September 14, 2010—Two California counties and the nine leading drug manufacturers they accuse of overcharging them for 340B-discounted drugs continued to exchange punches in federal district court in San Francisco this summer over the scope of discovery in the closely watched case. In Washington, meanwhile, the nation’s highest court is preparing to decide whether to rule on a key facet of the dispute, namely, whether the counties even have a right to sue.
In the most recent round of Santa Clara v. Astra, the counties have asked a federal district judge to seal a motion they made earlier this summer to force the companies to turn over even more documents and answer even more questions about their pricing practices.
The counties and the drug companies are sparring over the adequacy of the firms’ release of sensitive pricing information during the first stage of discovery in the case. In previous papers filed with U.S. District Judge William Alsup this summer, the companies asserted they have already spent millions of dollars responding to his orders that they turn over documents and produce answers to lists of questions posed by the counties. The two counties counter that the hand-over to date has been inadequate and they want the judge to let them delve even deeper into the companies’ records.
In an Aug. 31 filing, lawyers for the counties asked the judge to keep their July motion out of the public domain because “it repeatedly references” other motions they have made under seal pertaining to the second stage of discovery that Judge Alsup authorized in early August. In this second stage, the counties are looking at the records not of the companies themselves, but rather those of some of their biggest customers. Some observers believe that by seeking to keep their motion – and the presumably sensitive material it contains – confidential, the plaintiffs hope to improve the odds that it will be granted.
Setback for Counties
In a setback for the counties, Judge Alsup ruled in August that the counties could subpoena the records of only two large commercial drug buyers such as Kaiser Permanente, as opposed to two buyers per each of the nine major drug manufacturers named as defendants in the suit.
The counties are seeking evidence that the companies gave their biggest customers secret price concessions that were not reflected in the average manufacture prices (AMPs) and best prices that the companies reported to the federal government. As a result, the counties say, the prices they were charged were higher than the ceiling prices set under 340B and thus they are entitled to substantial refunds.
Judge Alsup’s recent orders are a disappointment for the counties, given that they now have a much smaller universe of drug company customer documents to comb through for evidence that manufacturers misrepresented their true prices. Late last year, the counties scored a major victory when a federal circuit court ruled that the 340B statute granted them a right to sue for alleged overcharging. The drug companies have appealed that ruling to the U.S. Supreme Court, which is scheduled to hold its first private discussion on the petition on Sept. 27. It could announce its decision on whether to accept the case as early as Oct. 4, the first day of its new term, or it could wait until later during the session, which probably will end in late June 2011.
In mid March, Judge Alsup allowed the counties’ lawyers to gradually begin examining the raw data that go into the computation of the manufacturers’ AMPs and best prices. In a July 9 order, he noted that although the companies had spent substantial sums producing the demanded documents, the counties’ review of them had produced “no smoking guns and little proof of wrongdoing.” In the same order, he authorized a second stage of interviews under oath and document reviews “from any two non-party large entities like Kaiser said by counsel to have likely obtained hidden concessions.”
“The document requests,” he continued, “must be narrowly drawn to a small number of drugs for a discrete time period and cannot be broad fishing expeditions.” Alsup’s orders on Aug. 3 and 5 clarified that during this second stage of discovery, the counties could issue subpoenas to just two large commercial buyers for two or more drugs, “so that a subpoena to Kaiser, for example, can cover drugs produced by multiple defendants so long as the overall subpoena is reasonable and non-burdensome.”
Aventis Wins a Round
At the same time, Judge Alsup required each defendant to answer two interrogatories by the counties concerning a single drug selected by the plaintiffs for each defendant. The counties selected the widely used sleeping aid Ambien as the designated drug for the named defendant Aventis Pharmaceuticals Inc. (API), which in 2005 transferred various assets together with Sanofi-Synthelabo Inc. to a new company, Sanofi-Aventis U.S. LLC. API remained a stand-alone firm following the reorganization.
API argued, and Judge Alsup agreed, that Ambien was not relevant to the case because it was produced originally by Sanofi-Synthelabo and subsequently by Sanofi-Aventis, neither of which are defendants. The judge gave the counties until Sept. 9 to select a substitute drug for scrutiny.