First Circuit Affirms Judge Saris’s AWP Decision

September 24, 2009

By Douglas B. Farquhar –     

In a 98-page decision filed on September 23rd, the United States Court of Appeals for the First Circuit affirmed the judgment of Boston federal court Judge Patti Saris awarding certain “Medigap” insurance companies, patients and third-party payors $13 million from pharmaceutical manufacturer AstraZeneca for allegedly committing unfair and deceptive trade practices relating to published AWPs (Average Wholesale Prices). 

By way of background, Judge Saris’s decision that was the subject of the appeal was issued in a class action after she certified (in relevant part) two classes of plaintiffs who paid for Zoladex, an AstraZeneca brand drug used to treat prostate cancer, in Massachusetts.  One of the classes was insurance companies that paid Massachusetts patients' copayments under the Medicare program (so-called “Medigap” insurers).  During the relevant period, Medicare reimbursements for brand drugs were based on AWPs, which drug manufacturers have contended were list or suggested price benchmarks not intended to represent an actual average of net prices from wholesalers to retailers or health care providers (like hospitals or physicians).  The second class certified included patients and third-party payors who paid for Zoladex, or reimbursed the cost of Zoladex prescriptions, outside of the Medicare program, when payments were computed using a formula based on AWP.

Our discussion of this case is limited because of our law firm’s past and continuing representation of some of the defendants in the district court proceedings (and some state court proceedings) relating to AWP cases.  However, in broad strokes, the First Circuit decision finds that Judge Saris did not err in applying a “plain meaning” definition to the term “average wholesale price” as used in various Medicare statutes and regulations, holding that, although the “precise meaning of ‘average wholesale price’ was unsettled,” it was not a “term of art,” as AstraZeneca contended.  The appellate court also noted, though, that its ruling was not dependent on whether the district court's “plain meaning” analysis was correct.  Rather, the First Circuit affirmed the lower court decision because damages were awarded in the Class Action only to the extent that the actual discount for providers on Zoladex exceeded “industry expectations.”  The appellate court then held that Judge Saris had not committed “clear error” in finding that industry expectations were that AWP on brand drugs would be no more than 30 percent higher than the actual average sales price to providers (the so-called 30 percent “speed limit”), thus immunizing sales at such prices from liability under the “speed limit” analysis.  The appellate court countenanced Judge Saris’s use of three factors to measure liability under the Massachusetts statute prohibiting unfair and deceptive trade practices: whether the spread (the difference between the AWP and the net cost after discounts and rebates) on Zoladex exceeded the 30 percent “speed limit,” whether AstraZeneca raised the AWP for its drug when actual wholesale prices were dropping, and whether the company “marketed the spread” (defined by the First Circuit as meaning that the company “advertised . . . to providers” the amount of profit they would make because their AWP-based reimbursement would be higher than their actual cost for the drug).

Likewise, the appellate court held that the Massachusetts state law on deceptive or unfair trade practices was not pre-empted by federal law, and that the class-wide award of damages was appropriate.

Categories: Enforcement