Pfizer, Inc. recently petitioned the Supreme Court, seeking review of three companion decisions from the First Circuit Court of Appeals.  These decisions found against Pfizer and in favor of multiple third-party payors (TPPs)—the Kaiser Foundation Health Plan, Inc. (an HMO), Aetna, Inc. (a health insurer), and a putative class of employer health plans—on civil Racketeer Influenced and Corrupt Organizations Act (RICO) claims for damages suffered due to Pfizer’s fraudulent marketing of off-label uses for the prescription drug Neurontin, an anti-convulsive approved for the treatment of epilepsy.  At the heart of the dispute is causation—the causal chain that runs from a drug manufacturer, such as Pfizer, to third-party payors of prescription drug benefits, such as HMOs, insurers and other health plans.

The First Circuit’s lead opinion—laying the common predicate necessary to understand each of the companion cases—came in the action brought against Pfizer by Kaiser, in which the court affirmed a $142 million jury award to the HMO.

The Development and Marketing of Neurontin

Neurontin was developed during the 1980s and early 1990s as an anti-epileptic drug.  In 1993, the Food and Drug Administration approved Neurontin for treatment of partial seizures in adults with epilepsy.  A campaign to market Neurontin for off-label conditions—conditions not included on the official label approved by the FDA—began in 1995.  These off-label conditions included neuropathic pain (pain from nerve damage), migraine headaches, and bipolar disorder.  Neurontin was marketed for treatment of these off-label conditions by way of, among other things:  (1) direct marketing to doctors, which misrepresented Neurontin’s effectiveness for off-label indications; (2) misleading information supplements and continuing medical education programs; and (3) articles published in medical journals that touted Neurontin’s off-label effectiveness but suppressed negative information about the drug.  The marketing campaign also targeted TPPs, including Kaiser, by seeking to develop relationships with Kaiser-affiliated decisionmakers, and to employ physicians associated with Kaiser to serve on speakers’ bureaus and publish misleading articles about Neurontin.

Third-Party Payors’ Procedures for Determining to Cover the Cost of Certain Drugs

Kaiser, like most TPPs, has a research and oversight apparatus that manages network formularies.  These formularies are lists of medications that network treating physicians may prescribe.  In the case of Kaiser, formularies may list drugs (1) with restrictions limiting prescribing to a particular group of physicians, (2) with guidelines for appropriate prescribing (such as appropriate conditions and dosages), or (3) without restrictions.  For Neurontin, Kaiser generally restricted the prescribing of Neurontin to neurologists until the late 1990s.  In 1999, all formulary restrictions on Neurontin were removed.  After the removal of restrictions, prescriptions of Neurontin for off-label conditions increased dramatically.

Evidence that Neurontin Prescriptions Increased as a Result of Pfizer’s Misleading Marketing

The crux of the legal dispute before the First Circuit was whether the TPPs had adequately demonstrated—or could adequately demonstrate—both proximate causation and “but for” reliance, as required under the civil RICO statute, given the evidence offered by the TPPs.  In each of the three companion cases, the TPP plaintiffs relied extensively on generalized proof; specifically, the expert testimony of a Harvard health economist, who performed a statistical regression analysis that found a causal connection between Pfizer’s fraudulent marketing and the quantity of Neurontin prescriptions written for off-label indications.  For instance, the analysis of the TPP plaintiffs’ expert found that, during the period at issue, 99.4% of Neurontin prescriptions for bipolar disorder and 27.9% of Neurontin prescriptions for migraine headaches were caused by Pfizer’s fraudulent marketing.  Thus, approximately three out of ten Neurontin prescriptions written for migraine headaches would not have been written or filled but for Pfizer’s alleged misconduct.

Pfizer argued that the TPP plaintiffs’ expert statistical analysis was insufficient because it failed to account for a purported break in the causal chain, rooted in the intervening and independent medical judgments of prescribing physicians who issued the Neurontin prescriptions.  The First Circuit disagreed and concluded that the testimony of the TPP plaintiffs’ expert was sufficient to satisfy both the proximate causation and “but for” reliance requirements under the civil RICO statute because, among other things, the court found that:  “[T]he causal chain in this case is anything but attenuated.  Pfizer has always known that, because of the structure of the American health care system, physicians would not be the ones paying for the drugs they prescribed.  Pfizer’s fraudulent marketing plan, meant to increase its revenues and profits, only became successful once Pfizer received payments for the additional Neurontin prescriptions it induced.  Those payments came from … TPPs.”

Pfizer’s Assertions of Error in the Appellate Decision Before the Supreme Court

In its certiorari petition, seeking review of the companion First Circuit decisions by the Supreme Court, Pfizer contends foremost that:  (1) the First Circuit’s civil RICO causation analysis conflicts with a 2010 Second Circuit decision in a similar lawsuit; and (2) the TPP plaintiffs’ statistical evidence falls short of the bar required to prove fraud causation under the civil RICO statute.  These contentions largely mirror Pfizer’s arguments before the First Circuit.

In 2010, the Second Circuit rejected the notion that a putative class of TPPs could demonstrate causation under the civil RICO statute by way of generalized proof, because their theory of liability rested on the independent actions of “third and even fourth parties,” such as physicians and pharmacy benefits managers, who all play a role in the chain between drug manufacturers and TPPs.  Notably, the Second Circuit did not have before it—as the First Circuit did—a concrete assessment of generalized proof in the way of a statistical regression analysis that purported to control for the role of intermediaries in the causal chain between Pfizer and TPPs.  Pfizer contends that, regardless, such a statistical analysis runs afoul of Supreme Court precedent—particularly in the class action context—which has expressed concern over the use of aggregate models, in place of individualized inquiries into the transactions or occurrences that allegedly caused a plaintiff’s injury.  Pfizer raises the specter, in its petition, that “[i]f allowed to stand,” the First Circuit’s companion decisions “will invite the widespread use of such procedures in RICO and other fraud actions.”

Our Insight.  Your Advantage.  Regardless of whether the Supreme Court agrees to hear Pfizer’s appeal, the First Circuit’s companion decisions raise important issues looking toward the future of healthcare litigation.  Among these, under the First Circuit’s analysis, drug manufacturers could face an increased threat of liability, in connection with their marketing practices, on the basis of generalized means of proof such as statistical analyses.  On the other end of the spectrum, this same legal analysis opens the door for third-party payors, including insurers and HMOs, to recover for the financial harm caused by misleading drug marketing.  Traditionally, this arena has been filled by patient plaintiffs claiming physical injury from drugs prescribed to them as a result of misleading drug marketing.