The Delaware Supreme Court issued another important opinion this spring, this time affirming dismissal of the claims of third-party payor health insurers (TPPs) against a pharmaceutical manufacturer. Teamsters Local 327 Welfare Fund v. AstraZeneca Pharm. LP, No. 415, 2015, 2016 WL 1465329 (Del. Apr. 12, 2016). TPPs have frequently brought cases against pharmaceutical manufacturers in recent years, claiming that deceptive marketing practices caused them to pay too much for drugs. Under the Teamsters case, though, manufacturers may have a dispositive defense where the drug in question remained on plaintiffs’ formulary after the TPP knew of the alleged fraud.
The Teamsters plaintiffs, “on behalf of themselves and a putative nationwide class of TPPs,” filed suit in Delaware Superior Court, alleging that AstraZeneca “falsely advertised its more expensive patented prescription drug Nexium as superior to the less expensive generic drug Prilosec, causing the TPPs to overpay for Nexium when generic Prilosec would have sufficed.” Relying on choice-of-law analysis from a parallel case in the District of Delaware to find that New York law controlled, the Superior Court dismissed the claims with prejudice because “a physician’s expertise in prescribing drugs for a patient’s condition broke the causation chain between the advertising and the injury.”
The Delaware Supreme Court affirmed. The court found a choice-of-law analysis unnecessary, as both Delaware and New York law required a showing of causation, which could not be established here as a matter of law. Critical to the decision was the fact that the payor continued to keep Nexium on its formulary for years, even after the lawsuit was filed. According to the court, “[u]nder any reasonable interpretation of the statutes, TPPs who continue to pay or reimburse for Nexium, while claiming they were harmed by allegedly false advertising, are neither ‘victims’ of the allegedly false advertising nor were they injured by reason of or as a result of it.” Rather, they were “injured by their own conduct.”
Plaintiffs contended that AstraZeneca’s alleged fraud drove up the price of the drug, and that plaintiffs were therefore forced to cover the drug due to “advertising pressure directed towards physicians and patients.” The court rejected both of these arguments as well, reasoning that: (i) there is no traditional “economic” market for prescription drugs, whose prices are somewhat removed from “the laws of supply and demand”; and (ii) TPPs “can incent physician and patient behavior by not listing a drug on their formularies, or by offering financial incentives to use less expensive and equally effective generic medicines,” but here they simply “chose not to do so.” For all these reasons, the court affirmed dismissal.
The Teamsters case sets out a strong argument for manufacturer-defendants facing lawsuits from TPPs who maintain on their formularies the drugs at issue. Manufacturers should look for facts like these in any similar case and consider raising this powerful defense as to causation.