RICO Challenges to Drug Co-Pay Programs Fall Like Dominoes: Another Federal Court Judge Dismisses RICO Claim

By Jamie K. Wolszon –

On September 25, 2014, the U.S. District Court for the Northern District of Illinois Eastern Division dismissed a claim that a drug company co-pay subsidy program (also known as coupon program) violated the Racketeer Influenced and Corrupt Organizations Act (RICO) under theories of alleged mail and wire fraud.  New England Carpenters Health and Welfare Fund v. Abbott Laboratories, No. 12-cv-1662 (N.D. Ill. Sept. 25, 2014) (opinion), at 15.  This Illinois federal district court joins other federal courts in striking serious blows against use of RICO to attack coupon or co-pay programs:  It appears from our research that of seven lawsuits we previously reported were filed alleging RICO violations, no RICO claims currently are pending in any of those cases.

This lawsuit is one of several filed by various union health plans alleging that brand-name drug-makers violated RICO when they provided co-pay subsidy coupons to privately-insured consumers for branded prescription drugs.  See prior posts here and here. 

Those lawsuits have not been successful to date, and in fact, it appears that only tortious interference with contract claims currently are pending of the cases we have reported in our prior blog cases.  At the time of our last blog post, plaintiffs had already voluntarily dismissed some of those cases, leaving a handful remaining.

In this particular case, New England Carpenters Health and Welfare Fund v. Abbott Laboratories, No. 12-cv-1662 (N.D. Ill. Sept. 25, 2014) (opinion), an employee welfare benefit plan alleged that the co-pay savings program, offered by Defendants Abbott Laboratories and AbbVie, Inc., for their brand-name drugs Humira and AndroGel, constituted substantive RICO violations and a conspiracy to violate RICO.  Id. at 2. 

RICO makes it unlawful to conduct or participate in an enterprise’s affairs through a pattern of racketeering activity.  Since the savings program was carried out using the mail and Internet, plaintiff alleged mail fraud (18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343).  Id. at 7.

U.S. District Court for the Northern District of Illinois Eastern District Judge Robert M. Dow, Jr., held that the required element of an “enterprise” was missing from the plaintiff’s RICO allegation in the amended complaint.  Id. at 10.  The court explained that the particular RICO section requires allegation of an enterprise “separate and distinct” from Defendants’ own business.  It is not enough for the Defendants to have a commercial relationship; the contested conduct must be “undertaken on behalf of the enterprise,” not simply on behalf of each of the Defendant’s individual interests.  Id. at 10. 

Plaintiff, according to the court, did not meet that requirement.  Id. at 11.  “[T]here are not indicia of any association among the pharmacies [that accepted the coupons for those two drugs] that comprise the RICO enterprise are in communication with one another or are even aware that other pharmacies are part of the enterprise.”  Id.  By contrast, the court noted, plaintiff’s complaint suggests that pharmacists did not realize that they were erroneously inputting the coupon as secondary insurance, because the cards were designed to look like insurance cards.  Id. at 13.  “This allegation undercuts Plaintiff’s claim that pharmacies were privy to a fraudulent scheme to maximize Defendants’ drug sales.”  Id. 

In addition to the RICO allegation, the Plaintiff also argued that the co-pay subsidies frustrate pharmacies’ contractual obligation to collect co-pays directly from Plaintiff (tortious interference with contract claim).  Id. at 2.  The federal Illinois district court will hold a hearing on October 7, 2014 to consider whether it has the requisite jurisdiction to evaluate the tortious interference with contract claim.  Id. at 2.  The court noted that it appears that the court lacks subject matter jurisdiction to consider this tortious interference with contract claim now that the court dismissed the RICO claim.  Id. at 16.  However, since that time, both the plaintiff and the Defendants have notified the court that they believe the court has jurisdiction over the tortious interference with contract claim.      

The Illinois opinion related to the RICO claim adds to a growing list of federal court blows against efforts to challenge co-pay subsidy programs based on a RICO theory.  On April 29, 2013, U.S. District Court for the District of New Jersey Judge Michael A. Shipp granted without prejudice Merck’s motion to dismiss one of those lawsuits on standing grounds.  Plumbers & Pipefitters Local 572 Health & Welfare Fund v. Merck & Co., No. 12-cv-1379 (D.N.J. Apr. 29, 2013) (opinion).

Plaintiff in that case amended the complaint, and Defendant Merck again moved to dismiss on standing and substantive grounds.  In June 2014, Judge Shipp held that the plaintiff had standing.  However, the court dismissed the RICO claims without prejudice on the grounds that: (1) plaintiff did not plead the alleged misrepresentation with sufficient particularity and (2) plaintiff allege an injury directly tied to the pharmacies’ failure to disclose the subsidies.  The court left intact the tortious interference with contract claims.  The court gave the plaintiff 30 days to amend the complaint in relation to the RICO claims, but the plaintiff did not do so.  In its August 14, 2014 answer to the complaint, Merck only addressed the tortious interference with contract claim because plaintiff had not amended the complaint in relation to RICO within the 30-day timeframe.

In another case related to coupons, in June 2013, the U.S. District Court for the Southern District of New York dismissed two of three theories of RICO violation with prejudice on the grounds that co-pay subsidy program did not cause misrepresentation at the point-of-sale, nor was there routine waiver of co-pays by the defendants.  Am. Fed‘n of State, Cnty. & Mun. Emps. Dist. Council 37 Health & Security Plan et al. v. Bristol-Meyers Squibb Co. et al., No. 12-cv-2238, (S.D.N.Y. June 3, 2013) (opinion).  In addition, the New York federal district court ruled that the savings program did not constitute commercial bribery under the Robinson-Patman Act (commercial bribery prohibition act).  On April 21, 2014, the plaintiff voluntarily dismissed the entire case.

In a case with similar allegations in the U.S. District of Eastern District of Pennsylvania, on August 8, 2014, the court dismissed the plaintiff’s amended complaint for lack of standing.  New England Carpenters Health and Welfare Fund v. GlaxoSmithKline LLC., No. 12-cv-1191 (E.D. Pa. Aug. 8, 2014) (order).

Thus, it appears that a RICO theory, at least at present, does not present a threat to these drug coupon programs.  However, as discussed, tortious interference to contract claims are currently pending and a threat may come from another source:  In September 2014, the Office of Inspector General (OIG) issued a report, a special advisory bulletin, and a podcast on the topic.  We previously reported that the OIG report concluded that despite efforts by the drug manufacturers sponsoring such coupons to carve out federal health care beneficiaries from such programs, some of the coupons were nonetheless used by Medicare Part D beneficiaries, and reimbursed by Medicare.  In the special advisory bulletin, the OIG places the responsibility for currently ensuring that copay coupons do not violate the antikickback statute squarely upon the shoulders of the drug companies that issue copay coupons.  Interestingly, a footnote in the special advisory bulletin states that pharmacies that accept coupons from Medicare beneficiaries may also face sanctions.

What remains unknown is how and when the Centers for Medicare & Medicaid Services (CMS) will take up the OIG’s call to lead the effort to make changes, and whether OIG enforcement actions may occur in this area, either before or after CMS takes action.