This post is not from the Dechert side of the blog, as Dechert handled the successful appeal of the case being discussed.

We haven’t really covered “Average Wholesale Price” (“AWP”) litigation very much because, while it is typically brought against pharmaceutical defendants, it’s about as far from product liability litigation as, say anti-trust or securities law.  But it’s hard to ignore when a state supreme court blows out such claims (as here).  It’s even harder to ignore when the state supreme court in question is ours.  So here’s what the Pennsylvania Supreme Court recently did to an AWP

Briefly, and at the risk of oversimplification, “average wholesale price” is a term used to describe a much-tinkered-with basis for determining how much manufacturers may charge governmental purchasers of drugs used in public programs.  Governmental plaintiffs claim that drug manufacturers manipulated the AWP to overcharge them.  Manufacturer defendants counter that AWP is a misnomer, and was not intended or calculated to be as limited as the governmental plaintiffs claim.  Manufacturers also point out, with lots of evidence to back them up, that governmental units were at all times well aware of
what the drawbacks and complexities of what AWP quotation did (or did not) mean.  There are many other issues in AWP litigation, but these are the biggies.

First of all, we wish to point out that the trial result in Pennsylvania was not really a verdict.  In Commonwealth v. TAP Pharmaceuticals (Bristol Myers Squibb Appeal), No. 85 MAP 2011, slip op. (Pa. June 16, 2014), the jury had the good sense to enter a defense verdict on all the claims submitted to it.  Id. at 16.  However, Pennsylvania’s consumer protection statute is quirky, and does not provide for a jury trial.  So the trial judge got snookered.

Second, before we get accused of affording this decision too much significance, yes we know that it’s styled as an “opinion in support of reversal” by an evenly divided (3-3) court.  However, all six sitting justices agreed entirely with the rationale reversing the lower courts.  The only disagreement was that the OAJC would have dismissed the case outright and entered judgment n.o.v., whereas the concurring opinion – not an opinion in support of affirmance – wanted a remand.  So as not to have the bizarre result of a 3-3 split resulting in an affirmance by operation of law of a decision that nobody thought should stand, the OAJC gave in as to that outcome.  OAJC at 23.

Otherwise the court unanimously concluded that the Commonwealth failed to prove essentially anything.  There was no reliance.  The state knew full well what AWP quotes were and weren’t.

There can be no dispute that, per express statutory command, [the Commonwealth] was provided with [defendant’s pricing] data throughout the relevant time period, and that [the Commonwealth] had actual purchase data from audited pharmacies.  With such information in hand, it is not clear why the [lower court] did not believe [the Commonwealth’s witness] when he said that he was not deceived by [defendant] or any other drug manufacturer providing its average manufacturer prices per the statute. . . .  [I]it does not appear that, per the injunction, [the Commonwealth] would gain any additional information in any event.

OAJC at 20 n.17.

More importantly, there were no damages.  “[W]e are disturbed by the Commonwealth’s failure to account in this litigation for the billion dollars of rebate monies it has received from defendant drug manufacturers in the relevant time period.”  Id. at 21.  The Supreme Court ripped the lower courts for ignoring that the Commonwealth received price rebates during the relevant period that far exceeded any claimed damages

While we suppose that litigants might always wish to maximize recoveries, it is astonishing that − based upon such insubstantial testimony – [the lower courts] would permit the Commonwealth to accept a billion dollars in rebates relative to social welfare reimbursements while giving no credit to the payers. . . .  The [lower courts]  might have cabined the ten-year course of this litigation by recognizing − earlier on − the significance of rebates to
prices, and, failing that, it should have taken good guidance from the jury which was empaneled.  By the Commonwealth’s abject failure to account responsibly for rebates taken from the defendants it sued, it has proved no harm as a result of pharmaceutical-company pricing practices, and we decline to sustain any judgment.

OAJC at 22-23 (emphasis added).  See id. at 23 n.19 (“By failing to respond substantively to [defendant’s] evidence that rebates greatly exceeded the ‘restorative’ damages fashioned by the [lower courts], however, the Commonwealth proved nothing injurious to its agencies resulting from the governing
reimbursement/rebate regimes and the price reporting which occurred thereunder”) (emphasis added).  Ouch.  We don’t see language like “astonishing” from state high courts all that often.

In short, more than a decade of litigation ended up proving nothing except that the Commonwealth of Pennsylvania collected much more in rebates than it could possibly lost through the purported “fraud” – that it didn’t rely on in the first place.  Why would such litigation even be pursued?

That’s what the Court addressed in its final footnote.

We’ve objected before to the scuzzy practice of states raffling off their sovereign enforcement powers to private contingent fee lawyers in return for campaign contributions to interested officials.  In a prior post, we discussed a brief Bexis filed that detailed the campaign contribution history that preceded such a contract in a different Pennsylvania case.  However, the defense side frankly hasn’t made much decisional headway against the practice.  Well, maybe there’s hope.  The Pennsylvania Supreme Court also seems repulsed by the practice, now that it’s seen the “overreaching” results first hand:

[W]e note that substantial concern has been expressed about the use by public agencies of outside counsel, with personal financial incentives, to spearhead litigation pursued in the public interest, including AWP litigation.  At the very least, close supervision is required in such relationships, and, of course, the state agencies in whose name the cause is pursued bear the ultimate responsibility for the sort of overreaching which we find to have occurred here.

OAJC at 23 n.19 (citation omitted).  The issue of contingent fee government prosecutions has never been definitively resolved in Pennsylvania, so defendants targeted by such abuses should by all means preserve the issue.  However, the track record of extraordinary writs as a means of presenting the issue is poor, so it may be best (we state reluctantly) to grin and bear it until the opportunity for an ordinary appeal with an ordinary standard of review presents itself.