By Stuart Gordon and Karin Rives
June 5, 2009 – When a federal judge denied Santa Clara County’s request to include some 1,400 California 340B-covered providers in its high-profile drug overcharging case, he may have bought the plaintiffs valuable time to strengthen their case.
But his ruling was also an acknowledgement of the lawsuit’s complexity and lack of precedent. Santa Clara alleged in its 2005 lawsuit that county public hospitals and community health centers covered by the federal 340B drug discount program have been paying inflated ceiling prices to 12 large drug manufacturers. The county asked for an “accounting” of such prices for each of the companies named in the case – an exercise never before undertaken by 340B stakeholders.
U.S. District Court Judge William Alsup wrote in his May 5 order that the number of defendants would likely make a class action case unmanageable. Because the plaintiff never alleged that the drug companies conspired to violate the 340B law, class certification would turn into a massive inquiry “fraught with a long list of questions that will vary from defendant to defendant,” he wrote.
Instead, Santa Clara and its co-plaintiff Santa Cruz County will be allowed to pursue only their own case against only one of the 12 defendants, Bayer Corporation, while proceeding with discovery of all relevant information from all of the companies. By allowing the case against Bayer to proceed, the court would “flush out the germane issues” embedded in the cases against all 12 drug makers, Alsup wrote. This could, in turn, allow the class action case to go forward at a later date, he wrote.
Bayer had filed the manufacturers’ opposition to class certification on behalf of all 12 of the defendants, which is why it may have been singled out as the test case. Santa Clara had argued that a class action was appropriate because the case involved the same question for each of the potential plaintiffs.
“I believe that we won’t know the full impact of this ruling until the trial,” said Madeline Carpinelli, a former lead investigator with the U.S. Department of Health and Human Services’ Office of Inspector General. Santa Clara relies on her reports to back its claims that its clinics were overcharged for 340B drugs.
“The next several months will be a key time for this case, as we all “wait and see” how things turn out with both the Bayer trial and the 9th Circuit’s decision on the discovery of the underlying pricing data later this summer,” Carpinelli said.
Manufacturers want to keep price data under wraps
At the core of the Santa Clara lawsuit is the question of how drug makers calculate 340B ceiling prices, and whether their closely held average manufacturer price (AMP) and “best price” (the lowest price available for a particular drug in the private market) on which they base 340B ceiling prices are computed accurately. The 9th Circuit Court of Appeals will decide whether the county may look at the “raw” data used to calculate the AMP – information that only the government has had access to until now.
Should it come to light that 340B providers have, indeed, been overcharged for drugs because the AMP was not accurate, the case could result in a major recovery that would affect not just the 340B community, but also the much bigger Medicaid program.
The drug companies also fight against the probe of their data for competitive reasons, arguing that the plaintiffs are trying to assume privileges only held by the Secretary of Health and Human Services. While 340B providers have the right to learn whether the prices they’re charged were computed accurately, they are not entitled to the confidential components that go into the AMP calculation, the companies say. Nor does the 340B law give them the right to sue for overcharges, they have told the court. Both AMP and “best price” are confidential under federal law.
A Bayer spokeswoman declined to comment, citing the ongoing litigation.
Judge: 340B providers need not show compliance
Judge Alsup rejected the manufacturers’ argument that the motion for class action should be rejected until each of the prospective class members’ compliance with the 340B program’s statutory requirements had been proved. Determining whether or not a provider is entitled to the 340B discount is the job of the Secretary of the U.S. Department of Health and Human Services, not the court or the manufacturers, the judge wrote.
Alsup also noted that the law provides an administrative remedy when covered entities fail to comply with the law, and that no manufacturer had pursued such a claim since Santa Clara filed its lawsuit in 2005.
The judge also suggested that the 340B entities are large enough to pursue their own stand-alone suits to protect their interests, while at the same time acknowledging that Santa Clara had met most of the conditions for class certification.
The judge’s denial of the class certification request was “without prejudice,” which allows Santa Clara to renew its motion at some future point of the litigation.
Santa Clara counsel Jeffrey Lawrence said the county hopes to give the class action another chance at some point. An appeal by Santa Clara to the 9th U.S. Circuit Court over how extensively it may probe the manufacturers’ pricing information will likely to be heard before August, he said.