On March 11, 2011, the United States Court of Appeals for the Eleventh Circuit ruled that a class action lawsuit filed by welfare benefit plans failed to state federal Racketeer Influenced and Corrupt Organizations Act (RICO) claims against AstraZeneca stemming from the pharmaceutical company’s off-label promotion of the antipsychotic drug Seroquel.

The class action complaint—filed by labor unions and welfare benefit plans (referred to by the court as “insurers”)—sought to recover damages allegedly sustained as the result of AstraZeneca’s unlawful promotion of Seroquel. According to the complaint, physicians prescribed Seroquel for off-label uses because AstraZeneca falsely marketed the drug as safer and more effective in treating certain off-label conditions than other less expensive drugs.

The central allegation was that AstraZeneca’s off-label promotion of the drug resulted in the insurers incurring increased drug reimbursement costs they would not have incurred absent such illegal marketing activities. Without the fraudulent activity, claimed the insurers, they would have paid less for their health plan enrollees’ prescription drug costs. As such, the insurers sought “to recover the difference between the amount that was paid for the off-label Seroquel prescriptions and the amount that would have been paid for the less expensive substitutes.”

Affirming the lower court’s dismissal, the Eleventh Circuit’s majority opinion held that the insurers failed to establish any economic injury arising from AstraZeneca’s actions, as required to state a RICO claim. The Court found that insurers charge members premiums in exchange for healthcare coverage and that insurers use complex actuarial calculations in order to adjust premiums as necessary to account for and protect against known risks associated with such coverage.

In this instance, the Court held that the “insurers assumed the risk of paying for all prescriptions of drugs covered by their policies, including medically unnecessary or inappropriate prescriptions - even those caused by fraudulent marketing.” These insurers elected to list Seroquel on their drug formularies and consequently provided coverage for all prescriptions for Seroquel, both on-label and off-label. Placing Seroquel on the formulary “contractually obligated the insurer to pay the drug’s price anytime it was prescribed. Therefore, the insurers had to pay regardless of the facts surrounding the prescription.”

The Court further reasoned that the insurers could have protected themselves by excluding coverage for medically unnecessary prescriptions of Seroquel or any formulary-listed drugs by requiring preauthorization: “[h]ere, however, the insurers made the conscious business decision not to require preauthorization review in their policies,” and consequently “assumed the risk” of paying for medically unnecessary or inappropriate off-label Seroquel prescriptions. The Court concluded that “the risk that fraud—including fraudulent marketing by drug manufacturers—might result in insurers paying for medically unnecessary or inappropriate prescriptions is just another cost to be factored into premiums.”

Concurring only in the judgment, Judge Beverly Martin stated that the “much simpler reason why [Astra Zeneca] should prevail” is because “the independent decisions of the physicians and other intermediaries . . . eviscerates the chain of causation necessary to demonstrate a RICO violation.” The opinion is available by clicking here.