Thursday, November 4, 2010

Why The Massachusetts Proventil® (Albuterol) Price Fraud Verdict Against Schering-Plough/Warrick Will Stand

You'll recall that New Merck is on the hook for about $4.6 million in Proventil® (albuterol) pricing fraud damages in Massachusetts, after a verdict at the beginning of October. You'll also recall that the Massachusetts verdict of $4.6 million is likely to grow significantly, once the very able federal District Court Judge Patti B. Saris rules on the punitive damages claims, which flow naturally from such a finding of fraudulent pricing liability.

Post trial memos are now being filed, and Merck's lawyers assert that the jury's verdict must be tossed aside. The people of Massachusetts, of course, might (do) disagree.

Here is the Commonwealth's post-trial memo of law to support the jury's verdict (a 59 page PDF file), filed yesterday afternoon. And here is at least a salient bit of it:

. . . .Defendants argue that the Commonwealth has failed to prove that Warrick knew its WAC prices were false. Defts’ Memo at 24-28. The evidence, however, is to the contrary. First, the evidence established that Defendants knew MassHealth’s formula for drug reimbursement. During the time period in question, CMS and the National Pharmaceutical Council (of which Schering-Plough Corp. was a member) published a list advising of each state’s basis for reimbursement. Exh. 133, at RGXA 0051483; 9/21/10 Tr. 16:7-17:23; Exh. 2 (Stipulation relegating the knowledge of Schering-Plough to Warrick). The list specifically advised that Massachusetts was reimbursing based on WAC + 10%. Exh. 33; see also 3/7/02 Kapur Video 94:22-98:21; 126:12-127:8 (Weintraub was very familiar with Medicaid reimbursement and Medicaid regulations and requirements). . . .

Sixth, as stated above in Section IV.C., Defendants knew that their reported launch prices would not be the prices actually paid by wholesalers and would drop precipitously after launch.

Seventh, as stated above in Section IV.C., Defendants knew their reported prices used by MassHealth for reimbursement purposes were false or fraudulent and completely disconnected from real prices charged to wholesalers.

Eighth, as stated above in Section IV.C., although Defendants knew MassHealth’s reimbursement system and that its reported prices were not what the wholesalers actually paid, Defendants still did not update their reported prices to reflect true prices. . . .

Defendants contend that the Commonwealth relied “on pure conjecture” to prove that Defendants had the necessary scienter. Defts’ Memo at 25. In support of this contention, Defendants argue that shortly after launch, they: (1) asked FDB to stop publishing a “direct price” for their products; (2) FDB, in fact, stopped publishing Defendants’ direct prices; (3) Defendants confirmed that FDB complied with their request; and (4) as a result, Defendants could not have known FDB reported a WAC price for Warrick’s subject drug. . . .

Defendants admitted and the evidence showed that Defendants knew “Direct Price” and “WAC” were synonymous and the terms were used interchangeably. See 9/20/06 Weintraub Video 568:18-21 (wholesale acquisition cost price is the same as direct price; 2/6/03 Gough Video 72:21-73:24; Exh. 85 (Maryland Medicaid Document listing both direct price and WAC price as $15.45 for Warrick’s Albuterol Inhaler); Exh. 8(Letter from Warrick to MassHealth listing an Albuterol Inhaler “Direct Wholesale” price of $16.06 same as Warrick’s “direct price”); 9/16/2010 Tr. 111:1-9; Exh. 120 (a Warrick price change letter listing direct price and Warrick’s corresponding account information form (“AIF”) listing the same price as WAC) . Defendants also reported direct prices and WACs for some products after requesting FDB to stop publishing the direct price on the albuterol solution product. Exhs. 10, 16, 17 and 18.

Defendants’ assertion that they confirmed that FDB complied with their request, that Warrick did not subscribe to FDB’s electronic database, and that hard copy versions of FDB publications properly zeroed out Warrick’s direct price, is misleading and misconstrues the record evidence. The evidence showed that Defendants knew that pricing compendia had electronic databases. See Exh. 93 (Memo from Brennan to Weintraub mentioning Red Book listed certain Warrick’s prices solely on its website/e-version). In fact, FDB expressly told manufacturers (i.e. Defendants) when requesting annual pricing updates that the wholesale prices needed for State Medicaid reimbursement were for its database (National Drug Data File “NDDF”) and would not be published in hardcopy. See Exh. 146. . . .


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