In 2012, the Third Circuit considered whether companies who provide insurance under Medicare Part C, known as Medicare Advance Organizations (“MAOs”), can seek reimbursement of medical expenses from pharmaceutical companies who settled with their insureds on litigation claims related to use of the pharmaceutical company’s drug. That’s a mouthful, but essentially the question was whether MAOs can create a whole other litigation related to a mass tort in which they seek reimbursement for covering the mass-tort plaintiffs’ injuries. The answer from the Third Circuit was that they can. See In re Avandia Marketing, Sales Practices and Products Liability Litig., 685 F.3d 353 (3d Cir. 2012). Not great. But then last month the district court in that same case considered whether those MAOs do this in a class action. If so, that could foster a lot of this litigation. This time, however, the answer was no. See In re Avandia Marketing, Sales Practices and Products Liability Litig., 2014 U.S. Dist. LEXIS 164510 (Nov. 24, 2014 E.D. Pa.). And given the factual background of this case, that answer is no surprise.
The underlying litigation was the Avandia mass tort. GlaxoSmithKline, the manufacturer, settled with thousands of plaintiffs and thereby became obligated under Medicare law to reimburse certain MAOs that had initially paid the medical costs of plaintiffs. That resulted, when applicable, in a lien on the settlement funds by MAOs. GSK set aside a percentage of the settlement funds to account for those liens. Id. at *14. GSK also agreed with many MAOs to enter into Private Lien Resolution Programs (“PLRPs”), which satisfied the MAO liens. Id. at *14. GSK did this with 56 MAOs, which covered the vast majority of Avandia plaintiffs. Id. at *5. It sought to enter into PLRPs with other MAOs, but had not done so with 94 others at the time the court was considering plaintiffs’ class certification motion. These other 94 MAOs covered only a small share of the Avandia plaintiffs. Id. There was some evidence that many, not all, of those MAOs were not interested in PLRPs or collecting on liens.
Against this background, Humana, the lead plaintiff, seemed to be asking the court to certify a class and to order GSK to set aside 100% of settlement funds to cover MAO liens or, in the alternative, set aside some lesser class-wide percentage. Id. at *16. There were just too many problems with this proposed class action, however, for the court to ever do this.
To get a class certified, Humana needed to satisfy (i) FRCP 23(a)’s numerosity, commonality, typicality and adequacy requirements and (ii) FRCP 23(b)(3)’s requirement that common questions of law and fact predominate over individual questions and that a class action is superior to other methods of adjudicating the litigation. Humana could satisfy almost none of these elements.
Numerosity. Only 94 MAOs had not entered into PLRPs, with some number of them possibly not interested in recovering on their liens. Regardless, the court believed that, with potentially more than 40 members, numerosity was satisfied. Id. at *8-9. This was the only class-action requirement that the court found satisfied.
Commonality. The court deferred discussion of commonality until its later, more stringent “predominance” analysis.
Typicality and Adequacy. Humana satisfied neither. Humana, unlike most MAOs, “had the leverage to negotiate a more favorable PLRP than MAOs that insure far few Medicare recipients.” Id. at *10-11. In other words, Humana’s claims and negotiating position were atypical. For similar reasons, Humana would not be an adequate class representative. Humana had already negotiated a PLRP, a favorable one, and that made it a “poor representative for the class, and especially for the 94 MAOs that have not agreed to participate in a PLRP at all.” Id. at *12.
Predominance and Commonality. This is where the court delivered its strongest blow to Humana’s class hopes. Individual, not class-wide, issues would drive the litigation. Requiring GSK to set aside some class-wide percentage of settlement funds to cover MAO liens would not work. As the court put it, “the sufficiency of the set-aside (which is the key to determining GSK’s liability) cannot be determined on a class-wide basis.” Id. at *17. Some MAOs were not interested in entering into a PLRP, while some were. The terms to which MAOs agreed varied. GSK had entered into five different types of PLRPs. Sometimes the Avandia plaintiffs themselves would choose not to settle their liens through a PLRP. Also, the percentage of settlement funds needed to cover a MAO lien varied. All of this highlighted that individual issues predominated:
[T]the Court would need to conduct an individualized factual inquiry with regard to each settlement in order to determine whether GSK has met its lien obligations with regard to that settling claimant. Thus, neither argument asserted by Humana provides a route for the Court to decide GSK’s liability to the proposed class based upon common evidence. Humana’s contention that GSK has engaged in a uniform course of conduct, which can be used to establish its liability for violations of the MSP Act class-wide, is not supported by the record. Because questions of fact impacting individual class members in individual settlements will predominate over any common issues of fact or law, the case does not satisfy the class-certification criteria of commonality and predominance.
Id. at *17-18.
Building on this, the court found that the evidence suggested that many MAOs would prefer to make individual decisions on whether and how to resolve their MAO liens:
[A]pproximately 56 putative class members have entered into five separate PLRP, each with somewhat different terms. Approximately 94 putative class members have not entered into a PLRP, despite notice regarding the availability of [a court-ordered] PLRP, which contained terms similar to those accepted by approximately 44 of class counsel’s MAO clients. These facts suggest that the putative class members may prefer to make individualized decisions with regard to whether and how to pursue their rights under the MSP Act, rather than having their liens resolved on a class-wide basis through a representative plaintiff.
Id. at *19. For this and other reasons, the court held that Humana had not shown that a class action was superior to other methods of adjudicating the litigation. Id. And so the court denied class certification.
This result seems right. There was a history of negotiation and settlement of the MAO liens, varied terms to those settlements, and plaintiffs and MAOs who did not want to participate at all or who wanted to participate under unique terms. Class action litigation seems like a way to deter these settlements, not encourage them, and to make the process more expensive. In the end, if certain MAOs are unhappy with their settlement options but still want to pursue satisfaction of their liens, the courts will still be available to them.