307 F.Supp.2d 196 (2004) | Cited 5 times | D. Massachusetts | February 24, 2004



In this massive proposed class action, Plaintiffs allege that forty-twopharmaceutical companies fraudulently overstate the published "averagewholesale prices" ("AWP") of many of their prescription drugs, whichresults in inflated payments for such drugs by consumers andbeneficiaries of the federal Medicare Part B program (throughco-payments), private health and welfare plans, health insurers,self-insured employers and other end-payors for prescription drugs.1They have identified 321 drugsPage 2with allegedly inflated prices.

On May 13, 2003, the Court allowed in part a motion to dismiss theoriginal master consolidated complaint. See In re Pharm. Indust.Average Wholesale Price Litig., 263 F. Supp.2d 172, 178-80 (D. Mass.2003) (Saris, J.) (Pharm. I). The Court assumes closefamiliarity with that opinion, which sets forth the factual background ofthe allegations as well as the appropriate legal standards. In responseto that opinion, Plaintiffs have filed a 297-page amended masterconsolidated complaint ("AMCC"), which asserts violations of the federalracketeering statute, eleven consumer fraud statutes and the antitrustlaws.2 Again,Page 3the Defendant pharmaceutical manufacturer companies move todismiss.

After hearing, the Court ALLOWS IN PART and DENIES INPART the motion to dismiss the claims that the pharmaceuticalcompanies violated the Racketeer Influenced and Corrupt Organizations Act("RICO") and antitrust law. Among other things, the Court holds thatPlaintiffs have set forth sufficient facts to state claims concerning:(1) the alleged RICO enterprises between the pharmaceutical manufacturersand four pharmacy benefit managers ("PBM's") with the common objective ofpromoting fraudulent AWP's; (2) the alleged price-fixing conspiracy ofthe Together Card Program Defendants in violation of the antitrust laws;and (3) RICO claims involving multi-source drugs.Page 4


Plaintiffs allege three primary paradigms that accomplish this fraud.First, Plaintiffs allege that each Defendant artificially raises itspublished AWP's to benefit medical providers (like doctors). The "spread"between the actual cost of the drug and the AWP encourages providers touse that Defendant's drugs at the expense of the beneficiaries ofMedicare Part B who make co-payments.3 Second, Plaintiffs allege thateach Defendant increases AWP's and provides other fraudulent kickbacks,discounts and rebates to encourage pharmacy benefit managers to put itsdrugs on their formularies. Third, Plaintiffs allege that certainDefendant manufacturers participate in an antitrust and RICO conspiracythrough a discount drug program, the Together Rx Program. The Defendantsuse this program to "raise, fix, maintain and/or stabilize the AWP of theTogether Card Drugs," thereby raising the prices paid by the elderly,uninsured participants as well as by non-participants who also pay forthose drugs based on AWP.


Plaintiffs allege that Defendants engaged in a pattern of racketeeringactivity in violation of 18 U.S.C. § 1962(c) byPage 5establishing the fraudulent AWP pricing scheme through the use ofinterstate mails and wire communications. To state a RICO claim under§ 1962(c), a plaintiff must allege four elements: "(1) conduct; (2)of an enterprise; (3) through a pattern; (4) of racketeeringactivity."4 See Libertad v. Welch, 53 F.3d 428, 441 (1stCir. 1995). While pleadings are to be construed liberally, "a greaterdegree of specificity is required in RICO cases." Bessette v. AvcoFin. Servs., Inc., 130 F.3d 439, 443 (1st Cir. 2000).

Defendants argue that the RICO claims must be dismissed for fivereasons: (1) Plaintiffs do not plead a viable enterprise; (2) Defendantsdid not conduct or participate in the conduct of any enterprise; (3)Defendants' actions were not the proximate cause of the Plaintiffs'injuries; (4) Plaintiffs failed to allege facts sufficient to satisfyFederal Rule of Civil Procedure 9(b); and (5) Plaintiffs' multi-sourcedrug allegations do not make sense.

1. EnterprisesPage 6

Plaintiffs allege two types of enterprises. The first type is theManufacturer-Publisher enterprise between each drug manufacturer and eachof the publishers printing the AWP data. The second type is theManufacturer-Pharmacy Benefit Manager enterprise between each drugmanufacturer and each PBM. Each type of enterprise will be discussedseparately.

(a) The Manufacturer — Publisher Enterprises (Count I II 624-628)

In Count I, Plaintiffs claim that the Defendant drug manufacturersengaged in an illegal pattern of racketeering activity wherein eachmanufacturer formed a separate association-in-fact enterprise with eachof the companies that published the AWP's, and that each manufacturerconducted the affairs of its enterprises. The complaint identifiesThomson Medical Enterprise, First DataBank, Inc. and Facts &Comparisons, Inc. as the publishers. (¶ 622.) For example, Plaintiffsallege an enterprise between Abbott and Thomson Medical, which "is anongoing and continuing business organization consisting of bothcorporations and individuals that are and have been associated for thecommon or shared purposes of (a) publishing or otherwise disseminatingfalse and misleading AWP's", (b) "selling, purchasing, and administering"[drugs with AWP's to plaintiff's] and (c) "deriving profits from theseactivities." (¶ 628(a).)

Defendants argue that these allegations do not suffice to plead anassociation-in-fact enterprise under the testsPage 7established by the First Circuit. See Pharm. I,263 F. Supp.2d at 182. The First Circuit has considered several factors indetermining whether a RICO association-in-fact enterprise has beenproperly asserted: (1) whether the associates have a common purpose; (2)whether there is systematic linkage, such as overlapping leadership,structured or financial ties or continuing coordination; (3) whetherthere is a common communication network for sharing information on aregular basis; (4) whether the associates hold meetings and sessionswhere important discussions take place; (5) whether the associates wearcommon colors, signs or insignia to make the group identifiable; and (6)whether the group conducted common training and instruction. Seeid.

According to the AMCC, each manufacturer-publisher enterprise "has asystematic linkage because there are contractual relationships, financialties, and continuing coordination of activities" between the participantsand a "common communication network" through which the participants"share information on a regular basis." (See, e.g., ¶ 628.)The primary communication between the participants in each allegedenterprise is the sending of the allegedly fraudulent AWP's by themanufacturer to the publisher for publication. (¶ 625.) The AMCCalleges that the publishers know of the fraudulent nature of the reportedAWP's (¶ 626), but they publish the informationPage 8anyway. The AMCC alleges that "each one of the Publishers was awareof the Defendant Drug Manufacturers' AWP scheme, was a knowing andwilling participant in that scheme, and reaped profits from that scheme."(¶ 212.) Finally, according to the AMCC, "[e]ach of the enterpriseshas the common purpose of perpetuating use of the AWP's": themanufacturers wish to push the spread to increase their market share, andthe publishers have an economic incentive to publish without question theprices reported "because if they did not, the manufacturers could easilyrevert to the other methods of publishing prices or the publishers wouldhave to independently investigate the AWP at significant expense." (¶624.)

These allegations of an association-in-fact enterprise fall short intwo ways. An enterprise must be "a group of persons associated togetherfor a common purpose of engaging in a course of conduct." UnitedStates v. Tourette, 452 U.S. 576, 580 (1981). The participants, asdescribed, do not share a common purpose more specific than that commonto many human endeavors, the reaping of a profit. The publishers areindifferent as to whether the AWP spread exists or not; their financialinterest lies in earning money through selling books listing numbers. Thespread is irrelevant to their financial well being.

Further, Plaintiffs do not cite sufficient facts to support theallegation that the publishers know of the fraudulent naturePage 9of the AWP's they publish. Plaintiffs rely on surveys by unnamedpublishers undertaken prior to 1992 regarding unnamed drugs, but theallegations in the complaint relate to behavior beginning in 1991. Theyalso point to reports on AWP inflation by Congressional bodies andgovernment agencies, and a recent lawsuit brought by Defendant Deyseeking to force publishers to publish the AWP it reports rather than thetrue price of its drugs, after publishers lowered its AWP's following aTexas prosecution of Dey for AWP fraud. While some of these factors maysupport an inference that some publishers may have been aware of concernsby governmental entities about inflated AWP's, they are insufficient todraw a reasonable inference that each of the publishers knew of thefraudulent nature of the AWP's for the identified drugs.

Plaintiffs further insist that "each of the manufacturer-publisherenterprises has a common purpose of perpetuating the use of AWP's as abenchmark for reimbursement in the pharmaceutical industry" (¶ 624),thus skirting the issue of whether the publishers knew of the fraud. Itis true that the use of AWP as a pricing benchmark may be a commonobjective, and the members of an enterprise do not have to share allobjectives so long as they have one in common. See, e.g. UnitedStates v. London, 66 F.3d 1227, 1244 (1st Cir. 1995) (holding thatthere was a common or shared purpose animating the enterprise, a bar,Page 10check-cashing business and an individual engaged in gambling:profiting from the bookmakers who were engaged in illegal gambling).However, without a shared illegal purpose to defraud, the shared innocentobjective of using AWP as a published benchmark would not support a claimof a RICO enterprise. See Blue Cross v. Smithkline Beecham ClinicalLabs., Inc., 62 F. Supp.2d 544, 549 (D. Conn. 1998) (dismissingRICO complaint for insufficient allegations of a common purpose todefraud).

Second, even if the common "reaping-a-profit" objective were tosuffice, the AMCC contains only conclusory allegations concerningsystematic linkages and ascertainable structures. Essentially, Plaintiffshave merely parroted language from Pharm. I dismissing asimilar claim in the initial master complaint. The only systematiclinkage or structured or financial ties described with some detail in theAMCC are the contracts for the publishing of the AWP's; there are noallegations of a common command structure or any considered response toevolving conditions. Allegations of a common communication network beyondthe sending of AWP information to be published are barebones: there areno common communications alleged beyond those that would be exchanged byparties to an arms-length contract. The Plaintiffs do not attempt toallege the remaining factors (meetings, joint training, etc.) relevant toa determination of whether an association-in-fact existed. Thepublishers' printingPage 11of fraudulent AWP's under a contract with the manufacturers doesnot constitute an enterprise.

(b) The Manufacturer — PBM Enterprises (Count II ¶¶ 651-661)

In Count II, Plaintiffs allege multiple associations-in-fact, eachconsisting of: (1) a PBM that, acting as a middleman between drugmanufacturers and end-payors, administered purchases of a defendantmanufacturer's drugs and billed end-payors based on the reported AWP and(2) a defendant drug manufacturer. (¶ 651.) The four named PBM's are:Advance PCS, serving 75 million health plan members; Caremark Rx, Inc.,with $5.6 billion in revenues in 2001; Express Scripts, Inc., thethird-largest PBM in America; and Medco. Health Solutions, Inc., awholly-owned subsidiary of Merck. (¶ 650.) For example, the AMCCalleges an Abbott-Caremark Rx Enterprise. (¶ 661(a).)

According to Plaintiffs, PBM's, with the knowing assistance of themanufacturers, have engaged in hidden profit-making schemes falling intothree general categories: (1) garnering rebates and other "soft dollarsfrom drug manufacturers that the PBM's, to a large extent, keep withoutdisclosing to the health plans the true amounts of the rebates"; (2)pocketing "secret spreads" between actual drug costs and the pricescharged to health plans and their members; and (3) keeping "secretdiscounts" provided by the drug manufacturers in association with thePBM's mail-order operations. (¶ 654.)Page 12

The paradigms here are somewhat different from the paradigm in theMedicare Part B context, discussed in Pharm. I. First, the AMCCalleges that the PBM benefits because it pockets the spreads between thepublished AWP's for brand-name drugs, which it uses to calculate therates it charges to end-payors (e.g., AWP minus 13 percent), and theactual prices which it pays the retail pharmacies (e.g., AWP minus 15percent). (See ¶ 171.) Second, there is a "spread" in PBMmail-order operations in which the PBM acts as a pharmacy between thepublished AWP price and the actual acquisition cost. (Id.)Finally, the PBM pockets spreads in the mail-order context in which athird-party "repackager" is used between the rates charged to end-payorsand the rates paid to the repackagers. (Id.)

The "spreads" motivate the PBM's to put the brand-name drug on aformulary: the greater the AWP inflation, the greater the profit to thePBM from the spread. (Id.) Each manufacturer benefits from aspread because it encourages PBM's to sell that manufacturer's drug,rather than a competitor's.

Alleged communications between PBM's and the manufacturers include,inter alia: (1) marketing materials about the AWP's forbrand-name drugs sent from manufacturers to PBM's; (2) writtenrepresentations of the AWP's sent by the manufacturers; (3) "thousands ofwritten and oral communications discussing, negotiating and confirmingthe placement of a Defendant drugPage 13manufacturer's drug on a particular PBM's formulary"; and (4)written communications, including checks, relating to rebates, kickbacksand other financial inducements. (¶ 666(a)-(i).)Additionally, salespersons from manufacturers regularly meet with PBM'sin order to promote their products and the fraudulent AWP scheme. (¶¶664, 667(e).) Plaintiffs allege that Defendants controlled, interalia, the setting of the AWP's, the distribution of marketingmaterial used to inform the PBM's of the benefits of using AWP's, and theaffairs of the PBM's by providing rebates and administrative fees inexchange for the PBM's use of a particular manufacturer's AWP's. (¶667.)

These allegations provide a plausible common fraudulent purpose (afalsely — inflated AWP) and describe systematic linkages, commoncommunication networks, and regular meetings among associates. It is truethat Plaintiffs have not alleged specific communications for eachenterprise, but courts have recognized that relaxation of pleadingrequirements is permitted where information is in a defendant's solepossession. See, e.g., Efron v. Embassy Suites (P.R.) Inc.,223 F.3d 12, 16 (1st Cir. 2000). Such relaxation is particularly appropriatehere where most of the Defendants have conceded that AWP's represent onlyan "undiscounted sticker price" that has no direct relation to the actualaverage price they charge for their drugs and that this is a widespreadpricing and reporting practice. Pharm. I,Page 14263 F. Supp.2d at 180.

2. Conduct or Participate in the Conduct (Manufacturer —PBM Enterprises)

Defendants argue that the AMCC makes insufficient allegations that eachmanufacturer conducted or participated in the conduct of the manufacturer— PBM enterprises. The "conduct or participate in the conduct"portion of § 1962(c) "requires some participation in the operation ormanagement of the enterprise itself." Reves v. Ernst &Young, 507 U.S. 170, 176 (1993). "An enterprise is `operated' notjust by upper management but also by lower-rung participants in theenterprise who are under the direction of upper management. An enterprisealso might be `operated' or `managed' by others `associated with' theenterprise who exert control over it as, for example, by bribery."Id. at 184 (footnote omitted). See United States v.Shifman, 124 F.3d 31, 36 (1st Cir. 1997) (holding that debtor whoreferred persons to loan shark in exchange for debt relief or feesconducted or participated in the conduct of loan sharking enterprise);Aetna Cas. Sur. Co. v. P & B Autobodv, 43 F.3d 1546, 1559(1st Cir. 1994) (holding that operation or management test required a"degree of direction" which can be direct or indirect).

Defendants argue that, at best, the AMCC alleges that they were simplyconducting their own affairs, not participating in the enterprises. Asnoted above, the AMCC alleges that thePage 15Defendants were not simply acting legally to promote theirproducts, but rather promoted the fraudulent AWP scheme. By directing theaffairs of each enterprise through kickbacks and other financialincentives to PBM's, the Defendants sought to take advantage of an honorsystem established for price reporting to promote a fraudulent pricingscheme.

3. Causation

"When a plaintiff attempts to base a civil RICO claim on § 1962(c),that claim cannot succeed unless the injuries of which the plaintiffcomplains were caused by one or more of the specified acts ofracketeering." Camelio v. Am. Fed'n, 137 F.3d 666, 669 (1stCir. 1998) (citing Miranda v. Ponce Fed. Bank, 948 F.2d 41,46-47 (1st Cir. 1991)). "[M]erely proving that the alleged predicate actswere a `cause in fact' of plaintiff's injuries will not be sufficient.Instead, § 1964(c) requires proof that at least one of thedefendant's predicate acts was the proximate cause of the plaintiff'sinjuries." Id. (citing Holmes v. Sec. Investor Prot.Corp., 503 U.S. 258, 268 (1992)).

In Holmes, the Supreme Court applied three policy tests tosupport its finding that the defendant's actions were not the proximatecause of the plaintiff's injuries: first, how difficult it is "toascertain the amount of a plaintiff's damages attributable to theviolation, as distinct from other, independent factors"; second, whetherholding the defendantPage 16liable "would force courts to adopt complicated rules apportioningdamages among plaintiff's removed at different levels of injury from theviolative acts, to obviate the risk of multiple recoveries"; and third,whether "the need to grapple with these problems is simply unjustified bythe general interest in deterring injurious conduct, since directlyinjured victims can generally be counted on to vindicate the law asprivate attorneys general." Holmes, 503 U.S. at 269-70.

Here, Defendants argue that the alleged predicate acts are not theproximate cause of Plaintiffs' alleged injuries, for there areintervening acts between Plaintiffs' alleged injuries and the allegedacts of the Defendants. Specifically, Defendants note that the allegedmisrepresentations were made to third-party publishers, not Plaintiffs;that the prescribing doctors set their own charges under Medicare; thatnumerous government actors, including Congress and carriers, chose tobase their reimbursements on AWP; and finally, that any injury arisingfrom a Manufacturer-PBM enterprise was not proximately caused by theDefendants, but rather by the PBM's or the Plaintiffs themselves.

The Defendants' arguments are not persuasive. In the private, end-payorcontext, the harm alleged by Defendants' alleged actions is visiteddirectly upon the end-payor Plaintiffs, as they have paid directly forthe named drugs based on the AWP's. Similar arguments about interveningcauses betweenPage 17the setting of an AWP by a defendant and injuries to plans andindividual co-payors were recently rejected as "border[ing] on thefrivolous," In re Lupron Marketing and Sales Practices Litiq.,295 F. Supp.2d 148, 175 (D. Mass. 2003) (Stearns, J.), for "the argumentignores . . . the corollary requirement that the intervening act beunforeseeable and completely independent of any act undertaken by theoriginal actor," id., a requirement not met in this case.

The conclusion that proximate cause exists is supported by thereasoning set forth in Holmes: the Defendants do not argue thatthere would be any particular difficulty in allocating damages; there areno other victims that will be sharing in the amounts claimed byPlaintiffs; and as the Plaintiffs are the ones directly injured, no otherparty is better placed to vindicate their interests.

4. Rule 9(b)

Defendants challenge the sufficiency of Plaintiffs' allegations underRule 9(b) on numerous bases: (1) Plaintiffs have not identified the time,date and place of specific statements between PBM's and manufacturers;(2) Plaintiffs have not linked particular drugs to particular PBM's; (3)Plaintiffs have not identified the prices they paid for each drug (thusallowing for a calculation of the "spread" in some cases) or themechanisms within their contracts for calculating prices; (4) thePage 18allegations of volume discounts, rebates, credit memos, and thelike are devoid of particulars; (5) Plaintiffs fail to specify the statesin which drugs were purchased; (6) certain Plaintiffs, including theassociations, did not allege the purchase of any drugs from certainDefendants; (7) Plaintiffs have failed to allege competitors for eachdrug; and (8) Plaintiffs do not allege that certain drugs were purchasedunder Medicare Part B.

In Pharm. I, the Court held that in light of the detailedfraudulent scheme alleged, the plaintiff's' allegations were sufficientwith respect to "any drug identified in the complaint together with theallegedly fraudulent AWP published by a named defendant for that drug."263 F. Supp.2d at 194. The Court instructed that if plaintiff's were tofile an amended complaint, "plaintiff's shall clearly and conciselyallege with respect to each defendant: (1) the specific drug or drugsthat were purchased from defendant, (2) the allegedly fraudulent AWP foreach drug, and (3) the name of the specific plaintiff(s) that purchasedthe drug." Id.

With respect to most Defendants, the Court finds that Plaintiffs in theAMCC have pled allegations concerning the fraudulent scheme with enoughspecificity to comply with the requirements of Rules 9(b) and 8(a).See Franklin ex rel. v. Parke-Davis, 147 F. Supp.2d 39, 46 (D.Mass. 2001) (Saris, J.) ("[W]here the alleged scheme of fraud is complexand far-reaching,Page 19pleading every instance of fraud would be extremely ungainly, if notimpossible. Courts facing similar claims under the False Claims Act havenot placed the bar so high as to require pleading with total insight.").In the AMCC, Plaintiffs describe extensively the factual investigationsundertaken that formed the bases of Plaintiffs' allegations, and in sodoing identify particular allegedly-fraudulent conduct on the part ofeach Defendant, except one. (See ¶¶ 155-157 (describinggovernment investigations); 187 (chart displaying spreads calculated byDepartment of Justice for eleven defendants); 200-540 (descriptions ofvarying specificity by particular defendant of pricing mechanisms,government investigations, internal documents identifying spread, andrelated items).) The amendments to the original complaint allege theparticular drugs involved, and the AWP's for those drugs. ComparePharm. I, 263 F. Supp.2d at 193-94.

The Court has examined each motion to dismiss filed by individualDefendants. After a review of Defendant-specific briefs, the Court rulesas follows:

1. The claims by a Plaintiff association against a Defendantmanufacturer are dismissed unless a member of that association is allegedto have purchased a drug from that Defendant.

2. The Court continues to defer ruling on the juridicalPage 20linkage doctrine as that issue is more properly resolved in thecontext of class certification. See Pavton v. Kane,308 F.3d 673, 679-80 (7th Cir. 2002) (holding that a court should consider"issues of class certification prior to issues of standing" and pointingout that once a class is properly certified "standing requirements mustbe assessed with reference to the class as a whole, not simply withreference to the individual named plaintiff's"). Accordingly, so long asthere is one named Plaintiff who purchased a drug from a Defendant, theCourt will not dismiss the claims of fraud involving other drugsmanufactured by that Defendant even if none of the named Plaintiffspurchased that particular drug. The Court declines the invitation at thisearly stage of the litigation to evaluate intricate arguments involvingstanding (for example, whether a plaintiff who has standing with respectto a Medicare Part B drug has standing to represent a purchaser of a drugunder a private plan), although these issues may be appropriate in atypicality analysis under Fed.R.Civ.P. 23(a)(3).

3. In light of the allegations and concessions concerning anindustry-wide practice of inflating AWP's, the Court rejects argumentsthat Plaintiffs must allege a specific spread for each drug, so long assufficient facts were alleged to infer a fraudulent scheme by eachparticular Defendant manufacturer (i.e., government investigationsconcerning that company,Page 21internal company documents, specific alleged fraudulent spreads onother drugs manufactured by that company and the like). The allegationsnot meeting this standard are discussed below.

4. The Court dismisses the claims regarding Viramune as it wasapparently not manufactured by the Boehringer Group.

5. The Court dismisses Hoffman-LaRoche on the ground that there areinsufficient allegations to support a claim of a fraudulent scheme. Whileindustry-wide practices are relevant, this is essentially aguilt-by-association claim as there are no allegations concerninggovernment investigations, internal documents or specific fraudulentspreads relating to this particular company. Defendant Hoffman-La Rocheis the only Defendant for which no examples of allegedly-incriminatingcommunications, fraudulent pricing, or government investigations weregiven. Plaintiffs explain that statements pertaining to Hoffman-LaRoche's drug Kytril are detailed in the AMCC section pertaining to acompetitor, the GSK Group. GSK allegedly sold Kytril to Hoffman-La Roche,and the AWP of Kytril has not decreased since the sale. (See¶¶ 386-404 (citing documents discussing benefits of spread).) Iagree with Hoffman-La Roche that this pleading implicating anotherdefendant is not particular enough to infer that Hoffman-La Roche engagedin racketeering.

Plaintiffs further argue that under First Circuit precedent,Page 22the proper course is to permit discovery, noting that unlike theother Defendants, Hoffman-LaRoche has never been subject to discovery.See New England Data Serv., Inc., v. Becher, 829 F.2d 286,290-91 (1st Cir. 1987) ("[W]here, for example the specific allegations ofthe plaintiff make it likely that the defendant used interstatemail . . ., and the specific information as to use is likely in theexclusive control of the defendant, the court should make asecond determination as to whether the claim as presentedwarrants the allowance of discovery and if so, thereafter provide anopportunity to amend the defective complaint."); but see Feinsteinv. Resolution Trust Corp., 942 F.2d 34, 44 (1st Cir. 1991) (notingthat "[a]lthough Becher may in certain circumstances give a plaintiff asecond bite at the apple, its generous formulation is not automaticallybestowed on every litigant").

Here, the Court makes the second determination that discovery is notwarranted. Unlike in Becher, where the complaint containedother allegations of particular facts with regard to the defendants, 829F.2d at 287, no specifics have been alleged as to the conduct ofHoffman-LaRoche. Therefore, Hoffman-La Roche's motion to dismiss isALLOWED.

6. The Court shall allow discovery to proceed with respect to B. Braunof America. Plaintiffs must respond to the issues of personaljurisdiction and whether the service of B. Braun ofPage 23America relates back to the service of B. Braun Medical, Inc. byAugust 24, 2004.

5. Multi-source Drugs

In Pharm. I, the Court dismissed without prejudiceplaintiffs' claims relating to multiple-source (including generic) drugsbecause the allegations were not specific with respect to such drugs andthey "do not fit the paradigm described in the complaint." 263 F. Supp.2dat 194 n.11.

In the AMCC, Plaintiffs allege that AWP fraud is "most exacerbated forgeneric drugs or for brand name drugs for which there are biological ortherapeutic equivalents." (¶¶ 179-190.) They further allege that theAWP fraud affects private end-payors as well as the Medicare Part Bprogram. According to the Plaintiffs, in the private payor arena, genericdrug reimbursement is determined either in the same manner as forbrand-name drugs (i.e., a certain percentage "discount" off of the AWP)or is based on the amount specified as the maximum allowable cost or"MAC." MAC prices or reimbursement rates are a schedule of pricing forgenerically equivalent drugs based upon the AWP's of competing genericdrug manufacturers. The federal government issues a MAC price for genericproducts that have three or more manufacturers or distributors on themarket. PBM's sometimes utilize this MAC reimbursement publication, andsometimes calculate a maximum allowable cost based on their ownPage 24formulae, which utilize the list average wholesale prices ofcompeting generic drug manufacturers. The use of a maximum allowable costbased on the list average wholesale price is termed in the industry asthe "average average wholesale price."

In the public payor arena under Medicare Part B, multi-source drugs orbiologicals are reimbursed on the basis of the lessor of the median AWPof all of the generic forms of the drug or biological, or the lowestbrand-name product AWP, with the resulting price confusingly being alsotermed "AWP". (¶ 149 (citing Program Memorandum AB-99-63 (Sept.1999)).)

The raising of an individual Defendant's reported AWP for amulti-source drug can (but does not necessarily) raise the median AWP atwhich the generic drug is reimbursed. Moreover, while any one genericmanufacturer can only affect the median generic reimbursement for AWP fora product, rather than directly affecting its own drug's reimbursement.Defendants still benefit from the spread between the median AWP and theactual prices paid. (¶ 186.) According to the AMCC, "[t]he naturaland expected result of this `leap frogging' of increasing AWPs is thatmulti-source drugs have some of the highest spreads of any drugs,sometimes resulting in an AWP over 50,000% over actual costs." (¶187.) For example, Baxter publishes the AWP for Sodium Chloride at$928.51, while the DOJ determined that the actual AWP was $1.71, apercentage spread of 54,199%. (¶ 187,Page 25chart.)

Defendants argue that the allegations regarding the underlyingfraudulent scheme for multi-source drugs are insufficient underRule 9(b). Defendants reason that they have no motive to compete by increasingthe "spread" between the average wholesale price of multi-source drugsand the actual price of such drugs to providers, because Medicare Part Bpays for multi-source drugs at "the lesser of the median averagewholesale price for all sources of the generic forms of the drug orbiological or the lowest average wholesale price of the brand name formsof the drug or biological." 42 C.F.R. § 405.517 (2003). No one drugmaker could gain an advantage by leapfrogging the AWP over acompetitor's, Defendants argue, as reimbursement is based on the median.For similar reasons, there is no reason to compete with regard tonon-Medicare Part B, multi-source drugs, which are reimbursed based onMAC's.

Plaintiffs respond that prices of multi-source drugs are often based onAWP in the private payor context, giving drug makers the same incentiveto increase AWP. In any event, at this stage of the proceeding,Plaintiffs are not required to prove motive, see Fed.R.Civ.P. 9(b),and the allegations are specific enough to accord with Fed.R.Civ.P.9(b).

B. State Civil Conspiracy Claims, State ConsumerProtection Statutes

The Court declines to reach the merits of the motions toPage 26dismiss the multiple state law claims, which were briefedinadequately. The Court will address these state law claims at thesummary judgment stage.

C. Together Rx Claims

Plaintiffs claim that Defendants illegally manipulate AWP's through thecreation of a discount card program — the Together Rx Program— to share price data, fix prices and stave off public inquiry.

In response, Together Rx LLC ("Together Rx") and its membercompanies5 (collectively, the "Together Rx Defendants") move todismiss Counts V (Section 16 of the Clayton Act, 15 U.S.C. § 26), VI(Section 1 of the Sherman Act, 15 U.S.C. § 1), VII (various stateantitrust statutes), VIII (RICO, 18 U.S.C. § 1962(c), (d)) and X(Civil Conspiracy) of the AMCC, all counts directed against the TogetherRx Program.6

The AMCC makes the following allegations regarding the Together RxProgram. In 2001 or 2002, the Together Rx Defendants agreed to establisha program to offer drug discounts to older, uninsured and poor consumers.(¶¶ 542-544.) To implement thePage 27program, they fixed the AWP "spread" (the difference betweenpublished AWP and the wholesale acquisition cost or "WAC") on over 170widely-prescribed brand-name drugs purchased through the program("Together Card drugs"). (¶ 544.) The Together Card Program hascaused Plaintiffs and the nationwide end-payor Together Card class to paymore for Together Card drugs. (¶ 545.) Plaintiffs therefore allege aconspiracy "to raise, fix, maintain and/or stabilize" the AWP spread.(¶ 545.) Another purpose of the program, according to the AMCC, wasto allow the Together Rx Defendants to respond to public pressure overescalating drug costs. (¶ 550.) The Together Rx Program was launchedin April of 2002. (¶ 560.)

As proof of this scheme, Plaintiffs allege that the Together RxDefendants simultaneously and uniformly increased the spreads betweenposted AWP's and WAC's on over 80% of their Together Card drugs in orderto provide an incentive to others in the distribution chain toparticipate in the program, an incentive that operated to the detrimentof end-payors (like insurance companies and health plans). (¶¶588-591.) The effectively-simultaneous timing of the Together RxDefendants' increases in AWP spreads is unprecedented in terms of thenumber of products per manufacturer and number of manufacturers withinthe pharmaceutical industry. (¶ 592.) Notably, each of the sevenTogether Rx Defendants achieved precisely a 25% spread followingPage 28

the formation of the program as shown below. (¶ 591.)

Together Together Card AWP WAC AWP AWP WAC AWP Card Drug Before Before Spread After After Spread Defendant Alliance Alliance Before Alliance Alliance After Alliance Alliance Abbott Biaxin 500 mg $396.72 $334.08 18.8% $437.98 $350.38 25% #60 AstraZeneca Prilosec 40 mg $6,171.66 $5,143.04 20% $6,621.67 $5,297.34 25% #1000 Aventis Allegra 60 mg $118.26 $98.63 20% $123.29 $98.63 25% #100 BMS Tequin 400 mg $818.86 $682.27 20% $895.48 $716.38 25% #100 GSK Combivir $1,241.26 $1,034.38 20% $1,370.55 $1,096.44 25% #100 J&J (Janssen) Risperdal 2 mg $2,320.10 $1,933.42 20% $2,535.20 $2,028.16 25% #500 Novartis Exelon $246.96 $205.80 20% $267.29 $213.83 25% 2 mg/mlThe total percentage of all Together Card drugs manufactured by theTogether Rx Defendants with an AWP spread greater than 24% increased from25.5% in 2000, to 92% by 2002. (¶ 590.) Plaintiffs contend that "theTogether Card Defendants' immediate increase of the AWP spread onTogether Card drugs diluted any meaningful discount for the relativelysmall number of eligible consumers and raised the price for otherconsumers significantly beyond what was charged prior to the TogetherCard Defendants' formation of the alliance." (¶¶ 10, 593.)

Defendants contend that all conspiracy counts should be dismissedbecause the factual allegations "make no economic sense" and becausePlaintiffs lack standing. The standardPage 29governing motions to dismiss pursuant to Fed.R.Civ.P. 12(b)(6)applies to an antitrust claim. See Caribe BMW, Inc. v. BayerischeMotoren Werke Aktienqesellschaft, 19 F.3d 745, 748 (1st Cir. 1994).In antitrust cases "where the proof is largely in the hands of the[defendant], dismissals prior to giving the plaintiff ample opportunityfor discovery should be granted sparingly." Hosp. Bldg. Co. v. Trs.of the Rex Hosp., 425 U.S. 738, 746 (1976). However, sparingly doesnot mean never. A plaintiff must allege sufficient facts in order tostate each element of the antitrust violation. See C.R. Bard, Inc.v. Med. Elecs. Corp., 529 F. Supp. 1382, 1389 (D. Mass. 1982).

1. Sufficiency of Antitrust Allegations

Section One of the Sherman Act prohibits "[e]very contract,combination . . . or conspiracy, in restraint of trade."15 U.S.C. § 1 (1997). That language establishes two prerequisites fora Section 1 claim. Podiatrist Ass'n v. La Cruz Azul de Puerto Rico, Inc.,332 F.3d 6, 12 (1st Cir. 2003). First, the plaintiff must show concertedaction between two or more separate parties. Monsanto Co. v.Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984). Second, theplaintiff must show that such action unreasonably restrains trade.NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998). A smallset of acts constitute per se violations of Section 1 becausethe acts are regarded by the Court "as sufficiently dangerous and soclearly without redeemingPage 30value that they are condemned out of hand, that is, without ashowing of wrongful purpose, power or effect." Eastern Food Servs.,Inc. v. Pontifical Catholic Univ. Servs., Inc., 2004 WL 110844, at*2 (1st Cir. Jan. 20, 2004). Thus, "proof of the defendant's power, ofillicit purpose and, of anticompetitive effect" are irrelevant. U.S.Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593 (1st Cir.1993).

Price fixing agreements qualify for the per se label."Stabilizing prices as well as raising them is within the ban of § 1of the Sherman Act." United States v. Container Corp. of Am.,393 U.S. 333, 337 (1969). "Under the Sherman Act a combination formed forthe purpose and with the effect of raising, depressing, fixing, pegging,or stabilizing the price of a commodity in interstate or foreign commerceis illegal per se." United States v. Socony-Vacuum Oil Co.,310 U.S. 150, 223 (1940).

Defendants' core argument is that Plaintiffs have not alleged aneconomically plausible theory because Defendants have no economicincentive to collude to increase AWP's or the "AWP spread" on Together Rxdrugs. The Supreme Court has held that "if the factual context renders[plaintiff's] claim implausible — if the claim is simply one thatmakes no economic sense — [plaintiff] must come forward with morepersuasive evidence to support their claim than would otherwise benecessary." Matsushita Elec. Indus. Co., Ltd. v. Zenith RadioCorp.,Page 31475 U.S. 574, 587 (1986). Following this precedent, courts have dismissedantitrust conspiracy claims where a plaintiff has presented nothing morethan "unlikely speculations." DM Research, Inc. v. College of Am.Pathologists, 170 F.3d 53, 56 (1st Cir. 1999) (holding thatallegations of a "conspiracy" or "agreement" "might well be sufficient inconjunction with a more specific allegation — for exampleidentifying . . . a basis for inferring a tacit agreement," butreasoning that "the discovery process is not available where, at thecomplaint stage, a plaintiff has nothing more than unlikelyspeculations"). See also Car Carriers, Inc. v. Ford Motor Co.,Inc., 745 F.2d 1101 (7th Cir. 1984) (holding that "a complaint mustcontain either direct or inferential allegations respecting all thematerial elements necessary to sustain a recovery under some viable legaltheory").

Defendants argue that the Together Rx transactions alleged byPlaintiffs make no economic sense. In one type of transactionspecifically alleged in the AMCC, Novartis offered its drugs to TogetherRx Card holders with incomes less than $24,000 for a flat fee of $12 perprescription. The difference between $12 and the price the pharmacycharges for the drug is the amount of the subsidy provided by Novartis.(¶ 558.) Defendants argue that an increase in AWP spread wouldactually hurt each drug company, which would have to pay more insubsidies to each retail pharmacy with no offsetting increase inrevenues. In another type ofPage 32Together Rx transaction alleged by Plaintiffs, the manufacturerpays a specific dollar subsidy and the cardholder pays the differencebetween that subsidy and the pharmacy's selling price. With respect tothis type of transaction, Defendants point out, increasing the spreadbetween WAC and AWP does not increase the revenue the Defendantmanufacturer receives. Therefore, Defendants argue, the theory behind theentire alleged conspiracy is nonsensical.

Plaintiffs argue that a conspiracy which stabilizes a volafile marketand fixes both prices and discounts is a classic example of a horizontal,per se violation of the Sherman Act. The AMCC alleges that theTogether Card Program was created, at least in part, to stave offcongressional and public scrutiny. (¶ 550.) Moreover, from aneconomic viewpoint, Plaintiffs argue, increasing the AWP spread on the170 drugs would shift the financial burden of the Together Card Programonto non-Together Rx third party end-payors and create "spread dollars"for others in the distribution chain (like pharmacies and wholesalers).In other words, it functions as a cross-subsidy placed on end-payors toincentivize these other entities to participate in the program.

In light of the extremely complex nature of drug pricing, the record isinadequate for fully evaluating either argument. It is worth pointingout, however, that Defendants have not givenPage 33a plausible reason why they all simultaneously created the samespread for market based reasons. At this stage, with all reasonableinferences drawn in their favor, Plaintiffs have not alleged animplausible economic or political theory.

Defendants also argue that parallel price movements alone areinsufficient to establish a conspiracy. Clamp-All Corp. v. Cast IronSoil Pipe Inst., 851 F.2d 478, 484 (1st Cir. 1988) (finding thatevidence "consisting of little more than" "follow-the-leader" pricelists for virtually identical products "would not permit a finding ofmore than such individual, interdependent, price setting"). "Since mereparallel behavior can be consistent with independent conduct, courts haveheld that a plaintiff must show the existence of additionalcircumstances, often referred to as `plus' factors, which, when viewed inconnection with the parallel acts, can serve to allow a fact-finder toinfer a conspiracy." Apex Oil Co. v. DiMauro, 822 F.2d 246, 253(2d Cir. 1987). Such circumstances might include a common motive toconspire or a high level of inter-firm communications. Id. at254 (citations omitted). See also Illinois Corp. Travel v. AmericanAirlines, 806 F.2d 722, 726 (7th Cir. 1985) (explaining that "toshow conspiracy indirectly the plaintiff must demonstrate that the firmis behaving in a way that is inconsistent with unilateraldecisionmaking," i.e., that "the defendant acted in a way that, but for ahypothesis of jointPage 34action, would not be in its own interest").

The Plaintiffs' Together Rx allegations include more than mere parallelpricing. The AMCC alleges, for example, that the Together Rx Defendantsjoined the Together Rx program with the common motive of staving offCongressional and public scrutiny (¶ 550) and that the Together Rxprogram facilitated the sharing of price information. (¶ 546.)Moreover, the Together Rx Defendants simultaneously created identical AWPspreads on several widely-prescribed drugs, raising a reasonableinference of conspiracy. (¶ 592.) Cf. Cayman Exploration Corp.v. United Gas Pipe Line Co., 873 F.2d 1357, 1361 (10th Cir. 1989)(affirming dismissal of horizontal price-fixing conspiracy claim whereplaintiff "did not identify the alleged conspirators, when or how theyfunctioned, or the nature and extent of [defendant's] participation inthe alleged conspiracy"); Yellow Page Solutions, Inc. v. BellAtlantic Yellow Pages, 2001 WL 1468168, at * 14 (S.D.N.Y. Nov. 19,2001) (dismissing complaint where "plaintiff's do not allege, as theymust" when or where any unlawful agreement was made, or by whom, or whythe parties would enter into this agreement, or that uniform pricingpolicies are "anything other than independent, parallel conduct meant tomaximize each party's own revenues"). The Together Rx Plaintiffs, bycontrast, have alleged parallel movements, as well as sufficient "plus"factors to survive a motion to dismiss.Page 35

2. Standing

Plaintiffs bring their Together Card claims on behalf of the followingproposed class: All persons or entities in the United States and its territories who paid any portion of the purchase price for, or who reimbursed any portion of the purchase price of, a drug covered by the Together Rx Program on the basis, in whole or in part, on the published average wholesale price during the time period January 1, 2002 up to and including the present.(¶ 604.) Defendants argue that Plaintiffs lack standing toassert their claims because no Plaintiff is enrolled in the Together RxProgram. The Plaintiffs assert they either paid for or were reimbursedfor Together Card drugs, the prices of which were based on AWP.Therefore, Plaintiffs have standing to assert their claims.7 SeeRSA Media, Inc. v. AK Media Group, Inc., 260 F.3d 10, 14 (1st Cir.2001) ("Although we technically balance the six factors [articulated inAssociated Gen. Contractors of Cal., Inc. v. Cal. State Council ofCarpenters, 459 U.S. 519 (1983)] to determine if standing isappropriate, this Court has emphasized the causation requirements of thattest."); Morales-Villalobos v. Garcia-Llorens, 316 F.3d 51, 55(1st Cir. 2003) (overturning grant of motion to dismiss for lack ofantitrust standing where plaintiff alleged but-for causation and directinjury and court

1. The Amended Complaint names eleven plaintiff's, including fiveERISA-qualifled employee benefit plans, a voluntary employee benefit planand five associations. It names the following companies as defendants(corporate groupings are separated by semicolon): Abbott Laboratories;Amgen Inc.; "AstraZeneca," which includes Zeneca, Inc., AstraZeneca US,and AstraZeneca Pharmaceuticals L.P.; "The Aventis Group," which includesAventis Pharmaceuticals, Inc., Hoechst Marion Roussel, Inc., and AventisBehring LLC; "Baxter," which includes Baxter International Inc. andBaxter Healthcare Corporation; Bayer Corp.; "The Boehringer Group," whichincludes Boehringer Ingelheim Corp., Ben Venue Laboratories Inc. andBedford Laboratories; B. Braun of America, Inc.; "The BMS Group," whichincludes Bristol-Myers Squibb Co., Oncology Therapeutics Network Corp.,and Apothecon, Inc.; Dey, Inc.; "The Fujisawa Group," which includesFujisawa Healthcare, Inc. and Fujisawa U.S.A., Inc.; "The GSK Group,"which includes GlaxoSmithKline, P.L.C., SmithKline Beecham Corp., andGlaxo Wellcome, Inc.; Hoffman-LaRoche, Inc.; Immunex Corp.; "The Johnsonand Johnson Group," which includes Johnson & Johnson, Centocor, Inc.,Janssen Phamarceutical Products, L.P., McNeil-PPC, Inc., and OrthoBiotech; Novartis Pharmaceuticals Corp.; Pfizer, Inc.; "The PharmaciaGroup," which includes Pharmacia Corp. and Pharmacia & Upjohn, Inc.;"The Schering-Plough Group," which includes Schering-Plough Corp. andWarrick Pharmaceuticals Corp.; "The Sicor Group," which includes Sicor,Inc., Gensia, Inc., and Gensia Sicor Pharmaceuticals, Inc.; TAPPharmaceutical Products, Inc.; and Watson Pharamaceuticals, Inc.

2. The Amended Master Consolidated Complaint (the "AMCC") pleadscauses of action under the Racketeer Influenced and Corrupt OrganizationsAct ("RICO"), 18 U.S.C. § 1962(c),(d); Section 16 of the Clayton Act,15 U.S.C. § 26; the Sherman Act, 15 U.S.C. § 1; the antitruststatutes of 22 states; state consumer protection statutes of 11 states;and civil conspiracy law. The AMCC also seeks declaratory relief pursuantto the Declaratory Judgment Act, 28 U.S.C. § 2201, 2202. Plaintiffsbring this action on behalf of themselves and two classes: [1] The AWP Payor Class: All persons or entities who, for purposes other than resale and during the Class Period, paid any portion of the purchase for a prescription drug manufactured by a Defendant Drug Manufacturer (as identified in Appendix A) at a price calculated by reference to the published AWP during the Class Period. [2] Sub-Class: The PBM Third-Party Payor Class: All Third-Party Payers that, during the Class Period, contracted with a PBM to provide to its participants a prescription drug manufactured by a Defendant Drug Manufacturer and identified in Appendix A.(¶ 595.)

3. The Defendants do not address separately this paradigm, but theymake arguments under Rule 9(b) in the context of the second paradigm thatare applicable to both the first and second paradigms.

4. 18 U.S.C. § 1962 (c) (2000) provides: It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . .

5. The eight member companies of Together Rx are: AbbottLaboratories; AstraZeneca Pharmaceuticals, L.P.; Aventis Pharmaceuticals,Inc.; Bristol-Myers Squibb Company; SmithKline Beecham Corporation d/b/aGlaxoSmithKline; Janssen Pharmaceutical Products, L.P. and McNeil-OPC,Inc. (both affiliates of Johnson & Johnson); and NovartisPharmaceuticals Corporation.

6. Defendants address the non-antitrust claims only summarily andthe Court declines to dismiss them.

7. The Court does not decide at this point whether Plaintiffs havestanding to assert claims on behalf of elderly program enrollees.

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