We love being right. We especially love telling the plaintiffs’ bar that we told ya so. Now can we finally drive a stake through these off-label marketing RICO cases brought by third-party payors (TPP)? (probably not, but we can keep hoping).
The latest crash-and-burn RICO TPP class action comes courtesy of the Southern District of Illinois, in In re Yasmin and Yaz Marketing, Sales Pracs. And Prod. Liab. Litig., 2010 WL 3119499 (S.D. Ill. Aug. 5, 2010) (because we’re into that whole brevity thing, we’ll call it “Yaz”). By now, we can probably all intone the standard “off-label RICO conspiracy” claims: you promoted your product for off-label uses to doctors and their patients, while concealing that your drug doesn’t work/isn’t safe, you sponsored educational seminars that were really sales pitches for your drug, and you incentivized doctors to prescribe your drug for inappropriate uses. See, e.g., Yaz, 2010 WL 3119499, at *2-3. This led your drug to be (a) overprescribed and (b) overpriced. Id.
The Yaz court wasn’t buying what the plaintiffs were selling, and in the process, the court wrote an elegant, simple opinion that collects a lot of the major decisions in this area, demystifies RICO’s proximate cause requirement, and, most important, tosses out the plaintiffs’ claims – including pendent state claims for negligence, fraud, and unjust enrichment. Or maybe we just think it’s elegant because it says many of the same things we’ve been saying, and confirms that proximate cause is a case-killer in TPP RICO cases.
RICO’s proximate cause element requires a “direct relationship” between the alleged injury and the alleged harm. Id. at *4. This “direct relationship” requirement has doomed numerous remote parties seeking damages for harms visited upon others – for example, in tobacco cases brought by health insurers for the medical care they had to reimburse on behalf of their smoking insureds. Id. at *5-6. But the “direct relationship” requirement has also come into play – repeatedly – when TPPs have sued to recover the money they had to shell out for insureds’ prescriptions. In those cases, courts often find the alleged damages are “too remote and speculative to maintain a RICO claim.” Id. at *6. Why? Because it’s hard to untangle the “independent factors” that may have influenced the prescribing/treatment decision – including the involvement of the prescribing doctor as a “learned intermediary.” Id. The Yaz court summarized it best:
“Multiple steps separate the alleged wrongful conduct (the fraudulent advertising campaign and/or the alleged bribery) and the alleged injuries (paying “too much” for “too many” YAZ prescriptions), including patient preference, the independent judgment of the prescribing physician, and the reimbursement decision rendered by the third party payor and its benefits manager. Thus, the causal link necessarily involves the decision making process of the patient, the prescribing physician, and the third party payor.”
Id. at *7. That is the dictionary definition of “attenuated.” And it affects not only the proximate cause analysis, but also any damages calculation – how do you trace damages through multiple levels of decision-makers and determine who, if anyone, has been damaged, and in what amount? See id.
But what about foreseeability? It’s plaintiffs’ favorite argument, their work-around to actually pleading and proving proximate cause. They continue to push “foreseeability” as an alternate proximate cause test, suggesting that if it was “foreseeable” that the “independent actor” (whether a doctor, an insured, or a pharmacy benefits manager) would rely on the alleged fraud, the damages were proximately caused by the RICO conspiracy. Not so fast, said the court, and cited a case we brought to your attention a few months ago – Hemi Group, LLC v. City of New York, 130 S. Ct. 983 (2010) – because the Supreme Court’s decision “raises questions with regard to the role of foreseeability in a civil RICO proximate cause analysis.” Yaz, 2010 WL 3119499, at *8. In fact, Hemi, along with a host of other precedent, led the court to conclude that it should not “stray from the direct relationship test by considering issues of foreseeability and intent.” Id.
In the end, about the only argument the court sidestepped was the question of whether plaintiffs’ typical “price inflation” theory amounts to nothing more than an impermissible “fraud on the market” theory of damages. See id. at *7 n.8. We won’t quibble with that minor dodge, because let’s face it – the court’s opinion is such a resounding rejection of RICO TPP claims (and an affirmation of everything we’ve been saying) that we have no cause for complaint.