report AWPs or suggested AWPs to the pricing compendia. However, as in MDL 2007, the trial judge here determined BMS knew, expected, and intended that when it reported a price, the publications would predictably calculate an AWP that was 20 to 25 percent higher than BMS‟ WLP. See N.T., 8/19/10, at 1374-76, 1385-86 (Szabo); N.T., 8/17/10, at 1019-20 (Soule); PX-491; N.T., 8/11/10, at 158-162, 170-71, 173, 189-92, 194-95, 198-99, 218-19, 220-21, PX-133, PX-487, PX-478, PX-474, PX-476 (Kaszuba); N.T., 8/11/10, at 247-49 (Norris); N.T., 8/16/10, at 678 (Comanor); see MDL 2007, 491 F. Supp. 2d at 60. As in MDL 2007, the evidence was sufficient to conclude that BMS could affect, and at times fully control, the AWP for its drugs. Id. at 60-61.

In addition, similar to MDL 2007, the trial judge determined BMS contributed to or participated in the promotion or marketing of spreads for its Medicare Part B drugs. Review of the record also discloses ample support for this determination. See N.T., 8/11/10, at 303 (Norris); N.T., 8/17/10, at 1004-05

(Soule); PX-399; N.T., 8/17/10, at 1010-11; PX-211; see also N.T., 8/12/10, at 487 (Peterson) (regarding Lynx2OTN); PX-111; PX-8869 (AWP price report); N.T., 8/12/10, at 488-89, 490-93 (AWP price report showing Oncology Therapeutics Network Corporation (OTN) dispensing unit price and AWP based on selected modifier), 493 (spread-difference between amount of reimbursement and amount paid).

In short, contrary to BMS‟ contentions, the trial judge‟s determinations that BMS violated the CPL by engaging in unfair or deceptive practices are supported by substantial evidence. Based on these determinations, the trial judge was duty-bound to issue an injunction to restrain BMS‟ unlawful practices.

BMS‟ remaining arguments regarding the alleged lack of sufficient evidence to support the award of injunctive relief are addressed throughout this opinion, where appropriate. However, there are four important points to make here. First, regarding deception, the trial judge gave greater weight to evidence regarding confusion about AWP, and he rejected as not credible evidence suggesting that AWP was a term of art, widely known outside the pharmaceutical industry to be derived from a formulaic relationship of known proportions over WAC/WLP.

Second, also regarding deception, the trial judge rejected BMS‟ contentions regarding "government knowledge." Some evidence was not credible, some documentary evidence was given little weight, and the trial judge declined to draw inferences favorable to BMS. This is especially true of testimony by Thomas Snedden on this point, whose credibility was compromised by his demeanor, bias, and strong tendency to agree with whoever was questioning him.

Third, as to reliance, the trial judge rejected BMS‟ contentions regarding "government choice." Most importantly, the contention that the Plaintiff Agencies made deliberate policy decisions to reimburse at higher rates than other third-party payors was rejected as inconsistent with more credible evidence that pharmacy participation, also referred to as "access," was never threatened and that reimbursement rates were beyond the sole control of the Plaintiff Agencies. The rejection was also based on the limited weight given documentary evidence and the refusal of the trial judge to draw inferences favorable to BMS on this issue. The trial judge determined that in Pennsylvania the level of reimbursement and the continuing reliance on formulae based on some form of AWP were the result of several factors: confusion over AWP; lack of a better proxy for provider acquisition costs; and, an inflexible reimbursement system where changes to laws and regulations came slowly, if at all.

Fourth, as to causation, the trial court accepted the expert opinion of the Commonwealth‟s liability and causation expert, Dr. William Comanor, that the Plaintiff Agencies were harmed by enhanced price discrimination by the drug manufacturers, including BMS. The enhanced price discrimination took the form of different pricing/rebate schemes for public and private payors, resulting in public payors, such as DPW and PACE, paying more than private payors. The trial judge rejected the testimony of pharmacist David Smith, relied upon by BMS, as not credible based on demeanor.

Further, the two unreported federal district court cases cited by BMS do not compel a different result. Specifically, in Sheikh, a federal trial court dismissed a private plaintiff‟s CPL claim against an automobile insurance company based on the company‟s alleged failure to pay benefits where the court determined the company acted properly in canceling the policy prior to an accident for which the plaintiff sought benefits.

In Braccia, a federal trial court rejected a private plaintiff‟s CPL claim against a mortgage company where the court determined the plaintiff did not prove reliance or injury as a result of an alleged misrepresentation that occurred when the plaintiff sought to obtain a residential mortgage.

Clearly, Sheikh and Braccia are distinguishable on their facts. Neither case involved an Attorney General enforcement action under the CPL‟s catchall provision where, as explained below, the burden of proof is relaxed. Also, unlike in Sheikh and Braccia the evidence supports a determination that BMS violated the CPL by engaging in deceptive conduct (as further explained below) and that DPW and PACE suffered harm in the form of overpayments as a result of that violation.

C. Alleged Irreparable Harm to Others

1. Alleged Irreparable Harm to Innocent Third Parties a. Contentions

BMS next asserts that today DPW reimburses pharmacies at the lower of AWP-14% or WAC%. 55 Pa. Code §1121.56(a)(1)(i). PACE currently reimburses pharmacies at AWP-12%. See Section 509(6) of the State Lottery Law.*fn11 BMS contends the undisputed evidence at trial showed these formulae were developed over a period of years after careful negotiation with pharmacies in an effort to arrive at an amount that would ensure patients‟ access to care. See DX- 501.

BMS maintains that while the proposed injunction prohibits it from contributing in any manner, directly or indirectly, to the reporting to DPW or PACE of inflated AWPs for its drugs, the undisputed evidence showed BMS does not report AWPs to the pricing compendia. Rather, BMS reports a list price that the pricing compendia mark up by 20-25% to arrive at an AWP. N.T., 8/11/10, at 215, 221-22. BMS argues the proposed injunction would require it to ask the pricing services to make the AWPs for its drugs equal to the list prices. BMS contends that if the pricing compendia were willing to do this, the AWPs for BMS drugs would be equal to their list prices. BMS maintains there was extensive, unrebutted trial testimony - by witnesses for both sides - that pharmacies acquire drugs at or near list price. It asserts if AWPs were made equal to list prices, the regulatory and statutory provisions cited above would be unaffected by the injunction, and pharmacies would immediately lose at least 12-14% on every BMS drug they acquired.

BMS argues that, as its expert Dr. Fiona Scott-Morton pointed out, if pharmacies were placed in a position where they lost 12-14% on every BMS drug, they would simply refuse to stock BMS drugs. N.T., 9/2/10, at 3456-58. BMS contends this would not only harm pharmacies; it would also harm patients who would not have access to BMS drugs. It argues some of these drugs are of critical importance in treating serious illnesses.

BMS contends the potential harm to innocent third parties is a critical factor that courts should consider in deciding whether to grant injunctive relief. See Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982); accord Bradley v. Pittsburgh Bd. of Educ., 910 F.2d 1172, 1175 (3d Cir. 1990). Indeed, it argues, courts refused to grant injunctive relief where interested parties were or could have been ...


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