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January 06, 2014

Supreme Court Rejection of Pfizer’s Request for RICO Off Label Review: Could Open Floodgate of Cases

The US Supreme Court recently rejected an appeal from Pfizer, letting stand a First Circuit ruling that the drug company improperly marketed the epilepsy drug Neurontin to Kaiser Foundation Health Plan. The high court's denial means that Pfizer has to pay Kaiser $142 million in damages for violating the Racketeer Influenced and Corrupt Organizations (RICO) Act and a further $65.4 million in restitution for violating the California Unfair Competition Law (UCL).

This case is one of only a handful of off-label promotion cases involving the RICO Act, a law traditionally used to combat organized crime. Furthermore, the decision means that two related cases brought against the company by insurer Aetna Inc. and Harden Manufacturing Corp can also go forward.

Background on Off-Label Promotion Charges Regarding Neurontin:

The FDA approved Neurontin in 1993 for anti-seizure use by epilepsy patients. The Government charged that the drug's manufacturer, Warner-Lambert, illegally marketed Neurontin for several off-label uses, including treatment of bipolar disorder, migraines, and Lou Gehrig's disease.

As we have written before, while doctors may prescribe and patients may take drugs for unapproved or off-label uses, and private and government payors frequently reimburse such uses, pharmaceutical companies are prohibited from promoting such uses directly to healthcare providers. In Pfizer's case, during one year, only 10 percent of Neurontin prescriptions were for on-label uses. More than a third of the prescriptions were for higher than approved daily doses or for off-label treatments.

Warner-Lambert entered into a Plea Agreement with the Government in 2004, which specifically stated that the company's criminal conduct caused $150 million in losses and that, as a result of a prior Food, Drug & Cosmetic (FDCA) conviction, Warner-Lambert's off-label violations constituted felonies.  Warner-Lambert (which had been acquired by Pfizer) ultimately paid the Government $430 million in civil and criminal penalties. Furthermore, a former medical liaison at Warner-Lambert, Dr. David Franklin, filed a False Claims Act qui tam action in 2001 in which he claimed that Parke-Davis had engaged in a fraudulent scheme to promote the off-label use of Neurontin. 

Almost immediately following the Warner-Lambert settlement, Kaiser and other health insurance plans brought suit, claiming Pfizer's promotional efforts led them to cover the costs for the off-label treatment of Neurontin, even though the drug's effectiveness in those off-label uses was often no better than a placebo. However, instead of filing a health care fraud suit, Kaiser and Co. filed a RICO lawsuit against Pfizer for "engaging in a pattern of racketeering activity consisting of multiple acts of fraud" based on the company's marketing of Neurontin for multiple off-label uses.

In 2010, the case went to trial. Pfizer was found to have misrepresented Neurontin's effectiveness for off-label uses directly to doctors, sponsored misleading informational supplements and continuing medical education programs, suppressed negative information about Neurontin, and published articles in medical journals that reported positive information about Neurontin's off-label effectiveness.

The jury awarded the health insurer $47.3 million in damages, and, per RICO, the judge tripled the damages, for a total jury verdict of $142 million. 

Circuit Split:

Pfizer appealed to the First Circuit. The issue centered on "causation." The Supreme Courts' RICO causation analysis is controlled by the high Court's decisions in Holmes v. Securities Investor Protection Corp. In Holmes, the Supreme Court held that the civil RICO provisions contain both but-for causation and proximate causation requirements.

Pfizer admitted to the illegal promotion of off-label uses, but they argued that promotion did not cause insurance companies to pay for the drugs because a variety of intermediaries—notably physicians—possess independent medical decision-making and actually prescribe the medicine. Indeed, prior to the First Circuit Appeals ruling against Pfizer, drug makers regularly succeeded in RICO litigation because plaintiffs have been unable to prove that every physician who prescribed a drug had been influenced to do so by marketing messages.

In 2010, the Second Circuit rejected the notion that a class of third party processors (TPPs) could demonstrate causation under the civil RICO statute 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 the insurance companies. Three other federal appeals courts have also not awarded damages to third party insurance companies claiming that they overpaid for drugs that were illegally promoted.

First Circuit Interpretation of RICO Standard of Proof and Statistical Evidence

What helped Kaiser prevail where other payers asserting RICO claims have failed was its unusual statistical analysis that showed the illegal promotion did cause economic harm.

Kaiser's expert witness, Meredith Rosenthal, a professor at the Harvard School of Public Health, quantified the effect of the promotional activities on the number of off-label prescriptions written. Rosenthal used aggregate data and statistical approaches to link patterns in Pfizer's promotional spending, as well as advertising in professional medical journals, to patterns in prescribing for Neurontin. Excluding off-label prescriptions by physicians who received legitimate on-label promotion, she concluded that 99.4 percent of Neurontin prescriptions for bipolar disorder, 70 percent of the prescriptions for neuropathic pain, 27.9 percent of prescriptions for migraine, and 37.5 percent of prescriptions for doses greater than 1,800 mg/day were caused by Pfizer's "fraudulent marketing" of the drug.

Pfizer argued truthfully that no physician in the several years of Neurontin litigation had ever actually testified that off-label marketing prompted a prescription to be written. They drug company 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 these prescribing physicians. 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.

The court relied on Bridge v. Phoenix Bond & Indemnity Co., where the Supreme Court addressed whether first-party reliance on a defendant's misrepresentations is required under RICO. In Bridge, the plaintiffs alleged that the defendants made fraudulent statements to county tax authorities in order to win bids at tax lien auctions.  The plaintiffs were other bidders at the auctions, whose claimed injury was the deprivation of their fair share of winning bids. A unanimous Court held that first-party reliance is not an element of proximate cause in a private RICO claim predicated on mail fraud.  Thus, even where the plaintiffs did not receive the misrepresentations at issue, the court held that the plaintiffs had sufficiently alleged proximate causation under RICO.  The First Circuit in Pfizer's case likewise rejected the attempt to impose a direct reliance requirement on top of the statutory language providing a private right of action under RICO.

The Court stated: "the 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."

Supreme Court petition:

In its certiorari petition, seeking review of the First Circuit decisions by the Supreme Court, Pfizer raised two issues: (1) Whether the RICO proximate causation requirement may be satisfied by mere foreseeability or instead requires a direct causal relationship; and (2) whether plaintiffs may show fraud causation and damages by aggregate evidence of a correlation between the alleged fraud and doctors' prescribing behavior without any showing of actual individualized causation.

The justices without comment rejected Pfizer's appeal, letting stand the three connected federal appeals court decisions. The appeals court decisions invites "an unlimited escalation in RICO and related cases against pharmaceutical companies for off-label promotion using the shortcut of aggregate proof," the New York-based company argued in its Supreme Court petition. We will examine some of the potential implications of Pfizer v. Kaiser Foundation.


The ruling certainly deals a major blow to Pfizer, the world's biggest research-based pharmaceutical company, which will not only have to pay a massive jury award over Neurontin, but now will go to trial two more times over the drug.

But are there implications for the entire pharmaceutical industry as well?

In affirming the $142 million jury award to Kaiser, the First Circuit wrote: "Holding Pfizer liable will have an effect in deterring wrongful conduct." Noting that "the effect of that wrongful conduct was clear in foresight," the appeals court added that upholding the verdict would protect the ability of other victims of off-label marketing to obtain compensation and it would simplify future litigation.

Pfizer argued in its appeal that the Supreme Court's involvement was urgent because a large number of cases are affected. According to Pfizer, more than 7,500 civil RICO suits have been filed in the past decade, fueled in part by a boom in RICO cases against pharmaceutical manufacturers since some 20 to 60 percent of prescriptions that are filled are used for off-label uses. The "treble," or tripled, damages the statute offers also provide a compelling incentive.

Some attorneys are not sure whether this RICO litigation-ridden future is a certainty. According to Pharmarisc, "[g]iven the egregiousness of Warner-Lambert's conduct, it is unclear whether these cases represent an outlier, or whether Pfizer and other companies should brace for similar RICO litigation wherever really "bad" conduct can be established."

Pharmarisc remain cautious about extrapolating too much on the Supreme Court's ruling: "Although Kaiser was able to capitalize on the Warner-Lambert settlement and the admissions Pfizer made as a result of the settlement, Warner-Lambert's off-label promotion of Neurontin was egregious even by the standards of the day." For example, the trial record showed that Warner-Lambert promoted Neurontin for bipolar disorder based solely on anectodal evidence, and despite knowledge of several clinical trials that established that the drug was only just as effective as— and in one clinical trial even less effective —a placebo. 

"Kaiser's decision to jump on the Government bandwagon and exact its own pound of flesh from Pfizer makes economic sense;" however, the decision to seek "treble" damages under the RICO act, "was a bit aggressive to say the least."

Furthermore, many plaintiffs have failed on RICO claims, as in the Second Circuit, because they did not have 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.

Even the most optimistic pharmaceutical or device company has to be worried about RICO claims after the ruling though. Drug and device manufacturers could face an increased threat of liability in connection with their marketing practices due to the First Circuit's willingness to consider generalized means of proof, such as statistical analyses. This also opens the door for third-party payors, including insurers and HMOs, to recover for the financial harm caused by misleading drug marketing. While this form of legal action traditionally has been brought by patients claiming physical injury from drugs prescribed as a result of misleading drug marketing, the First Circuit opens the door to many companies like Kaiser, Aetna, and Harden.

Top Mass Torts sees a future rife with RICO claims. They argue that "[o]ff-label marketing has been curtailed somewhat by more stringent regulations," but the Pfizer opinion's new standard opens the door again. Pfizer had hoped that because doctors made their own decision in prescribing the drug for other conditions, that they could fight the claims because it broke the chain of causation. The commentators for Top Mass Torts believe the health care landscape could shift to the standard in securities fraud, known as "fraud on the market." The article reports that "[i]n that situation, securities fraud lawyers only have to argue that a company misinformed investors of the materially important information such as delays in pharmaceutical trials or poor results. Doctors who are unaware of potential risks or misled as a result could be seen in a similar light by judges based on the U.S. Court of Appeals ruling."

Further considerations:

While the Pfizer case focuses on ineffective medication, the opinion is likely to be considered in claims for dangerous drugs, if a pharmaceutical company similarly masks damaging side effects from doctors, which put patients at risk.

Drug makers who have pled guilty to criminal off-label promotion charges as part of a government settlement should especially be weary of insurance companies searching for treble damages under racketeering claims.

With the First Circuit paving the way for using aggregate evidence, and the Supreme Court in effect offering its stamp of approval, the next few years could be booming for RICO lawyers.


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