Last week, in AFSCME Dist. Council 37 Health & Sec. Plan Trust v. Bristol-Myers Squibb Co., No. 12 Civ. 2238 (SDNY Jun. 3, 2013) (order granting defendants’ motion to dismiss), Judge J. Paul Oetken in the Southern District of New York (the Court) ruled that plaintiffs’ claims — that a co-payment assistance program sponsored Bristol-Myers Squibb (BMS) and Otsuka American Pharmaceutical (Otsuka) violated the Racketeer Influence and Corrupt Organizations Act (RICO), and therefore constituted bribery in violation of the Robinson Patman Act — did not meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b) and, as such, granted the defendants’ motion to dismiss. The case was one of six class action lawsuits challenging prescription drug coupons originally filed on March 7, 2012 by four health benefit plans — the New England Carpenters Health and Welfare Fund, the Plumbers and Pipefitters Local 572 Health and Welfare Fund, the Sergeants Benevolent Association, and the AFSCME District Council 37 Health and Security Plan Trust — against eight pharmaceutical manufacturers — Abbott Laboratories, Amgen, Inc., AstraZeneca, BMS, GlaxoSmithKline, Merck & Co., Inc. Novartis Pharmaceutical Corp., and Pfizer, Inc. The case was filed in four different federal Courts — the Eastern District of Pennsylvania, the District of New Jersey, the Northern District of Illinois, and the Southern District of New York. (Click here for a more detailed discussion of the original complaints filed in the cases and other five parallel class action lawsuits.)

BMS and Otsuka sponsor a co-payment assistance program called LoyaltyScript, which provides individuals financial assistance with some or all of their co-payment or co-insurance obligations for Abilify, which BMS and Otsuka co-market. The plaintiffs — AFSCME District Council 37 Health and Security Plan Trust and the Sergeants Benevolent Association — sponsor health plans. Health plans and health insurers establish tiered co-payments or cost-sharing obligations for prescription drugs to encourage prescribing, dispensing, and use of lower-cost generic and brand drugs over more expensive branded drugs utilized to treat the same underlying condition or disease state. The plaintiffs argued that the cost-sharing subsidies provided by BMS and Otsuka’s co-payment assistance program induced individuals to utilize Ablify, a more expensive branded drug, as opposed to more cost-effective generic and brand alternatives. According to the plaintiffs, the predicate fraud underlying the RICO claims was based on the fact that the plaintiffs’ health plans and other third party payors do not know if any particular individual receives a subsidy via the BMS and Otsuka-sponsored co-payment assistance program or pays his/her co-payment or cost-sharing obligation in its entirely. The plaintiffs alleged that as many as 25% of individuals utilizing Abilify would have opted for a generic or branded alternative in the absence of the subsidy provided by BMS and Otsuka via the LoyaltyScript program. Furthermore, the plaintiffs characterized the subsidies provided by BMS and Otsuka under the co-payment assistance program as illegal bribes or kickbacks that violate the RPA and “undermine the contractual insurance arrangement between the insurer and the insurer’s member by reducing or eliminating the personal cost-share feature of the insurance contract.”

The Court granted the defendants’ motion to dismiss as to the claim under the RPA for bribery because the individual insureds have no duty to act in their health plan’s best interest. “The essence of commercial bribery is the corruption of the duty that an agent owes his principal,” the Court stated. The plaintiffs did not allege that such duty exists between a health plan and its enrollees nor did the Court find that a health plan’s enrollees were agents or intermediaries of their health plans. The defendants argued that an individual’s receipt of financial assistance from the LoyaltyScript program was similar to such individual receiving money from a rich uncle or stranger on the street.

With respect to the RICO claims, the Court noted that BMS and Otsuka’s co-payment assistance program “is not fraud on anyone because it involves no element of deception.” Specifically, the LoyaltyScript program is open and notorious as are the program’s terms and conditions, which are available on public websites.

The Court dismissed all but one of the plaintiffs’ RICO-based claims with prejudice, meaning there is no opportunity for the plaintiffs to refile. The Court left open the door for the plaintiffs’ to replead the RICO complaint under a potential theory that BMS and Otsuka failed to account for the cost-sharing assistance provided to individuals under their LoyaltyScript program as discounts when establishing Abilify’s Average Wholesale Price (AWP) and Wholesale Acquisition Cost (WAC), reported to drug pricing compendia by the manufacturers, because these are the drug pricing metrics utilized by third party payors in reimbursing pharmacies for drugs dispensed to their enrollees. In other words, the plaintiffs’ could replead the RICO case alleging that Abilify’s AWP and WAC are fraudulent in that such list prices do not reflect the “discounts” provided to individuals via the LoyaltyScript program.

While the Court’s ruling is only binding in one of several pending cases involving co-payment assistance programs, it falls on the heels of a similar ruling in favor of Merck & Co., Inc. also on a motion to dismiss, by the District of New Jersey in May 2013 related to three class actions. As such, it appears manufacturers are successfully defending challenges to co-payment assistance programs, at least on a RICO and/or Robinson-Patman Act theory. Only time will tell whether the other courts — the Eastern District of Pennsylvania and the Northern District of Illinois — where class actions suits related to co-payment assistance programs remain pending reach the same conclusion.