Kaiser v. Pfizer and the Question of Who Pays When Fraudulent Pharmaceutical Promotion Has Its Intended Effect

By Kate Greenwood

Cross-Posted at Health Reform Watch

On April 3, 2013, the First Circuit issued decisions in three cases in which third-party payers sought compensation from Pfizer for damages sustained as a result of fraudulent pharmaceutical promotion.  The decisions were noteworthy because in them the First Circuit lent its imprimatur to a causal chain of injury running from a pharmaceutical company’s fraudulent promotion, through the prescribing decisions of thousands of individual physicians, to the prescriptions for which a third-party payer paid.  In the lead case, brought by Kaiser Foundation Health Plan and Kaiser Foundation Hospitals, the  appellate court upheld a jury verdict that, after trebling, came to $142 million.

Not surprisingly, Pfizer has petitioned for certiorari, arguing that the First Circuit’s decisions “warrant review because they…raise important and recurring questions concerning the proper test for proximate cause under RICO and the permissibility of aggregate statistical proof in collective fraud cases.”  Amici briefs filed by BIO, PhRMA, and the Washington Legal Foundation echo these arguments, leaning heavily on the spectre of a “staggering” increase in suits founded on “pharmaceutical companies’ alleged off-label promotion.”  In addition to the financial burden posed by the “likely surge”, amici argue that it would chill their “truthful and constitutionally protected speech concerning beneficial off-label uses of FDA-approved drugs.”

Civil RICO claims cannot be predicated on “off-label promotion”, however.  To state a claim, a plaintiff has to allege that the defendant pharmaceutical company engaged in one of the predicate acts enumerated in the RICO statute, typically mail or wire fraud.  In this case, the jury found that Pfizer promoted the anti-seizure drug Neurontin as a safe and effective treatment for indications for which Pfizer knew it was no more effective than a placebo.  On appeal, Pfizer did not contest the jury’s finding that it committed fraud.  This distinguishes this case from those decided by other circuits and suggests that the First Circuit’s decisions may not open the floodgates quite as wide as Pfizer and its amici claim.

There is also reason to question the claim that the First Circuit adopted a new, more “relaxed” standard of causation in the case.  The court did hold that the jury’s finding of but-for causation was supported by a report prepared by Harvard professor Meredith Rosenthal in which she used a regression analysis to link patterns in promotional spending to patterns in Neurontin prescribing.  But, as the court wrote, “regression analysis is a well recognized and scientifically valid approach to understanding statistical data, and courts have long permitted parties to use statistical data to establish causal relationships.”  With regard to proximate causation, the First Circuit applied the less-than-relaxed “direct relationship” test set forth by the Supreme Court.  It just happened to be of the view that there was a sufficiently direct relationship between “Pfizer’s fraudulent marketing plan, meant to increase its revenues and profits” and the “payments for the additional Neurontin prescriptions [that the plan] induced.”

The plaintiffs’ responses to Pfizer’s petition for certiorari are due on November 4th.  It will be interesting to see which arguments they make, and which they choose not to make, in their effort to encourage the Supreme Court to take a pass.

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