Court Dismisses Challenge to the Legality of Manufacturer-Sponsored Co-Payment Assistance Programs

On April 29, 2013, a judge in the District of New Jersey dismissed three class action suits against Merck & Co., Inc. (Merck) challenging the legality of the company’s co-payment assistance programs. Merck successfully argued that the representative plaintiffs—the Plumbers and Pipefitters Local 572 Health and Welfare Fund, the New Jersey’s United Food and Commercial Workers International Union Local 464A Health and Welfare Fund, and the Allied Services Division Welfare Fund (collectively the “Plaintiffs”)—had not alleged sufficient facts to permit the inference that financial assistance provided by Merck to individuals through the Merck co-payment assistance programs caused physicians to prescribe and/or individuals to elect to utilize Merck branded products over more cost-effective brand therapeutic alternatives or generic equivalents, which in turn caused Plaintiffs to incur greater costs to cover the more expense Merck branded products under the individuals’ prescription drug benefit sponsored by Plaintiffs.

The Plaintiffs’ complaints centered on Merck’s co-payment assistance programs pursuant to which Merck pays some or all of the co-payment and/or co-insurance obligations of individuals under their health plans when they fill prescriptions for certain Merck branded drugs. Individuals enrolled in the Merck programs are provided benefit cards to present to dispensing pharmacies when they fill prescriptions for certain Merck brands. The pharmacies use the information on the cards to electronically process claims for the individuals’ corresponding co-payments or co-insurance, which are paid in whole or in part by Merck. In most cases, the patient’s health plan is unaware that the required cost-sharing amount was paid by the manufacturer, not the patient. (Click here for a more detailed discussion on the operation of manufacturer-sponsored co-payment assistance programs at issue in the three Merck class actions.)

In the three class actions, the Plaintiffs alleged that Merck’s co-payment assistance programs essentially “bribed” the Plaintiffs’ prescription drug plan members to use expensive brand-name drugs manufactured by Merck over other less-expensive branded therapeutic alternatives or low cost generic equivalents by virtually eliminating any cost differential between the Merck products and the more cost-effective alternatives to the individual members. However, use of the Merck products over other cost-effective alternatives resulted in sufficiently more cost to the Plaintiffs prescription drug plans. The three class action complaints alleged that Merck’s sponsorship of such co-payment assistance programs and the financial assistance provided thereunder (1) violated the Racketeer Influence and Corrupt Organizations Act (RICO), (2) violated the Robinson Patman Act, (3) constituted commercial bribery, and (3) tortuously interfered in the contractual relationship between Plaintiffs’ prescription drug plans and their members.

After reviewing the facts alleged by the Plaintiffs in their complaints and considering Merck’s motion to dismiss, the Court did not find that the Plaintiffs had alleged sufficient facts from which to infer that Merck’s actions caused the Plaintiffs to incur excessive costs. Instead, the Court agreed with Merck’s argument that there was a “learned intermediary”—the prescribing physician—who makes prescribing decisions for individual patients and is, therefore, a critical link in the chain of causation connecting Merck’s co-payment assistance programs and the costs incurred by Plaintiffs’ prescription drug plans for drugs dispensed to their members. Because of the presence of this intermediary, the Court focused its inquiry on whether the Plaintiffs’ had alleged that Merck’s sponsorship of co-payment assistance programs and the availability of financial assistance to individuals under such programs impacted physician prescribing decisions, such that they prescribed more expensive branded products manufactured by Merck over lower cost branded therapeutic alternatives or designated prescriptions “dispense as written” or “no substitution” so generic equivalents could not be dispensed.

The Court ultimately adopted the reasoning from the United State Court of Appeals for the Third Circuit’s In re Schering case, in which the Third Circuit dismissed a RICO claim because of a lack of evidence of “a plausible nexus between the assailed marketing campaign and the physicians’ decisions.” The Court here found that the Plaintiffs failed to plead specific allegations of patients insisting on receiving Merck branded products that their doctors would have otherwise not prescribed but for the availability of financial assistance from Merck’s co-payment assistance programs. Similarly, the Court found no evidence of situations in which patients elected to utilize branded Merck products over generic equivalents due to the availability of financial assistance with their cost-sharing obligations from Merck’s co-payment assistance programs. As such, according to the Court, the Plaintiffs failed to plead sufficient facts to support the causal link between Merck’s sponsorship of co-payment assistance programs and the provision of financial assistance to individuals thereunder and Plaintiffs incurring costs for Merck branded products over lower cost therapeutic alternatives and generic equivalents.

The Court dismissed the Plaintiffs’ three complaints without prejudice, leaving open the possibility that the Plaintiffs may identify specific instances of causation and amend their complaints. We fully expect that the Plaintiffs will file amended complaints in all three cases identifying specific instances in which physicians agree they alerted their prescribing decisions because of the availability of Merck’s co-payment assistance programs to patients for certain products and/or individuals elected to fill prescriptions not designated “dispense as written” or “no substitution” for branded Merck products in lieu of a generic equivalents because of the availability of Merck’s co-payment assistance for such products. So, Merck has won the battle, but the war over manufacturer-sponsored co-payment assistance programs continues. Stay tuned!