Court Rules Against BMS on Overcharge Payments
The federal court hearing the California case alleging that nine drug manufacturers overcharged 340B covered entities has found that Bristol-Myers Squibb (BMS) misled covered entities about why it was sending them checks for retroactive overcharges.
In his July 8 order, U.S. District Judge William Alsup ruled that any legal releases signed by California covered entities that accepted the BMS checks are invalid. BMS's payments, he said, will be deducted from any future recoveries in the litigation. The court faulted BMS for its failures to alert the covered entities about the ongoing litigation and to explain how it calculated the payments.
The ruling validates the position taken by Safety Net Hospitals for Pharmaceutical Access (SNHPA) in a May 17 letter to the Office of Pharmacy Affairs (OPA) that the releases were illegal. The BMS letters to 340B covered entities across the country stated that acceptance of the accompanying check "will constitute full and final satisfaction of any actual or potential claim by you related to prices charged by BMS or paid by you under the 340B program for BMS products during the applicable quarters. ... "
BMS said in its letter to 340B entities that the miscalculations occurred in determining Medicaid rebates and 340B discounts for more than six dozen BMS products and the anti-depressant Serzone. The payments were said to cover the period 1998 through the first quarter of 2001 for Serzone and the third quarter of 2002 through the second quarter of 2005 for the other BMS drugs.
Because Judge Alsup's order invalidates releases executed by California covered entities only, SNHPA plans to pursue invalidation of releases executed elsewhere in the country.
The manufacturers' late April filing with the high court was just one of several important recent developments in the potentially groundbreaking case.
In mid March, U.S. District Judge William Alsup allowed the counties' lawyers to gradually begin examining the heretofore secret raw data that go into the computation of drugs' average manufacturer prices (AMPs) and best prices (BPs) which, in turn, are used to compute 340B prices. Then on July 8, Judge Alsup ruled that one of the defendant companies, Bristol-Myers Squibb (BMS), misled 340B covered entities in California in April about why it was writing them checks for retroactive overcharges and conditioning payment on a release from any other unspecified liability. (See related story.) BMS's letters to entities that accompanied the checks, the judge said, failed to explain adequately how the payments and legal releases were connected to the case.
A day later, the judge denied without prejudice a motion by the counties to certify the case as a nationwide class action, saying it was premature. It was the first official signal that the plaintiffs are seeking to broaden the case's scope beyond California.
Case enters its fifth year
Santa Clara and Santa Cruz counties sued the companies in 2005, claiming their health facilities were charged prices for drugs in excess of the 340B ceiling price. They have previously sought to broaden their case into a statewide class action, which could create a windfall for some 2,700 California 340B providers if the counties uncover significant pricing irregularities in commonly used drugs.
The drug companies have asked the Supreme Court to squelch the case at its source, arguing that the counties had no business suing them in the first place because the 340B statute does not afford them what is known as a "private right of action." Judge Alsup and the 9th U.S. Circuit Court of Appeals, they say, were wrong when they relied on federal common law to grant the counties a right to sue as the intended beneficiaries of 340B pricing agreements between the companies and the federal government.
Allowing the decisions to stand "seriously threatens to impose conflicting obligations on drug manufacturers under both the Medicaid drug rebate and 340B ceiling price programs," the companies argue. 340B entities, they say, would have an incentive to accuse companies of overstating their AMP calculations, which could reduce 340B ceiling prices but at the same time reduce Medicaid drug rebate payments to the states.
"There is a real danger that manufacturers could be subject to inconsistent obligations," the companies continued. "That risk is wholly unjustified when Congress did not intend to confer any private right of action to enforce the statutory scheme."
The counties counter-argue in papers filed with the justices that the Supreme Court's own precedents make it clear that federal contract law allows breach-of-contract suits by participants in federal programs that were created for their benefit.
"Far-reaching and profound consequences"
The U.S. Chamber of Commerce and the Pharmaceutical Research and Manufacturers of America (PhRMA) have filed friend-of-the-court briefs in the case supporting the drug makers' arguments.
If left standing, the 9th Circuit Court's December 2009 decision affirming the counties' right to sue "will have far-reaching and profound consequences for the millions of American companies that do business with the federal government," the chamber warns in its brief. In its filing, PhRMA asserts that the Department of Health and Human Services has "exclusive" authority under the 340B statute to audit the components of AMP and BP.
"Congress correctly recognized that HHS is uniquely equipped to navigate the technical complexities of drug pricing, make reasonable policy judgments, balance competing interests, and impose uniform standards," the drug industry group says. "By inviting the courts into the determination of AMP and BP at the behest of purported third-party beneficiaries, the decision below threatens far-reaching uncertainty, dis-uniformity and destabilization."
The Supreme Court is scheduled to consider the drug companies' request for review during a private conference on Sept. 27. An announcement on whether it will accept or reject the case could be made as soon as the first day of the court's 2010-11 session on Oct. 4.