Opinion

In Re Pharmaceutical Industry Average Wholesale Price Litigation

491 F. Supp. 2d 20
2007 U.S. Dist. LEXIS 44817
2007 WL 1774644

Court: District Court, D. Massachusetts
Filed: Jun 21, 2007
Status: Published
Author: Saris
On the bench: Saris
Cited by: 57 cases
Authority: More cited than 86.2%

explaining the two ways that pharmaceutical companies manipulated the spread

How later courts described this case

explaining the two ways that pharmaceutical companies manipulated the spread
explaining that providers have incentives to choose drugs with inflated AWPs
"Even Dr. Bell admitted that TPPs faced several significant impediments to quickly changing reimbursement practices."
"This bench trial involved two Massachusetts classes. One class, Class 2, consists of third-party payors ('TPPs'

Written by the judges who cited it.

The opinion

FINDINGS OF FACT AND CONCLUSIONS OF LAW

SARIS, District Judge.

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TABLE OF CONTENTS

Page

INTRODUCTION AND

SUMMARY. 29

I. Findings of Fact.32

A. The Origins of Average Wholesale Price.32

B. Medicare Part B.33

C. Manipulating and Marketing the Spread.34

D. Cross-Subsidization.37

E. Patient, The Vulnerable Victim.38

F. Self-Administered Drugs.39

G. Knowledge in the Industry. 39

H. Mega-Spreads.40

I. The Government Pit Bull.41

J. The Demise of AWP as Government Pricing Benchmark.44

K. Stuck.45

L. The Plaintiffs/TPPs.46

1. Blue Cross/Blue Shield Class 2 and Class 3 Representative.46

2. Pipefitters: Class 3 Representative .49

3. Sheet Metal Workers: Class 2 Representatives.50

M. Defendants.50

1. AstraZeneca.50

2. The Johnson & Johnson Group.54

a. Procrit. 54

b. Remicade.57

3. The Bristol-Myers Squibb Group.59

a. Single Source Drugs.1.62

i. Paraplatin .62

ii. Etopophos .63

b. Single-Source Drugs Later Subject to Generic Competition.64

i. Taxol ..64

ii. Vepesid.66

iii. Cytoxan.67

iv. Blenoxane.68

c. Multi-Source Drugs.69

i. Rubex .69

4. The Schering-Plough Group .70

a. Temodar.72

b. Intron-A.72

c. Proventil .73

d. Generic Albuterol Sulfate.74

II. CONCLUSIONS OF LAW.75

A. Statute of Limitations.75

B. Liability Under Section 9 or 11 of Chapter 93A.80

C. Per Se Unfair or Deceptive Conduct under Chapter 93A.82

D. The Daubert Challenge.85

1. The Hartman Speed Limit .86

2. Defendants’ Critique .89

a. Payors’ Expectations .89

b. Spreads of thirty percent.91

c. Changes in reimbursement.92

d. Living in the “but for” world. 92

E. The Merits: Chapter 93A Unfair or Deceptive Acts.93

1. The Standard.93

2. The Inflation of AWP.94

3. Causation .96

4. Class 2 Liability and Damages. 97

5. Multi-source drugs.97

a. Causation.98

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b. Apportionment.100

6. Drug-by-Drug.101

a. AstraZeneca .102

b. Johnson & Johnson.103

1. Procrit.103

2. Remicade.104

c. Bristol-Myers Squibb.104

1. Etopophos .106

2. Paraplatin .106

3. Taxol.106

4. Vepesid.106

5. Cytoxan.107

6. Blenoxane.107

7. Rubex .108

d. Schering-Plough.108

1. Intron-A and Temodar.108

2. Proventil.108

3. Warrick’s Albuterol Sulfate.108

F. Class 2 Damages.109

III. ORDER.109

INTRODUCTION AND SUMMARY

This massive nationwide multi-district class action involves the pricing of pharmaceutical drugs reimbursed by Medicare, private insurers, and patients making coinsurance payments based on average wholesale price (“AWP”)

between 1991 and 2003. For the most part, the drugs at issue are administered by doctors for the treatment of cancer and other serious ailments.

Class plaintiffs have alleged that four pharmaceutical companies, AstraZeneca, Schering-Plough, Bristol-Myers Squibb (BMS) and Johnson and Johnson (J & J),

have engaged in unfair and deceptive trade practices in violation of Mass. Gen. Laws ch. 93A by grossly inflating the AWPs of certain specified drugs, which are published in commercial publications (Red Book, Medispan, First DataBank), and that these inflated prices have caused damages to Medicare, third-party payors, and patients making percentage co-payments.

The physician-administered drugs at issue in this litigation are typically quite expensive. For example, during the class period, Zoladex, manufactured by AstraZ-eneca to treat prostate cancer, had an AWP ranging from $320 to $450 for a one month dose; a typical dose of Taxol, manufactured by BMS to treat breast and ovarian cancer, had an AWP of over $1800; Remicade, a J & J product used to treat Crohn’s Disease and rheumatoid arthritis, cost over $1000 per dose; and Intron A, manufactured by Schering-Plough and used to treat melanoma, leukemia, and hepatitis, cost nearly $500 per week for a typical recommended dosage.

(Rosenthal Dir. ¶ 14.) Certain drugs that are self-administered with durable medical equipment are compensated under Medicare Part B and are therefore also included in

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the class action. The primary drug in this category is albuterol sulfate, a self-administered drug commonly administered by a nebulizer for asthma, and manufactured by Warrick, a subsidiary of Schering-Plough.

Plaintiffs’ core claim is that the published AWPs for defendants’ drugs are fictitious because they do not reflect the true average sales price (“ASP”) to providers, like doctors and pharmacists. Because AWP is the predominant benchmark for reimbursement by the government and third-party payors, plaintiffs contend that manufacturers grossly inflate each drug’s AWP to create a “spread” between the doctor’s real acquisition cost and the fictitious published AWP, and that drug manufacturers then “market the spread” in order to obtain market share over a competitor’s drug. Indeed, some doctors began to refer to “AWP” as “ain’t what’s paid.” Some of the representative “markups”

at issue in this litigation are reflected in the chart below.

Percentage Markup

Defendant_Drug Name_Spread (Year)_Spread (Year)

AstraZeneca_Zoladex_40.7% (1995)_149.7% (2001)

Bristol-Myers Squibb_Blenoxane_72.8% (1998)_85.9% (2002)

Bristol-Myers Squibb Taxol_27.0% (1997)_128.7% (2002)

Bristol-Myers Squibb Cytoxan_257.7% (1997)_676.8% (1999)

Bristol-Myers Squibb_Rubex_180.7% (1995)_66.2% (2001)

Bristol-Myers Squibb_Vepesid_70.7% (1995)_1131.7% (1999)

Johnson & Johnson_Remicade_32.1% (1999)_31.9% (2001)

Schering-Plough_Proventil_53.4% (1993)_28.6% (2001)

Warrick (Sphering)_albuterol sulfate_186.8% (1995)_651.4% (2002)

(PX 4030 at ¶ 38, Table 1.)

This bench trial involved two Massachusetts classes. One class, Class 2,

consists of third-party payors (“TPPs”) in Massachusetts that reimburse Medicare beneficiaries for their statutory twenty percent coinsurance obligations under Medicare, known as Medigap insurance or supplemental insurance. The other class of plaintiffs, Class 3,

consists of all third party payors, end-payors, consumers who make coinsurance payments, and consumers who have no insurance for these drugs in Massachusetts and who pay for drugs based on AWP.

The bench trial spanned twenty days, included nearly forty witnesses, and involved hundreds of documents and deposition transcripts. In essence, the evidence established that the Medicare system ere-

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ated perverse incentives by pegging the nationwide reimbursement for billions of drug transactions a year to a price reported by the pharmaceutical industry without any oversight. Many pharmaceutical companies unscrupulously took advantage of that flawed AWP system by establishing secret mega-spreads between the fictitious reimbursement price they reported and the actual acquisition costs of doctors and pharmacies. These spreads grossly exceeded the standard industry markup. The publication of false, inflated AWPs caused real injuries to the government, insurers, and patients who were paying grossly inflated coinsurance payments for critically important, often life-sustaining, drugs. Once the mega-spreads became widely known, the conduct was still egregious under the unfairness prong of Chapter 93A because neither the third party payors nor the government could move quickly or effectively to fix the problem. In 2003, Congress finally fixed the problem by moving to a reimbursement system not based on AWP.

I make the following findings with respect to the individual defendants:

AstraZeneca

acted unfairly and deceptively by causing the publication of false and inflated average wholesale prices for Zoladex which grossly exceeded actual physician acquisition costs by as much as 169% and then marketing these mega-spreads between the physician’s acquisition costs and the AWP reimbursement benchmark in order to induce doctors to buy its drug based on the drug’s profitability. The spread on Zoladex exceeded 100% from 1998 forward. The Court finds damages of $4,451,429 to Class 3. The Court needs additional information to calculate damages for Class 2.

Bristol-Myers Squibb

acted unfairly and deceptively by causing the publication of false and inflated average wholesale prices for five drugs, which grossly exceeded actual physician acquisition costs and then marketing these mega-spreads between the physician’s acquisition costs and the AWP reimbursement benchmark in order to induce doctors and other providers to buy its drugs based on the drugs’ profitability. I find liability for Bristol-Myers Squibb’s drugs Taxol (with spreads as high as 500%), Vepesid injectable (with spreads as high as 1,000%), Cytoxan injectable (with spreads as high as 676%), Blenoxane (with spreads as high as 199%), and Rubex (with spreads as high as 438%). The Court finds damages of $183,454 to Class 3.The Court needs additional information to calculate damages for Class 2.

3. Schering-Plough''s subsidiary War-rick acted unfairly and deceptively by causing the publication of false and inflated average wholesale prices for its generic drug albuterol sulfate, which had mega-spreads between 100% and 800% throughout the class period. The Court needs additional information to calculate damages for Class 2.

4. While

Johnson & Johnson’s

conduct was at times troubling, it did not rise to the level of egregious misconduct actionable under the Massachusetts Chapter 93A, because its spreads never substantially exceeded the range of what was generally expected by the industry and government.

5. The statute of limitations bars all claims by Classes 2 and 3 before December 1997. When Congress passed the Balanced Budget Act of 1997, it put third party payors on inquiry notice that many AWPs were not true prices paid by physicians and pharmacies to acquire the pharmaceuticals. The class period ends in 2003 when Congress passed the Medicare statute setting new reimbursement benchmarks. Thus, Classes 2 and 3 will include

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payments from December 1997 to December 2003.

6. The Court rejects plaintiffs’ position with respect to the Medicare Class 2, that defendants acted unfairly and deceptively by having any spread between the published AWP and the true average of prices charged to providers, because the government and industry were well aware by the late 1990’s that there was a 20 to 25 percent spread. This discrepancy was tolerated, in part, because of the need to cross-subsidize physician administration costs. Thus, while the spread violated the plain meaning of the Medicare statute, defendants’ actions cannot be said to be unfair or deceptive within the meaning of Chapter 93A so long as the spread stayed generally within that expected range.

7. Damages to Class 2 cannot be determined from the current trial record. The Court needs a breakdown of the damages for each drug, using the 30% threshold, for each of the years from 1998 until 2003 for which liability has been found. Defendants may provide their market shares in Massachusetts so that the Court can apportion the damage amount

on that

basis. If necessary, the Court will hold a damages phase of the bench trial.

The findings of fact and conclusions of law follow.

FINDINGS OF FACT

The Origins of Average Wholesale Price

Since the late 1960’s, almost every brand and generic prescription drug sold in the United States has had an “average wholesale price,” which is published in commercial compendia like Red Book, First DataBank, and Medispan. AWP is used as the basis for drug reimbursement both for drugs administered in physicians’ offices (“physician-administered drugs” or “PADs”) and for self-administered drugs dispensed by pharmacies (“self-administered drugs” or “SADs”). “Average Wholesale Price” or “AWP” was the pricing benchmark used by the federal government for Medicare reimbursement throughout the class period (1991 to 2003) until the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

See

Pub.L. No. 108-173, 117 Stat. 2066. Throughout this period (and until today), it has also been the pricing benchmark used by most TPPs in Massachusetts and the nation. In 2002, Dyckman

Associates conducted a survey of private health plans regarding their payments for physician-administered drugs and found that all of the plans used a percentage of AWP as a formula to reimburse physicians for these drugs; that most plans used an AWP pricing formula that was in the range of 90 to 100 percent of AWP; and that the average percentage was 98 percent. (Rosenthal Dir. ¶ 26.)

AWP provides a common standard to process millions of drug transactions. A common benchmark is useful because TPPs reimburse for thousands of drugs and services. As the independent court expert Professor Ernst Berndt, a healthcare economist from MIT, stated, AWP is “a convenient focal point metric for contractually specifying various reimbursements, and for efficiently adjudicating pharmacy transactions electronically.” (DX 1275, Berndt Report ¶ 23.)

The federal government’s Centers for Medicare and Medicaid Services (“CMS”) (and its predecessor the Health Care Finance Administration, or “HCFA”) do not regulate or set the AWPs, but have entrusted the pharmaceutical companies with the task of reporting the AWPs accurately to the publications. While CMS had the authority to conduct surveys to verify the acquisition costs of providers, it never did

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so. The TPPs also rely on the AWPs reported by the pharmaceutical companies to the publications.

Initially, AWP was the average price charged by wholesalers to providers, like doctors and pharmacies. It was derived from the markup charged by wholesalers over their actual acquisition cost, sometimes called the “Wholesale Acquisition Cost” or “WAC.” Historically, there was an industry-wide formulaic 20 or 25 percent markup between WAC and AWP. At some point, though, because of consolidation and competition among wholesalers, these standard markups on branded drugs no longer reflected actual wholesaler margins, which were reduced to 2 to 3 percent. Therefore, the actual average wholesale price charged by wholesalers to providers was much lower than the 20 or 25 percent markup over WAC.

Nonetheless, most manufacturers, including AstraZeneca, Schering-Plough, and J & J, continued to report AWPs to the publications based upon the historic formulaic 20 to 25 percent markup, rather than adjusting these prices to reflect the lower, true margins. These manufacturers knew that wholesalers were not actually charging these prices to providers, that the AWP was not a true average of prices charged by wholesalers, and that the “AWP” based on the formulaic 20 to 25 percent markup had become an anachronism. BMS emphasizes that it reported a Wholesale List Price (“WLP”) to the publications, rather than an AAYP, but it expected — and indeed directed

— that the publishing compendia would apply a standard markup to their WLPs to derive an AAYP. As such, BMS effectively controlled the AAYP published in the compendia. This formulaic markup has never been reduced to reflect actual market conditions.

Medicare Part B

Medicare is the largest insurer of physician-administered drugs. During the class period, there were approximately 450 covered drugs reimbursed by Medicare Part B.

Medicare Part B covers professional services, including those drugs that were “incident to” a physician’s services, drugs administered with durable medical equipment (“DME”), and drugs specifically covered by statute. These specialty drugs are typically administered by physicians in an office setting or in hospital outpatient departments, the latter being more expensive. Covered drugs also included some self-administered drugs.

For a Medicare Part B covered drug, 80 percent of the cost is paid for by the federal government, and 20 percent is paid for by whoever is responsible for the co-payment.

See

42 U.S.C. § 1395Í. Many individual Medicare recipients have a private supplemental insurance policy that covers all or part of their 20 percent co-payment. In Massachusetts, these TPPs that provide supplemental insurance (sometimes called Medigap insurance) are members of Class 2.

Initially, reimbursement for prescription drugs under Part B in the Medicare program was on a “reasonable charge” basis.

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56 Fed.Reg. 25,792 (June 5, 1991).

(See also

Bell T1 Aff. ¶ 78; Hartman Decl. ¶ 12.) Prior to 1992, Medicare’s carriers used the customary or prevailing charge among physicians in a geographic area.

(See

Bell T1 Aff. ¶78.) In June 1991, HCFA proposed changing reimbursement to the lower of 85 percent of AWP or estimated acquisition cost (“EAC”), as determined by HCFA through surveys. Based on comments from doctors that they could not procure many drugs at that level of reimbursement and that there were shortfalls in chemotherapy administration payments, HCFA backed off this proposal.

(Id.

¶ 80.) Instead, it adopted reimbursement for PADs under Part B at the lower of AWP or EAC (plus an allowance for other costs), effective January 1, 1992.

(Id.

¶ 81.) The EAC could be determined based on a survey of physicians or actual invoice prices paid by physicians for the drug. 56 Fed.Reg. 59,502 (Nov. 25, 1991).

Unfortunately, Medicare carriers did not conduct surveys of actual invoices, and took the shortcut of reimbursing based on AWP. On one occasion, when one carrier attempted to base reimbursement on physician acquisition costs, HCFA actually directed the carrier

not

to collect invoices from physicians in order to implement an acquisition cost survey. (Bell T1 Aff. ¶ 84.)

Effective January 1, 1998, pursuant to a statutory change, the Medicare regulations were amended so that the allowed amount would be based on the lower of the billed charge or 95 percent of AWP.

See

42 C.F.R. § 405.517 (1999) (Department of Health and Human Services (“DHHS”) Regulations);

see also

Hartman Rebuttal ¶¶ 46-47.)

By the mid-1990’s, information about the existence of mega-spreads began to seep into the marketplace. For example, on June 10, 1996, Barron’s published an article titled

Hooked on Drugs: Why Do Insurers Pay Such Outrageous Prices for Pharmaceuticals?

describing AWP as “Ain’t What’s Paid.”

{See

DX 2641.) It stated that for “many drugs, especially the growing number coming off patent and

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going generic, the drug providers actually pay wholesale prices that are 60%-90% below the so-called average wholesale price, or AWP, used in reimbursement claims.”

(Id.

at 15.) In Dr. Hartman’s calculations, these are spreads of 150% to 900%. The Barron’s article reports on a doctor having a plaque reading “This is the house that leucovorin

built.”

(Id.)

The article also included a chart showing spreads for a number of the drugs in this litigation. The chart listed Doxorubicin (Rubex) as having a spread of 72% off AWP (Hartman spread of 271% above average sales price) and Etoposide (Vepesid) with a spread of 76% off of AWP (Hartman spread of 316% above average sales price).

(Id.)

There was a growing sense among doctors, TPPs, and others that AWP stood for “ain’t what’s paid.”

Less sophisticated participants, like Taft-Hartley Plans, which are union benefit funds, still did not understand that AWP was not a true market average because there was so much misinformation in the market. For example, in promoting its AWP price data, First DataBank, one of the major publishers, stated that AWP “is the average wholesale price. That is, AWP is the average of the prices charged by national drug wholesalers for a given product (NDC).” (DX 1275, Berndt Rep. ¶ 78.) This information was available on the website of the American Society of Consultant Pharmacists as late as 2005.(M)

By 2001, there was a perfect storm of information that reflected the size of the spreads, largely because of the compelling information collected by the HHS Office of Inspector General (“OIG”). In addition, the press began to report on the rampant abuse of the AWP system.

The Government Pit Bull

Initially, the government’s concern about the accuracy of AWPs focused on self-administered drugs. A 1984 OIG report involving self-administered drugs stated:

AWP cannot be the best — or even an adequate — estimate of the prices providers generally are paying for drugs. AWP represents a list price and does not reflect several types of discounts, such as prompt payment discounts, total order discounts, end-of-year discounts and any other trade discounts, rebates, or free goods that do not appear on the pharmacists’ invoices.

(DX 1039 at 10,206;

see also

DX 1985 at 20,255 (HCFA administrative decision in 1989 stating “AWP was not the price generally and currently paid by providers”).)

In 1992, the OIG began to focus on the shortcomings of AWP as a reimbursement benchmark for Medicare physician-administered drugs. The report stated: “Our review of invoices revealed that the 13 chemotherapy drugs can be purchased at amounts below AWP.” (DX 1053 at 5.) The OIG listed discounts off of AWP on a number of PADs, including, for example, discounts off of Doxorubicin (Rubex) of 56% to 59%, which are equivalent to spreads of 127% to 144%.

(Id.

at App. III.) Some of the drugs analyzed are at issue in this case, including Bleomycin (Blenoxane), Cyclophosphamide (Cytoxan), Doxorubicin (Rubex), and Etoposide (Vepesid). The OIG concluded: “AWP is not a reliable indicator of the cost of a drug to physicians.”

(Id.

at 11.) In 1996,

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it issued another report, examining the possibility of using the Medicaid Best Price rebating approach as a way to save money in the Medicare program.

(See

DX 1062 at 7.) Again, it flagged excessive pricing for Zoladex, Paraplatin, Taxol, Vepe-sid, Rubex, and Etopophos although it did not calculate a spread.

(See id.)

Congressional committees also began to examine problems with the AWP system. In June 1997, prior to the passage of the Balanced Budget Act of 1997 (“BBA”), which inserted AWP into the Medicare statute, the Committee on the Budget of the House of Representatives issued a report stating:

For example, the Office of Inspector General repoHs that Medicare reimbursement for the top 10 oncology drugs ranges from 20 percent to nearly 1000 percent per dosage more than acquisition costs.

(DX 1071 at 1354 (emphasis added).)

In December 1997, shortly after Congress decided to lower drug reimbursement to 95% of AWP, the OIG issued another report: “[Published AWPs ... bear little or no resemblance to actual wholesale prices that are available to the physician and supplier communities that bill for these drugs.... We believe that the 5 percent reduction [off of AWP] is not a large enough decrease.... [W]e’ve identified [spreads of] 11 to 900 percent....” (DX 1075 at ii-iii.)

At about the same time, President Clinton referred to AWP as a “sticker price” in his nationwide radio address: “Sometimes the waste and abuses aren’t even illegal; they’re just embedded in the practices of the system.... [T]hese overpayments occur because Medicare reimburses doctors according to the published average wholesale price, the so-called sticker price, for drugs.” (DX 1074 at 2033-34.)

In 1999, Donna E. Shalala, the Secretary of the Department of Health and Human Services reported to Congress:

For the past 13 years, the Office of Inspector General (OIG) has issued a series of reports that consistently show a finding that the Medicare program overpays for the drugs and biologicals it covers. This is because most drugs can be obtained at a much lower cost than the AWP. To address this problem, the President’s 1997 budget contained a legislative proposal that would have based payment on the lower of the billed charge or the actual acquisition cost (AAC) for the drug of the physician or supplier billing Medicare. However, as discussed above, in the BBA, Congress rejected this proposal in favor of the current rule, which is to pay based on the lower of the billed charge, or 95 percent of AWP.

(DX 1080 at 1-2.) She pointed out that “AWP is not a well-defined concept nor is it regulated in any way,” and concluded that AWP bore “no consistent or predictable relationship to the prices actually paid by physicians and suppliers to drug wholesalers in the marketplace.”

(Id.

at 2, 8.) A 1999 Medicare Bulletin flagged this awareness that AWP is “not a true discounted price and, therefore, does not reflect the cost to the physician or supplier rendering the drug to the Medicare beneficiary.” (DX 1166.)

Professor Ernst Berndt, the Court’s independent expert, explained that governmental inertia in fixing the problem of the inaccuracy of the AWP can be explained by the fact that drug expenditures were

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not a large portion of healthcare costs. (DX 1275, Berndt Rep. ¶ 187.) This inertia reflected the principle of “the importance of being unimportant.”

(Id.)

Between 1998 and 2002, though, there was rapid growth in Medicare Part B expenditures, particularly with respect to amounts paid as drug expenses to oncologists and urologists due to drug product price increases at the manufacturer level and increases in utilization. According to a report cited by Professor Rosenthal,

The vast majority (77%) of the Medicare part B drug expense is paid to oncologists and urologists. Oncologist-based drug expenditures grew from $1.2 billion in 1998 to $3.8 billion in 2002 with the spending growth from 2001-2002 at 41 percent. The spending on drugs under Medicare Part B is highly concentrated with 7 of the approximately 450 drugs accounting for 49 percent of the spending ($4.0 billion out of the $8.4 billion).

(Rosenthal Dir. ¶ 22.)

In 2000, the Department of Justice (“DOJ”) compiled and reported actual average wholesale prices — the prices at which the wholesaler sells the drugs — for approximately 400 National Drug Codes (“NDCs”)

covered by Medicare.

(See

DX 1091 at 1.) The DOJ indicated that “these are more accurate wholesale prices for these drugs.”

(Id.)

Plaintiffs, in their complaint, calculated the spread between the DOJ’s actual AWP and the published AWP for many of the drugs in this litigation.

(See

Compl. ¶¶ 65, 112.) Several of those spreads exceed 100%.

(See id.)

HCFA again attempted to administratively change reimbursement from an AWP basis to the cost-based prices calculated by the DOJ,

(see

DX 1091), but various members of Congress urged it to reconsider, primarily because of concerns that oncologists were being underpaid in administering their services, and that this underpayment needed to be corrected before reducing reimbursement.

(See

DX 1085 (letter to Secretary Shalala from Congress members); DX 1086 (same); DX 1090 (HCFA letter announcing the change).) The senators seemed particularly perturbed because “the Department’s unilateral declaration of a new definition of AWP, with no regulatory process, is inappropriate.” (DX 1086 at 2.)

After HCFA retracted its authorization regarding the use of these new AWPs in November 2000, Congress passed the Benefit Improvement and Protection Act of 2000, which prohibited the Secretary of HHS from implementing any payment reduction for drugs until the Government Accountability Office (“GAO”) prepared, and the Secretary reviewed, a report on revised payment methodologies for drugs. (Bell T1 Aff. ¶ 89.) In September 2001, the GAO released its report which found that: (1) the average discount from AWP for physician-administered drugs ranged from 13% to 34%, equating to “spreads” of 15% to 52%; (2) two physician-administered drugs had discounts of 65% and 86%, equating to “spreads” of 186% and 614%; and (3) two drugs used with durable medical equipment had discounts of 78% and 85%, equating to “spreads” of 355% and 567%.

(Id.)

Like a pit bull, OIG pursued the AWP issue. In 2003 it issued a Compliance Program Guidance for pharmaceutical manufacturers, which admonished:

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If a pharmaceutical manufacturer purposefully manipulates the AWP to increase its customers’, profits by increasing the amount the federal health care programs reimburse its customers, the anti-kickback statute is implicated. Unlike

bona fide

discounts, which transfer remuneration from a seller to a buyer, manipulation of the AWP transfers remuneration to a seller’s immediate customer from a subsequent purchaser (the federal or state government). Under the anti-kickback statute, offering remuneration to a purchaser or referral source is improper if one purpose is to induce the purchase or referral of program business. In other words, it is illegal for a manufacturer knowingly to establish or inappropriately maintain a particular AWP if one purpose is to manipulate the “spread” to induce customers to purchase its product.

In the light of this risk, we recommend that manufacturers review their AWP reporting practices and methodology to confirm that marketing considerations do not influence the process. Furthermore, manufacturers should review their marketing practices.

The conjunction of manipulation of the AWP to induce customers to purchase a product with active marketing of the spread is strong evidence of the unlawful intent necessary to trigger the anti-kickback statute.

Active marketing of the spread includes, for example, sales representatives promoting the spread as a reason to purchase the product or guaranteeing a certain profit or spread in exchange for the purchase of a product. 68 Fed.Reg. 23,737 (May 5, 2003) (emphasis added) (PX 4016). This was the first written guidance from the government addressing marketing practices related to AWP.

The Demise of AWP as Government Pricing Benchmark

Finally, ten years after the OIG first reported the deficiencies in using unregulated AWPs as reported by the pharmaceutical industry as the benchmark for Medicare reimbursement, Congress took action with the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) with an effective date of December 8, 2003.

See

Pub.L. No. 108-173, 117 Stat. 2066. The MMA provided for a shift from 95% of AWP to 85% of AWP in 2004 and then to 106% of “average sales price”

in 2005.

See

42 U.S.C. § 1395u(o). The class period ends the day the MMA went into effect. On April 6, 2004, CMS issued a detailed interim rule on how manufacturers should calculate ASP data on Medicare Part B drugs. The final rule was issued on September 16, 2004. Reimbursement based on ASPs took three years to implement because the government not only had to determine the methodology for calculating the ASP, but also had to ascertain the amount needed to increase service fees for oncologists and other physicians administering drugs.

Even with the increase in administration fees paid to doctors, Medicare has had overall cost savings from the decrease in drug expenditures for Zoladex, Taxol, Remicade, Procrit, and albuterol.

The

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total reimbursement for a typical administration of Zoladex, including both product cost and administration fee, fell from $451.56 in 2002 to $226.48 in 2005 under the new ASP system. (PX 4069.) Looking at those same two years, the cost of a typical dose of Taxol dropped from $1785.16 to $428.07 (PX 4070), Remicade from $2,035.15 to $1,703.09 (PX 4071), Pro-crit from $150.65 to $131.96 (PX 4072), and albuterol from $109.74 to $71.63 (PX 4095). Medicare Reimbursement under the MMA

_2002_2005 Savings

Zoladex $ 451.56 $ 226.48 49.9%

Taxol $1785.16 $ 428.07 76.0%

Remicade $2035.15 $1703.09 16.3%

Procrit $ 150.65 $ 131.96 12.4%

albuterol $ 109.74 $ 71.68 34.7%

(See

PX 4069; PX 4070; PX 4071; PX 4072; PX 4095.)

Dr. Rosenthal’s review of the hard data, as laid out above for several drugs in this case, shows that “the overall dollar reimbursement declined for each drug.” (Ro-senthal Rebuttal ¶ 15.)

Despite the

Sturm und Drang

from some medical providers, doctors have not generally shifted their patients to a more expensive hospital setting. According to a July 13, 2006 MedPAC report, the MMA “payment changes did not affect beneficiary access to chemotherapy services.” (PX 4019 at 5.) “Physicians provided more chemotherapy services and more Medicare beneficiaries received services in 2005 than in 2004.”

(Id.)

Stuck

To date, TPPs have generally not shifted away from the AWP benchmark despite likely cost savings. On February 7, 2004, BCBSMA, the class plaintiff, did a study demonstrating that a shift would save them $6,010,576 even with the increase in administration fees. (DX 990 at 12.) As reasons for reform, BCBSMA states:

— Physicians benefit from the “spread” between AWP and acquisition cost creating an overpayment for drugs and costs for Medicare

— According to GAO and CMS, in 2001 Medicare overpaid Part B drugs by over $1 billion.

— In 2002 oncologists collected approximately $600 million in overpay-ments.

— Patients who pay a coinsurance are adversely affected by the inflated AWP.

(Id.)

But BCBSMA was afraid that its network of doctors would rebel at lower reimbursement rates: even if service fees went up, doctor profitability would go down. Cautious and fearful, BCBSMA decided not to follow Medicare and to continue using AWP as the pricing benchmark. Indeed, it recently decided to employ AWP in its fee schedule with hospitals, a different class of trade. As of the date of the trial, only a few TPPs have shifted to an ASP system. United Healthcare moved to ASP-based pricing, but chose to reimburse at ASP plus 12 percent for oncologists only. (Bell T1 Aff. ¶ 37.)

Defendants highlight the failure of TPPs to react when the mega-spreads became well known. It is hard to understand why the TPPs did not decrease the percentage off AWP during the five years after 2001 when knowledgeable TPPs typically understood that there were mega-spreads between cost and reimbursement prices, in

*46

excess of any reasonable compensation for service fees or risks (like spoilage or shelf life). While TPPs likely shut their eyes to the 20 to 25 percent spread to permit cross-subsidization of physician costs, the new Medicare structure provided an alternative reimbursement scheme.

(See

Bell T1 Aff. ¶¶ 77-92 (explaining Medicare’s assumption that drug reimbursement would cross-subsidize other costs).) This diffidence can no longer plausibly be explained by the “importance of being unimportant,” since drug costs had increased substantially over the class period.

Remarkably, BCBSMA, the behemoth insurer in the Massachusetts market, and other large TPPs, were not proactive in adjusting to cost data once Medicare did the legwork for them in devising more reasonable drug pricing and service fees. Medicare provided the TPPs with cover, by insulating them from protests by the network of providers. Dr. Rosenthal explains this inertia as “stickiness,” which is the economists’ label for the common sense phenomenon that it is much harder to decrease reimbursement rates than to increase them. TPPs were worried that they risked either losing network providers or pushing patients into the more expensive hospital setting if they pressed for lower AWPs on individual specialty drugs.

The Plaintiffs/TPPs

1. Blue Cross/Blue Shield: Class 2 and Class 3 Representative

Plaintiff BCBSMA, a class representative for both Class 2 and Class 3, provides health coverage for approximately 2.5 million lives in the State of Massachusetts. (11/7/06 Tr. 147:2-3 (DeVaux).) BCBSMA is currently the state’s largest health insurance company with over 4,000 employees and covering approximately 46% of the covered lives in Massachusetts. In 2005, BCBSMA paid $9.4 billion in claims. It has made payments for single-source drugs manufactured by each defendant in both Class 2 and Class 3, and in the case of multi-source drugs, has purchased a drug with a J-code

that matches a J-code of a drug manufactured by a defendant.

(See

PX 4012; Mulrey Aff. ¶¶ 20-22.)

Currently, BCBSMA primarily uses a fee-for-service arrangement with its physicians and physician groups, though it has also used capitated

and other risk sharing arrangements. (Mulrey Aff. ¶ 5.) Under the fee-for-service arrangement, BCBSMA establishes a fee schedule that governs provider reimbursement for the purchase and administration of drugs. (Devaux Aff. ¶ 7.) These fee schedules are contained in the contracts between BCBSMA and the physician or physicians group. (DeVaux Trial Aff. ¶ 8.)

From 1991 until 1995, the reimbursement amounts in the fee schedules were based on the usual and customary charge for the particular drug. (Mulrey Aff. ¶ 10.) Therefore, BCBSMA has no claim for Class 3 damages prior to 1995. In 1995, BCBSMA first began using AWP as

*47

a basis for reimbursement to physicians for PADs.

(Id.

¶ 11.) From 1995 to 1998, BCBSMA used 100% of AWP as the basis for reimbursement of PADs, and in 1998, BCBSMA moved to using 95% of AWP.

(Id.)

Until 2005, BCBSMA obtained the AWP it used for these fee schedules from Medicare.

(Id.

¶ 12.) Fee updates would be retrieved from Medicare/NHIC websites or the Medicare B Resource guide.

(Id.)

In the Medicare context, BCBSMA offers Medex plans which are “MediGap” plans that cover a Medicare Part B beneficiary’s 20 percent co-payment. (Arruda Aff. ¶ 3.) BCBSMA has approximately 160,000 individuals who purchase these Medex plans directly, and approximately 85,000 individuals who receive the coverage through a group sponsored plan.

(Id.

¶ 4.)

At trial, Kenneth Arruda, a BCBSMA marketing executive, explained that Medex premiums were set based on the prior two years’ claims experience by calculating projected benefit costs, expected administrative expenses, and a contribution to reserves. (11/08/06 Tr. 133:6-22, 154:25-155:3 (Arruda).) The contribution to reserves is an additional 2.5% of the premium that is added to cover shortfalls from miscalculation, increased utilization due to mass illness, previously unreported claims, and other unforeseen needs.

(Id.

135:18-136:19, 137:11-14.) Mr. Arruda explained the need for the contribution to reserves: “This is generally a risky business because [we] are covering people who are over age 65 who have severe and in some cases catastrophic health care needs.”

(Id.

136:17-19.)

Up until 1996, BCBSMA owned a staff model HMO, Medical West, Inc. (Coneys Aff. ¶ 13.) Medical West, Inc., comprised of Medical East and Medical West Health Plans, had several clinics located throughout Massachusetts. Medical West, Inc. operated an in-house pharmacy that provided PADs to physicians.

(Id.

¶ 8.) Medical West, Inc. negotiated directly with drug manufacturers to purchase drugs for this pharmacy. (Curran Aff. ¶ 15.) According to the testimony of defense expert Eric Gaier, the staff model HMO purchased drugs at discounts as high as 92.6% below AWP, which under Dr. Hartman’s calculation is a spread of over 1200%. (Gaier Aff. ¶ 34;

see

DX 1389-DX 1403.)

One fact dispute is when and whether BCBSMA, the parent, knew about the spreads in PADs and other drugs reimbursed through Medicare Part B. The timing of this knowledge is significant to the statute of limitations and other issues. The level of knowledge among BCBSMA employees was uneven. Remember, BCBSMA did not reimburse physicians based on AWP until 1995. Michael T. Mulrey began working in 1987 as a Senior Financial Analyst for Medical East and Medical West, and worked from 1994 to 1998 in the Provider Contracting area as a Senior Contract Analyst. (Mulrey Aff. ¶ 3.) He believed until 2004 that AWP was the price at which, on average, physicians were paying to purchase PADs.

(Id.

¶ 14.) Deborah Devaux, who was Senior Vice President for Health Care Contract Management at BCBSMA, had a long history in the area of health care reimbursement. She said:

I have personally been involved in negotiating such contracts, and in more recent years in supervising staff who negotiate such contracts. It is my ex

*48

perience that reimbursement for physician administered drugs is typically not a point of negotiation between BCBSMA and physicians. BCBSMA establishes, and periodically updates, fee schedules that govern the amount that any physician or physician organization in the BCBSMA network will be reimbursed both for the physician administered drugs and for the administration fee associated with administration of those drugs to insureds.

(DeVaux Aff. ¶ 7). While she was aware that some physicians or physician groups with large practices who could buy in greater quantities may have paid less, and other doctors may have paid more to acquire these drugs, she was not aware of spreads of more than 30% and did not know that pharmaceutical companies were inflating the AWP to increase their market share for these drugs at the expense of payors.

(Id.

¶ 16.) She also didn’t know which manufacturers were involved in marketing the spread.

(Id.)

Edward S. Curran, Jr., a key defense witness, worked at BCBSMA from 1988 to 1992 as the Director of Pharmacy. (Cur-ran Aff. ¶ 1.) His primary responsibilities included negotiating with drug manufacturers for rebates payable to BCBSMA in consideration for formulary status in the area of SADs.

(Id.

¶ 14.) He also negotiated with drug manufacturers for rebates and discounts for use at the staff model HMO sites.

(Id.

¶ 15.) He was a signatory on these contracts as finalized. He worked closely with the staff model HMO Medical East/West sites and knew that rebates varied widely from drug to drug.

(Id.

¶ 16.) However, Curran testified he had “no clue” about how physician-administered drugs were purchased by doctors. (11/13/06 Tr. 36:24-37:5 (Curran).) He did not know that pharmaceutical manufacturers were marketing the spread so that doctors could make a profit.

Curran did say he had a role in purchasing PADs for the HMO but has no memory of any specific drugs. According to Maureen Coneys, the Medical East/West HMOs independently contracted with manufacturers to purchase PADs. (Coneys Aff. ¶ 10.) Even though Curran likely had some knowledge of negotiations involving rebates and discounts for PADs at the HMO, which would be attributable to BCBSMA, it was likely of quite limited significance to the AWP issues in this litigation because BCBSMA did not shift to AWP until 1995

after

he left as Director of Pharmacy in 1992; thus, any knowledge he gained about the rebates available to the HMO sites did not give BCBSMA material information about the spreads between AWP and ASP available to private physicians in the network, or about marketing the spread to individual physicians or physician groups.

The HMOs were sold in 1997, two years after BCBSMA instituted AWP pricing. Therefore, any knowledge about the spread involving AWP gleaned by ongoing communications between the parent and the subsidiary likely existed only for a two year time period. While there is evidence that there were discussions with the parent, there is little evidence that detailed information about spreads was conveyed to the parent.

It is true that other employees (Gary Shramek and John Killion who worked at BCBSMA) knew that AWPs did not reflect acquisition costs, but they did not have detailed information about the size of the spreads until the late 1990’s. Gary Shra-mek, who was employed by BCBSMA as a Pharmacy Program Director from September 1999 to October 2002, became personally familiar with acquisition costs of 60 percent off AWP on PADs because of rebates and discounts from manufacturers

*49

and discussed this information with other BCBSMA employees. (Shramek Aff. ¶ 10.) In June 2002, he learned that U.S. Oncology (a large buyer) could purchase drugs for 18%-40% off AWP which is equivalent to spreads of 22%-67%.

(See

DX 1148 at 17376.) Several other BCBSMA employees also testified that sometime in the mid-to-late 1990’s they became aware that AWP was not a true average wholesale price.

(See, e.g.,

Fox Dep. 126:16-127:10 (explaining his understanding that AWP was a “sticker price”); Fanale Dep. 84:13-86:13 (acknowledging that he knew doctors earned a profit on the drugs); Killion Dep. 119:9-22 (stating his knowledge that AWP was an “artificial price”).)

BCBSMA had limited knowledge of the spreads by the mid-1990’s.

(See, e.g.,

DX 1979 at 30343 (minutes from the 1994 BCBSMA tri-regional carrier Medical Directors meeting stating in regard to a particular drug that BCBSMA “can’t rely on Red Book b/c physician’s are generating huge profit”); DX 1980 at 30378 (minutes from the May 1996 BCBS Technology Advisory Committee meeting stating that AWP is “grossly inflated”).) Beginning in 1999, BCBSMA employees understood that oncologists were generally making big money off of chemotherapy drugs, but BCBSMA was not able to determine the exact discount off of AWP that these oncologists were receiving.

(See

DX 1020 at 0066 (“We are not able to determine the exact discount off of AWP that MASCO is receiving, however, our contacts in the pharmacy business indicate drug companies offer substantial discounts to increase their market share. It appears that the physicians at MASCO are making money off of the drugs (we pay 95% of AWP, they buy the drugs for less), and are threatening to stop administering drugs in their office in order to keep reimbursement up.”).) Concerned about holding the “patient hostage,” BCBSMA explored different alternatives, like looking at the data as to whether the hospital setting was different and whether another method of purchasing the drugs and shipping them to the doctor should be explored.

I find that at least by 1999, employees at BCBSMA actually understood that AWP was not a real average and that doctors were receiving large discounts. However, for the most part, they still did not have any detailed knowledge on a drug-by-drug basis of the extent of the spreads.

2. Pipefitters: Class 3 Representative

Plaintiff Pipefitters Local 537 Trust Fund (“Pipefitters”) is a Class 3 representative. Pipefitters is a Taft-Hartley

multi-employer trust fund that provides health and welfare coverage for the local members of the Pipefitters union. Members of the Pipefitters union are tradesmen and tradeswomen who work on building systems. (Hannaford Aff. ¶ 9.) The small staff of the Pipefitters Trust Fund consists of six employees, including the Fund Administrator.

(Id.

¶ 6.)

The Fund provides major medical benefits, including prescription drug benefits, to all union members and their eligible dependents.

(Id.

¶ 7.) Currently there are approximately 4,600 individuals, both union members and their dependents, who receive major medical benefits, including prescription drug benefits, through the Pi-pefitters Fund.

(Id.

¶ 8.) In general, the

*50

Pipefitters Fund covers 90 percent of all costs associated with treatment of its members, including the cost of pharmaceuticals.

(Id.

¶ 10.)

Since approximately 1979, Pipefitters has contracted with BCBSMA to administer major medical benefits, including coverage for all prescription benefits, provided to members. (Hannaford Aff. ¶ 11.) Pipefitters uses this arrangement because it allows the Fund to obtain the “bargaining power” that BCBSMA has with doctors. (11/6/06 Tr. 177:2-5 (Hannaford).) Pipefitters has no ability to negotiate directly with providers and therefore is dependent on BCBSMA for its information on issues relating to prescription drug coverage.

(Id.

184:5-7.) Pipefitters was aware that BCBSMA contracted to pay providers 95% of AWP for physician administered drugs.

(Id.

167:11-168:2.)

The financial arrangement between Pi-pefitters and BCBSMA is “cost plus,” meaning that BCBSMA charges Pipefit-ters whatever it pays for the particular service or pharmaceutical plus an administrative fee. (Hannaford Aff. ¶ 11.) In this way, the Pipefitters Fund is fully responsible for all costs associated with benefits provided to its members. Based on claims data provided from BCBSMA, Pipefitters has paid for drugs manufactured by As-traZeneca, BMS, and J & J.

(Id.

¶ 12;

see

PX 4012.) In the case of Schering-Plough’s multi-source albuterol, Pipefitters has purchased a drug with a J-code matching that of Schering-Plough’s products.

(See

PX 4012.) According to Charles Han-naford, the Fund Administrator, Pipefit-ters was not aware that AWP was not an average price, had no knowledge of any government studies, and did not know about the practice of marketing the spread. (Hannaford Aff. ¶¶ 13,16).

3. Sheet Metal Workers: Class 2 Representative

Plaintiff Sheet Metal Workers National Health Fund (“Sheet Metal Workers”), a Taft-Hartley multi-employer fund, is a Class 2 representative. Sheet Metal Workers offers a Supplemental Medicare Wraparound Plus program for over 15,000 retirees and covered beneficiaries. In this program, its payments are directly tied to what Medicare pays, covering 20 percent of Medicare’s allowable amount. (Randle Rev. Aff. ¶ 4.) Sheet Metal Workers believed AWP was an actual average of prices and did not know of spread marketing or any government studies about the spread. (Faulkner Rev. Aff. ¶¶ 6-14.)

Sheet Metal Workers employs a third-party administrator, Southern Benefits Administrators (“SBA”), to handle claims and to act both as a third-party administrator and as a consultant to advise the Fund on issues relating to healthcare. (11/6/06 Tr. 204:19-22 (Randle).) Sheet Metal Workers has employed SBA since 1996 to negotiate, contract for, and administer health benefits for its active and retired workers.

(Id.

205:16-206:8.) Sheet Metal Workers relies on SBA to advise it on providing benefits to its members at the best possible price.

(Id.

207:16-208:3.) Sheet Metal Workers has paid reimbursements for at least one of each of defendants’ drugs.

(See

PX 4012.) Plaintiffs have not identified any individual Class 3 members.

Defendants

1. AstraZeneca

AstraZeneca

manufactures and sells Zoladex, an injectable physieian-adminis-

*51

tered drug primarily used to treat prostate cancer. (Black Decl. ¶ 9.) Zoladex, the only AstraZeneca drug at issue in this trial, is a medical alternative to surgical castration. Typically, Zoladex is administered by a medical professional in the abdomen once a month or once every three months.

Launched in January 1990, Zoladex has been a single-source drug throughout the class period. Since its launch, however, Zoladex has been in direct competition with Lupron, manufactured by TAP Pharmaceuticals. Lupron is also injected by a physician. Although the method of injection differs, many physicians view Lupron and Zoladex as therapeutically equivalent. (Freeberry Dep. 26:19-27:6.)

AstraZeneca provided a WAC

and a corresponding AWP for Zoladex to First DataBank and Redbook. AstraZeneca’s suggested AWPs for Zoladex were 25% higher than WAC. This relationship remained constant over the class period. (Gould Decl. ¶ 8; Black Deck ¶ 16.) As-traZeneca effectively controlled the AWPs for its drugs.

AstraZeneca’s pricing decisions for Zola-dex were driven by the competitive market for Lupron and Zoladex. At launch, As-traZeneca set the WAC for Zoladex at $255, approximately $75 less per injection than Lupron.

(See

Gould Deck ¶ 9, Fig. 2.) AstraZeneca periodically increased the WAC for Zoladex, although for some time the company had a policy to keep the average WAC price increase of its products below the rate of inflation. (DX 2119, at AZ0049325; Black Deck ¶ 5; 11/28/06 Tr. 9:13-21 (Milbauer).) The average annual price increase for Zoladex was 2.6%, whereas the average increase in Lupron was 4.1% over the same time period. (Gould Deck ¶ 10.) Thus, Lupron always had a higher WAC and AWP than Zola-dex.

(See

Gould Deck ¶ 9, Fig. 2; 12/04/06 Tr. 68:23-69:2 (Gould).) As a result, patients, the Medicare program, and private insurers paid less when Zoladex was administered instead of Lupron. Reimbursement was also less when Medicare Part B carriers used a least costly alternative (“LCA”) policy, whereby claims for Lu-pron and Zoladex were reimbursed based on the AWP for the less costly of the two. (DX 2075 at I.) Since Zoladex had the lower AWP, under the LCA the Zoladex AWP was used for reimbursement of both products.

By 1999, the majority of Medicare Part B carriers had implemented a LCA policy. (Rosenthal Deck ¶ 47.)

From 1990 to 1993, AstraZeneca sold Zoladex directly to physicians and other purchasers at WAC, offering only a standard 2% prompt pay discount. (Milbauer Deck 1127; DX 2078.) Despite having a lower cost, Zoladex was unable to gain market share from Lupron, the market leader, because the AWP-based reimbursement system created a financial incentive for physicians to choose higher priced products for their Medicare patients. (11/28/06 Tr. 14:1-10 (Milbauer); Milbauer Deck ¶¶ 29-31; Black Deck ¶¶ 17-18; 11/14/06 Tr. 11:1-12:8, 36:11-18 (Buckana-vage); PX 14 at AZ0237143; PX 119 at AZ0010297.) Physicians could earn more

*52

income on Lupron because while both drugs published an AWP that was a 25 percent markup over WAC, 25 percent of a higher price created a larger absolute dollar spread for physicians. AstraZeneca expressed frustration with this dynamic, noting that “[o]ur campaigns to grow ZO-LADEX sales based on product attributes and somewhat straightforward pricing strategies have continually been thwarted by TAP response

as well as the method used by Medicare to reimburse for LhRh agonists.”

(PX 14 at AZ0237143.)

AstraZeneca faced a difficult competitive situation: find a way to compete with TAP, or see sales of Zoladex continue to languish. The company believed that “in order to compete in [a] market dominated by Medicare, there needs to be a compelling argument based on ‘total return to practice.’” (PX 14 at AZ0237143.) A 1995 Pricing Strategy memo explained:

Return to Practice is enhanced by widening the margin between the published price and the acquisition cost. This can be accomplished through several pricing manipulations:

1) Increase the AWP

2) Decrease the acquisition cost relative to the AWP, or

3) Both 1 and 2.

In order to maximize the Return to Practice, and to maximize our competitive position, it is recommended that we exercise option # 3 from above....

(PX 133 at AZ0080409;

see also

PX 19 at AZ0021763 (recommending an increase in AWP and additional discounts).) Thus, AstraZeneca chose to begin offering discounts to its physicians, while continuing to make increases in the WAC price and the corresponding published AWP.

(See

PX 4030 at ¶ 40, Fig. 3.) AstraZeneca knew that its AWP was a fictitious and artificial number, (Freeberry Dep. 168:6-20, 172:19-173:8.), but felt no need to correct its reported price because it was standard industry practice to leave the AWP at 25 percent above WAC. (Black Decl. ¶ 16.)

Furthermore, AstraZeneca rationalized that the leveling of the playing field between Zoladex and Lupron resulted in lower costs to patients and the healthcare system when physicians switched to using the lower priced drug, Zoladex. (11/28/06 Tr. 17:13-19 (Milbauer); Gould Decl. ¶ 42-44; Black Decl. ¶ 24.) For example, in 1996 Zoladex was priced $112.60 less per dose than Lupron, saving patients and the healthcare system $22.52 and $90.08 per dose, respectively, if they used Zoladex rather than Lupron. (PX 19 at AZ0021764.) AstraZeneca trumpets this cost savings to Medicare, noting that their economist estimated that the shift in market share between Lupron and Zoladex from 1991 to 2002 saved $129 million in patient co-payments and $516 million in Medicare payments. (Gould Decl. ¶¶ 42-44, fig. 12; 12/04/06 Tr. 100:19-102:21 (Gould).)

The reported AWP for Zoladex, however, was drifting farther and farther away from the actual selling price of the drug. In 1995 the spread rose to over 40% and continued rising steadily to reach over 140% in 2002. (PX 4028.) During that year, the AWP for a 3.6 mg dose of Zola-

*53

dex was $469.99, while the ASP

was only $194.62.

(Id.;

Hartman Decl. Attach. G.l.b.)

Despite understanding that patients and payors were paying for Zoladex based upon these inflated AWPs, AstraZeneca seemed unconcerned. Alan Milbauer, As-traZeneca’s VP of Public Affairs, acknowledged that “yes, the reimbursements went up, but it was overall less cost to the health care system and less cost to the patient. So I actually felt good about that.” (11/28/06 Tr. 26:16-25 (Milbauer).)

In conjunction with increasing the spread, AstraZeneca began marketing Zo-ladex based upon the return to practice that physicians could earn.

(See

Chen Dep. 126:17-21.) Sales representatives sent a letter to potential accounts encouraging them to switch to Zoladex based on the current AWPs, cost to physicians, and the resulting return to practice in relation to . Lupron.

(See

PX 38 at AZ105880.) The letter emphasized that switching to Zoladex “could significantly increase your profits.”

(Id.)

A section titled “DO THE MATH!” then explained exactly how to calculate the “Return to Practice.”

(Id.)

Zoladex sales representatives provided physicians’ offices with information showing “how much money the doctor or office would save purchasing one drug over the other.” (Bowman Dep. 57:1-10, 58:2-9.) Sales representatives were also using spreadsheets on their sales calls that demonstrated the spread and compared the “Annual Return to Practice” for Zoladex and Lupron.

(See, e.g.,

PX 33 (email with attached spreadsheet); Bowman Dep. 53:4-14 (discussing charts used to compare return to practice).)

In the course of these actions, there was some concern at AstraZeneca that this spread marketing was crossing over ethical or legal boundaries. In 1996, when AstraZeneca was proposing increasing the WAC and AWP while increasing discounts, an internal memo warned that the “challenge in this instance is to come up with a scenario which ... minimizes any perceived risk from a regulatory/legal/public relations perspective.” (DX 2127 at AZ0024480.) Similarly, another pricing strategy memo cautioned that “there is a possible, however likely, risk of a reaction from Medicare. It is feasible that HCFA may see through this strategy and take offense.” A 1996 pricing memo even outlined a “justification” for the price increases in the event that there was outside scrutiny:

[T]he aggressive nature of this price increase may draw some attention, although this is deemed to be unlikely. In the event that our increase is called to task, the move is easily justified on the basis of: 1) increased manufacturing costs, 2) no increase in realized revenue per unit over the last two years, and 3) we are still maintaining our price at a level that is $112.50 less that [sic] our competitor.

*54

(PX 19 at AZ0021764.) Despite these concerns, AstraZeneca continued to price and market Zoladex based on the return to practice for physicians. (Bowman Dep. 102:12-103:1.) Significantly, AstraZeneca sought to thwart the 1998 Medicare legislation, which reduced reimbursement to 95% of AWP, by increasing the price of Zoladex by 6.9% to “compensate[ ] the customer for this 5% plus provide[ ] an additional improvement in return to practice.” (PX 146.)

To its credit, outside of the Medicare system, AstraZeneca attempted to compete with TAP by setting up reimbursement programs that didn’t rely on AWP. First, AstraZeneca encouraged health care plans to adopt a maximum allowable cost (“MAC”) on Zoladex and Lupron equal to Zoladex’s WAC price. (12/04/06 Tr. 17:7-19:13 (Tracy); PX 982D.) The MAC-based reimbursement removed the financial incentive for physicians to purchase the higher priced product. (12/04/06 Tr. 19:2-10 (Tracy); PX 982D; DX 2105.) Second, in 1996 AstraZeneca launched a “Bill to/ Ship to” program, which was later renamed the Managed Acquisition Program (“MAP”). (DX 2110; 12/04/06 Tr. 19:20-22 (Tracy); Tracy Deck ¶ 13; Buckanavage Decl. ¶ 16.) Under the MAP program, managed care organizations would buy Zo-ladex directly from AstraZeneca at the discount prices, and AstraZeneca would ship Zoladex directly to the physician. (Tracy Deck ¶¶ 13-14; DX 2110.) This took the physician entirely out of the financial transaction, allowing the health plans to benefit from the discounted prices. In 1999 or 2000, however, AstraZ-eneca decided not to continue marketing the MAP program because it feared a backlash from physicians.

(See

PX 4024 at AZ04313740; PX 4025 at AZ0431325.)

2. The Johnson & Johnson Group

The “J & J” Defendants include Johnson & Johnson and two wholly-owned subsidiaries, Centoeor, Inc. and Ortho Biotech Products, L.P. J & J has two drugs at issue in this case, Procrit and Remicade.

Promt

Procrit is the brand name for epoetin alfa, which is used to treat severe anemia, including anemia in AIDS and cancer patients. (Dooley Deck ¶ 3.) Epoetin alfa is manufactured by Amgen, Inc. and licensed to J & J’s Ortho Biotech for sale as Pro-crit. (11/16/06 Tr. 51:1-9 (Dooley).) Am-gen also sells epoetin alfa under the brand name Epogen. Procrit and Epogen are identical, having exactly the same FDA-approved indications for use.

(Id.)

Under an unusual licensing agreement, Amgen has the exclusive right to market epoetin alfa for use in the treatment of anemia in dialysis patients while Ortho Biotech has the exclusive right to market epoetin alfa for non-dialysis uses. (Dooley Deck ¶ 4.) Physicians, however, are not subject to the terms of the licensing agreement and may lawfully administer either brand of epoetin alfa to any patients they choose.

(Id.

¶ 5.) Consequently, Procrit and Epogen are sometimes in direct competition with each other.

Ortho Biotech introduced Procrit in January 1991, over a year after Amgen launched Epogen.

(Id.

¶ 14.) Ortho Bio-tech set the WAC price and the AWP for most of the Procrit NDCs equal to those already established for Epogen.

(Id.)

The published AWP for Procrit, like that of Epogen, was set 20% higher than the WAC price. (11/16/06 Tr. 57:22-58:3 (Dooley).) After launching Procrit, Ortho Bio-tech offered discounts below the WAC price to non-dialysis providers in order to encourage physicians to use Procrit rather than Epogen.

(Id.

58:13-59:2.) These discounts generally ranged from 5% to 10% off of the WAC price, although some high

*55

volume purchasing physicians could receive higher discounts. (Dooley Decl. ¶ 15.) Ortho Biotech also offered rebate programs that ranged between 6% and 12% off of WAC. (11/16/06 Tr. 14:11-15:21 (Dooley).) The WAC price and AWP price remained constant for the six years following Procrit’s launch.

J & J fully understood the Medicare reimbursement system and its impact on physician choices. A 1993 memo emphasized that the “goal is to keep the physician ‘whole’ i.e. whole on the 80% as there is a fear that they will not be reimbursed on the remaining 20%.” (PX 339 at 61807.) A 1999 examination of reimbursement scenarios showed that a physician’s profit per patient, for a twenty week course of Procrit, could range from a loss of $304 to a gain of $1,520 depending on the percentage of the copayment collected. (PX 346 at 60861.) A 1996 McKinsey & Company consulting report for Ortho Bio-tech quoted a doctor as stating that “[m]y practice makes $6-8,000 per month on Procrit.” (PX 334 at 6790.) The report advised that “[Ortho Biotech] must preserve positive economics for physicians.” (PX 334 at 6810.) Significantly, in 1997 when Medicare decided to change Part B reimbursement from 100% of AWP to 95% of AWP, Ortho Biotech responded by making its first price increase since the launch of Procrit. In February of 1997, Ortho Biotech increased the prices on the most popular unit of Procrit by 3.5% and then in January of 1998 increased the prices an additional 1.8%. (PX 237, 238.) The result was that physicians would receive essentially the same reimbursement amount for Procrit after Medicare reduced its reimbursement percentage of AWP.

While J & J worked to “preserve physician economics,” there was serious concern at the company that the government would find out about the spreads and take action to reduce the reimbursement amounts.

(,See

PX 339 at 61805.) In 1998 Cathleen Dooley, then the Senior Director for Reimbursement and Health Policy, sent an email about Medicare’s reimbursement policy for Procrit in which she stated, “[r]ight now they do not know what the cost [of Procrit and Epogen] is for different providers.” (PX 259 at 842.) She cautioned that the fact that patients were paying a copayment of a price much higher than the acquisition cost would be a “public relations issue.”

(Id.

at 843.) She further noted that the only way that Medicare could determine Procrit’s market price was “to require an invoice be submitted with each Medicare claim that is sent in. This would be very cumbersome.... ”

(Id.

at 842.) Similarly, when Ortho Biotech considered taking a price increase in 1997 and 1998 it was concerned that raising the Procrit AWP above the Epogen AWP could “raise red flags” and “trigger a price survey.” (PX 262.) Ortho Biotech recognized that if a survey were taken, “the reimbursement rate would be lowered,” which would decrease the profit to providers. (PX 339 at 61805.)

Despite these concerns, J & J actively encouraged their sales representatives to market the spread on Procrit to physicians. The materials for a Sales Training Workshop indicate that one of the training objectives was to “[k]now how to explain PROCRIT Profit to the Pharmacist.” (PX 270 at 62599.) Dr. Bell, one of the defendants’ experts in this case who previously provided consulting services to Ortho Bio-tech, advised that the “Procrit sales force must provide compelling evidence that continuing with Procrit provides economic benefits.” (PX 344.) He further encouraged Ortho Biotech to develop a spreadsheet that would model those economic benefits of Procrit.

(Id.)

*56

In at least one region, the sales representatives were receiving specific instructions on ways “to tactfully discuss how an office can profit from providing Procrit in the office.” (PX 268 at 63656.) In a 1996 memo to his sales team, Sales Manager John Hess emphasized that the “office needs to understand that there is profit associated with Procrit.”

(Id.)

The memo then provides a chart showing a “return on equity for Procrit” and instructing the sales force to “ask for their real numbers” when “reviewing with a physician or office manager.”

(Id.)

The memo also specifically quantifies the profits per patient for Medicare and non-Medicare patients over various time periods.

(Id.

at 63657.) Mr. Hess also directed the sales representatives to be discreet in their use of the profit information, instructing them to “simply draw out the scenario on a piece of scratch paper asking for the office billing fee, injection fee, and acquisition fee based on medicare or non-medicare.”

(Id.)

The memo closes with an underlined directive: “Do not distribute this memo to your offices. This is for your information only!”

(Id.)

The main Ortho Biotech office was also highlighting profit potential to physicians in a slide presentation created by an outside company.

(See

PX 331.) One slide asks, “Can you make money? ? ? ?,” and the next slide responds, “[djrugs have paid well under part B.”

(Id.

at 1833.) Another slide explains the Medicare reimbursement at 95% of AWP and quotes the current AWP for Procrit.

(Id.

at 1839.) The presentation concludes with the question “Should you give Procrit?” and the first reason supporting an affirmative answer is “Additional revenue.”

(Id.

at 1838.) Later in the class period, Ortho Biotech apparently instituted a policy prohibiting spread marketing. A November 2001 memo to the sales force states: “It is absolutely inappropriate to sell product based upon the difference between AWP and acquisition cost.” (DX 2767.)

Somewhat surprisingly, given J

J’s demonstrated focus on physician profit, the actual spread between the Procrit ASP and the published AWP never exceeded 30% during the class period.

(See

Hartman Deck, Attach. G.3.c and 1.3.) While it seems plausible that this would be a result of having only a 20 percent (rather than 25 percent) standard AWP markup over WAC, Dr. Hartman’s calculations show that 91 of the 114 spreads for Procrit were actually less than 25%.

(Id.)

Even Dr. Rosenthal concedes that using Hartman’s theory of market expectations, Procrit is one of the drugs that AWP seems to work well for because the AWP tracks the ASP. (11/27/06 Tr. 69:21-71:6. (Rosenthal).)

*57

[[Image here]]

(J & J Post-Trial Mem. 6.)

Remicade

Centocor, Inc. launched Remicade in 1998 and Johnson & Johnson acquired Centocor in 1999. Remicade (infliximab) is used to treat rheumatoid arthritis, Crohn’s disease, and other conditions. (11/14/06 Tr. 53:10-16 (Hoffman).) Remi-cade is administered to patients via intravenous infusion, which frequently takes place in a physician’s office, but which may also take place in hospital out-patient departments. Remicade has been a single-source drug from its inception in 1998 and throughout the class period, although it faces therapeutic competition in the treatment of rheumatoid arthritis.

(Id.

54:8-10.)

Unlike the standard 20 to 25 percent markups in the industry, Centocor set the AWP for Remicade at a 30 percent markup over its WAC price. John Hoffman, Vice President of the strategic customer franchise at Centocor, explained why the 30 percent markup was chosen: “It was a combination of looking at what the payors would bear in terms of the price of the product; and ... that it was going to be financially viable for [physicians] to be able to offer this service and not lose money.” (11/14/06 Tr. 56:12-58:25 (Hoffman).) He added that Centocor looked at the spreads between acquisition cost and AWP for other drugs in the same biological class and “picked something that we thought was at the reasonable, the low to middle range of that survey.”

(Id.

58:18-25.) Throughout the class period, Centocor maintained this 30 percent difference between WAC and AWP.

(Id.

55:20-23.)

Centocor was also unusual in that it did not offer discounts or rebates to physicians.

(Id.

63, 88-89, 112-15; 11/27/06 77 (Rosenthal).) Centocor sold to specialty distributors, who in turn sold to physicians. The specialty distributors were entitled to prompt pay discounts of up to 2% and other small rebates, and thus upon resale the physicians could only purchase

*58

Remicade at or about the published WAC price. (11/14/06 Tr. 59-61 (Hoffman).) Consequently, the spreads for Remicade hovered very near to 30% throughout the class period. According to Dr. Hartman’s calculations, in only two years did the Remicade spreads exceed his 30% expectations yardstick: a spread of 32.1% in 1999 and a spread of 31.9% in 2001. (Hartman Decl., Attach. G.3.c.) J & J disputes these percentages, arguing that Dr. Hartman should have used a weighted average AWP rather than the June 30 AWP to determine the spread. Using their weighted averages, the spread is 30% or less for all years. (Dukes Deck ¶ 28.)

[[Image here]]

(Hartman Deck ¶ 60, Fig. 9.)

Nevertheless, Centocor pursued a strategy of marketing the spread to physicians. Centocor developed and implemented a Practice Management Program (“PMP”) to educate physicians on buying, infusing, and billing for Remicade. (Glassco Dep. 20:14-21:22; McHugh Dep. 252:15-253:14.) One of the PMP materials was a “Financial Impact Worksheet,” which listed the AWP and allowed the physician to fill in her acquisition cost, the percentage discount off AWP for reimbursement, her case load, and the number of vials per patient. (PX 252 at 3485.) The worksheet then showed the physician how to calculate an “Estimated margin per vial,” “Estimated revenue per patient,” and “Estimated monthly revenue from REMICADE.”

(Id.)

According to John Hoffman, a reimbursement specialist from Centocor would go over this worksheet with physicians and discuss the “financial ramifications” of using Remicade. (11/14/06 Tr. 67:4-7, 68:8-12 (Hoffman).)

Centocor also hosted PMP seminars, where sales representatives made presentations to groups of physicians explaining the profit potential of using Remicade given the AWPbased reimbursement. Senior Sales Executive Laura Glassco explained how she walked doctors through a PowerPoint presentation that illustrated the profitability:

*59

Basically I would share with the physician ... that AWP was at that time the price that’s shown here, [and] that Medicare reimbursement was AWP less 5.... I then walked through with them the scenario which you see here of an example of a patient that might be a three-vial infused patient.... [I]f the cost of the drug was a certain amount, I show the cost of the drug to the physician and I compare that to what the reimbursement was from Medicare.... The last slide shows then the difference between what the physician paid for the drug and what the physician ... gets reimbursed from ... the Medicare carrier.

(Glassco Dep. 105:22-107:21.) The concluding slide showed that, assuming the drug is purchased at list price, the annual profit per patient on Remicade would be $2,293.41. (PX 254 at 90300.)

Laura Glassco also forwarded an email to her sales team, in which she praised one of the sales representatives for his “work in the field.” (PX 272 at 90283.) In the forwarded email, the sales representative writes about how he explained reimbursement to the physician and walked through a “Medicare AWP example” showing the potential reimbursement.

(Id.)

He notes that “Dr. Kassan seemed so excited about getting started....”

(Id.)

3. The Bristol-Myers Squibb Group

The “BMS Group” of defendants is comprised of Bristol-Myers Squibb Co., Oncology Therapeutics Network Corp. (“OTN”), and Apothecon, Inc.

BMS is a major developer, manufacturer and marketer of “brand-name” prescription drugs. BMS has seven oncology drugs at issue in this case: Blenoxane, Cytoxan, Etopophos, Paraplatin, Rubex, Taxol, and Vepesid.

OTN is a specialty distributor that sells and distributes injectable drugs and supplies to medical providers who administer them in a hospital or office setting to patients. (Akscin Decl. ¶ 3.) OTN was a joint venture between BMS and another company until 1996 when BMS acquired OTN as a wholly-owned subsidiary.

(Id.

¶ 2.) OTN’s target customers are oncologists in private practice who administer chemotherapy to patients in their offices, rather than oncologists employed by a hospital or hospital out-patient clinic. (Peterson Decl. ¶ 5.)

As the sales agent for BMS oncology products and its wholly-owned subsidiary, OTN had a close relationship with BMS.

(See

Marré Dep. 26:8-20 (referring to the close cooperation using the phrase “One BMS”).) For example, OTN customers were able to obtain a four percent discount on BMS oncology products, a discount that was not offered through any other distributor. (12/8/06 Tr. 93:24-94:8 (Peterson).) BMS also established “floor” prices, or minimum prices, for BMS drugs sold by OTN. (Marré Aff. ¶ 6.) BMS’s Director of Marketing, Christof Marré, was in weekly contact with OTN to discuss the proper “floor” price and to coordinate joint marketing programs. (Marré Aff. ¶ 7; Marré Dep. 25:11-26:7.) OTN and BMS sales representatives communicated regularly, and OTN Territory Business Development Managers occasionally went on sales calls with their BMS counterparts as part of a strategy commonly referred to within the company as “BMS/OTN Synergy.” (Pe

*60

terson Dep. 104:2-105:22;

see

PX 843; PX 228 at 001483222.)

BMS claims to be unique among the defendants because it has never actually reported an AWP or a suggested AWP to the industry publications. (Kaszuba Aff. ¶ 6.) Rather, BMS only reports its wholesale list price, WLP.

(Rogers Aff. ¶¶ 1-4; Szabo Aff. ¶¶ 6-7.) The publications then routinely apply a markup factor of 20.5 percent or 25 percent to BMS’s WLP to calculate the published AWP. (11/13/06 Tr. 59, 120-21 (Kaszuba); DX 2611 at 6646, 6649.)

While BMS knew that its WLP would be marked up by 20 or 25 percent, BMS did not completely control the AWP percentage markup of its drugs. For example, in 1992, BMS wrote a letter instructing the publishers to change their practice and use a 25 percent markup factor for BMS oncology products.

(See

PX 183.) According to Ms. Kaszuba, this was because Bristol-Myers and Squibb had recently merged, and the publications were using different markup factors depending on whether the drug was a Bristol-Myers or Squibb drug. (Kaszuba Aff. ¶¶ 12-13.) She emphasized that this was the only time that BMS ever directly asked a publication to change the markup factor.

(Id.

¶ 14.) The success of this request varied by the publisher. Red Book agreed to the change, while First DataBank and Medispan did not. (Kaszu-ba Aff. ¶ 13.; Szabo Aff. ¶ 6; DX 2554; DX 2650.)

BMS contends that this was an anomalous situation, and that BMS has never had any control over the publications. BMS points to several internal documents which repeatedly emphasize that “BMS does not set AWPs for its products. Third parties set AWP....” (DX 2545;

see

DX 2554; DX 2585 at 0398; DX 2595 at 9757; DX 2587 at 2095; DX 2588 at 9782; DX 2589 at 8211.) Furthermore, documents show that at least one time First DataBank independently changed the markup factor on BMS drugs. (DX 2588 at 9782; DX 2589 at 8206.)

Nevertheless, as a matter of industry practice, BMS knew, expected, and intended that when it reported a price, the publications would predictably calculate an AWP that was 20 to 25 percent higher than WLP. (Marré Aff. ¶ 10; 11/13/06 Tr. 55, 59 (Kaszuba); DX 2611 at 649; DX 2616; Szabo Aff. ¶ 6.) Frank Pasqualone, Senior VP of the Oncology Division, confirmed that the only possible issue was whether the WLP was going to be marked up by 20 or 25 percent. (12/06/06 Tr. 13:5— 7 (Pasqualone).) Internal BMS documents show first the list price that BMS was establishing for specific Apothecon drugs and then its “Anticipated AWP” based on the 25 percent markup factor being used at the time. (PX 209; PX 210; PX 211.)

BMS was actively involved with approving the AWP before publication. In a 1998 fax announcing a price change for certain BMS drugs, BMS wrote, “Please supply AWP’s for these products once the information has been processed through your database.” (PX 179 at 2173.) The publishers would then respond to BMS with a report showing the AWPs so that BMS could “review [the] AWP’s for reasonability” before publication. (PX 180 at 6649; see

also

PX 849 (Red Book product listing verification of BMS prices with BMS employee’s approval signature).) Denise Kaszuba, Associate Manager of Pricing Support, explained that a BMS employee would be “mathematically ... looking at the AWP to make sure that it is within [the publication’s] factor.” (11/13/06 Tr. 95:18-96:4 (Kaszuba).) If the AWP was

*61

different than expected by BMS, Ms. Kaszuba indicated that BMS would contact the publisher.

(Id.

97:3-10.) All of this is sufficient to conclude that BMS could affect, and at times fully control, the AWP for its drugs.

BMS sells its oncology drugs to customers through intermediary wholesalers. BMS distributes the drugs to wholesalers, who pay WLP for the products. (PX 196 at 8200.) Many large providers contract with BMS to then purchase the drugs from the wholesalers. (Marré Aff. ¶ 6.) The wholesaler provides the product at the contract price and then issues a “charge-back” request to BMS for the difference between WLP and the contract price that the wholesaler collected from the purchaser. (11/14/06 Tr. 155-57 (Marré);

see also

PX 2591 at 6967 (graphic illustration of chargeback process).)

BMS used a similar business model in pricing all of the drugs at issue in this case. The pricing was dependent upon whether a drug was single-source with no competition, single-source with therapeutic competition, or multi-source facing generic competition. At launch, BMS set an initial list price, WLP, for sales to wholesalers. (Pasqualone. AfO 13.) Wholesalers were generally entitled to a possible 2% prompt pay discount.

(Id.)

BMS would sometimes provide a 5%-10% discount immediately after launch to help get the new product into the marketplace.

(Id.)

Otherwise, there were few discounts, rebates, or price concessions while a drug faced no therapeutic competition.

(Id.

¶ 16.) During the patent period, BMS would take periodic list price increases “in recognition of prevailing market conditions.” (Bell BMS Aff. ¶ 26.) The AWP would rise in step with the WLP increases, so the spread would remain fairly constant throughout the period of patent protection.

Once competition was introduced, BMS would offer discounts and rebates in order to compete with the new alternatives. (Pasqualone ¶ 17.) Marré testified that “the average contract prices and floor prices for BMS drugs in the multi-source portfolio tended to trend down over the long term.” (Marré Aff. ¶ 9.) While these actual sales prices were falling, BMS kept the WLP the same as it was before the introduction of competition. (Pasqualone Aff. ¶ 18.) According to BMS employees, BMS did not decrease the list prices of drugs that became multi-source because there were still customers who were willing to pay that list price.

(Id.

¶¶ 18-19.) Marré explained that some of these customers were just brand loyal, (id.), others lacked information about the discounts, (11/14/06 Tr. 130:9-131:12 (Marré)), and others were not entitled to discounts because they did not have contracts with BMS. (11/14/06 Tr. 159-164 (Marré).) As Dr. Bell notes, given these circumstances it would be economically irrational for BMS to lower its list price to wholesalers because “BMS would be losing revenues.” (Bell BMS Aff. ¶ 25.) Thus, the spreads increased over time as the drugs faced more and more competition, and simultaneously fewer and fewer sales were made at or near the list price.

BMS recognized that reimbursement was very important to physicians working in office-based oncology practices (“OBOs”). John Akscin, a Vice President at OTN, acknowledged that OBO revenue is highly Medicare driven because 50 to 55 percent of OBO patients are Medicare recipients. (Akscin Dep. 91-92.) He also noted that 64 percent of OBO revenues came from drug reimbursements.

(Id.

93;

see also

PX 197 at 6634.) In a presentation to OTN and BMS sales representatives, Mr. Akscin displayed a slide which proclaimed that the “Top Three OBO Concerns” were “Reimbursement, Today,”

*62

“Reimbursement, Tomorrow,” and “Reimbursement!” (PX 197 at 6636.) BMS noted the impact of the spreads in a memo concerning the launch of Etopophos:

Currently, physician practices can take advantage of the growing disparity between Vepesid’s list price (and, subsequently, the Average Wholesale Price [AWP]) and the actual acquisition cost when obtaining reimbursement for eto-poside purchases. If the acquisition price of Etopophos is close to the list price, the physicians’ financial incentive for selecting the brand is largely diminished.

(PX 208 at 1221.)

With these financial incentives behind reimbursement, it is easy to see the temptation to market the spread to physicians. BMS, however, had a clear policy against such conduct. In January of 2001, BMS sent a memo to all U.S. Sales & Marketing Personnel advising that, “in accordance with its Code of Conduct, ... the spread should not be used as a promotional or marketing tool.” (PX 223.) When asked whether that policy was enforced at BMS, Frank Pasqualone, the Senior VP of the Oncology Division, responded, “Absolutely.” (12/06/06 Tr. 15:14-15 (Pasqualone).)

Nevertheless, plaintiffs presented substantial evidence suggesting that BMS was marketing the spread. While I will address drug-specific spread marketing below, there is one significant piece of spread marketing evidence that applies to all the BMS drugs at issue here. OTN offered customers an online “Cost Differential” report for BMS drugs.

(See

PX 219.) The site prompted the customer to input a variety of information, including their AWP reimbursement percentage. The site would then display, by regimen, the reimbursement rate, acquisition cost, and “AWP Cost Differential” (equivalent to the spread) for the requested drugs.

(Id.

at 134-36.)

BMS was well aware that AWP was used as a reimbursement mechanism both under Medicare Part B and through private reimbursement plans.

(See

Marré Aff. ¶ 12; 11/13/06 Tr. 62-64 (Kaszuba); Akscin Dep. 26-27; Peterson Dep. 114— 15.) BMS also knew that AWP was an “artificially inflated number.” (PX 195.) Yet despite these understandings, there was very little concern, if any, about pay-ors and cancer patients overpaying for their drugs. Sales Representative Douglas Soule best summed up the attitude of BMS when he said, “it’s just the system.” (12/08/06 Tr. 71:3 (Soule).) When asked if it ever bothered him that people were paying a percentage of a phony price, he finally responded, “No.”

(Id.

71:10.)

In order to examine the selling and pricing of each drug, it is useful to group the BMS drugs into categories depending upon the type of competition that they faced. Two of the BMS drugs, Parapla-tin

and Etopophos, were patent-protected, single-source drugs for the entire class period. Four drugs, Taxol, Vepesid, Cy-toxan tablets, and Blenoxane, all began as single-source drugs and became subject to generic competition at some point during the class period. Finally, Rubex was a branded multi-source drug for the duration of the class period.

Single-source Drugs

Paraplatin

BMS launched Paraplatin (carboplatin) in 1989 as a second-generation product to first-generation Platinol (cisplatin). (Bell

*63

BMS Aff. ¶ 13.) Paraplatin is typically-used in the treatment of non-small-cell lung cancer (NSCLC), small-cell lung cancer (SCLC), and ovarian cancer. (I'd)

As expected with a single-source drug, there were few discounts given and thus the spreads were fairly close to Dr. Hartman’s 30% expectations yardstick. The majority of spreads were under 30%, though the spreads for a few NDCs rose as high as 40%-60% in the years 1997-2002.

(See

Hartman Decl., Attach. G.2.c.) Averaging across all NDCs, however, the overwhelming number of sales were made within 5% of the list price: for all NDCs across all years of the class period, 94.7% of sales were within 5% of the list price. (Bell BMS Aff. Exh. E.)

Paraplatin was often used in combination with Taxol, so BMS often marketed the two products together. Documents suggest that BMS marketed the spread on both drugs. Sales representatives received a presentation entitled “Practice Efficiencies & Quality Care Workshop” that provides revenue and expense information, including a display of the costs and reimbursement amounts for Taxol and Parapla-tin. (PX 222.) Each drug had a slide that conveniently listed its AWP, the Medicare allowable percentage, and the OTN cost to the physician.

(Id.

at 2315-16.) Although it was an internal presentation, BMS sales representative Greg Keighley testified that it “was a stand-alone presentation that we would verbally give on an account.” (Keighley Dep. 270:2-4.) Keighley used the information in this way on “one or two instances.”

(Id.

270:18-20.) In several pages of call notes

from 1998

through 2002, BMS sales representatives detailed their discussions with physicians about reimbursement for Paraplatin and Taxol. For example, in 1998 a sales representative noted that she “[w]ent over some numbers re reimbursement for Taxol/Car-bo vs VP/Cis for NSCLC. He agrees that the [Taxol] is better

you do make ....” (PX 229 at 4123.) In 1999 another representative noted that he had “gone over AWP numbers

fact that do make money on Taxol/Carbo.... ”

(Id.

at 8993.) In 2000, one wrote, “Jo is not aware of the ... value proposition on Paraplatin, so I covered all of this with her.”

(Id.

at 3009.) Similarly, in 2002, a representative wrote that he “talked about benefit for reimbursement for taxol -I- paraplatin regimen over non generic products.”

(Id.

at 2251.)

ii.

Etopophos

Etopophos (etoposide phosphate) was launched in 1996 as the second generation of Yepesid, a product discussed below that had become subject to generic competition in 1994. (Bell BMS Aff. ¶ 14.) Etopophos is typically used in the treatment of SCLC and testicular cancer.

(Id.)

To treat these conditions, Etopophos is generally used in combination with one

the BMS platinum-based oncolytics, Platinol or Parapla-tin. The primary advantage of Etopophos over Vepesid is that Etopophos can be administered to the patient much more quickly. (Pasqualone Aff. ¶ 30.)

As with Paraplatin, BMS offered few price concessions for Etopophos. (Bell BMS Aff. ¶ 40.) At its launch in 1996, OTN developed a buy-in program to increase awareness and initial trial usage of Etopophos.

(Id.

¶ 39.) Presumably, that is why the only Etopophos spread that exceeds 30% occurs in 1996, a 35.8% spread.

(See

Hartman Decl. Attach. G.2.c.) For all other years, the spreads were well below 30% and 100% of sales were made within 5% of the list price.

(Id.;

Bell BMS Aff. Exh. E.)

Plaintiffs presented no evidence that BMS specifically marketed the spread on Etopophos.

*64

Single-Source Drugs Later Subject to Generic Competition

Taxol

Taxol (paclitaxel) was launched in 1992 and became subject to therapeutic competition in 2000 and generic competition in 2001. (Marré Aff. ¶ 5; Hartman Decl. ¶ 48.) Taxol was the first of a class of agents called taxanes that interrupt the cell cycle of a cancer cell growth stage and make the tumor more susceptible to the effects of radiation. Taxol is used alone or in combination with other products, most often for the treatment of breast cancer, NSCLC, and ovarian cancer. (Bell BMS Aff. ¶ 15.)

Unlike the other single-source drugs, BMS never increased the list price of Tax-ol.

(Id.

¶ 42.) During the patent protected period, BMS offered few discounts and the spreads for Taxol were all under 30%.

(See

Hartman Decl. Attach. G.2.c.) Similarly, over 99% of sales were made within 5% of the WLP.

(See

Bell BMS Aff. Exh. E.) When generic entry loomed in 2000, however, BMS had to prepare a strategy to deal with the new low-priced competition. BMS decided to divide the market into three segments, each with its own marketing program: (1) accounts willing to pay a premium for Taxol, (2) accounts that preferred Taxol but were not willing to pay a premium, and (3) accounts that had switched to generic paclitaxel. (Bell BMS Aff. ¶¶ 45-46.) According to Dr. Bell, “[t]his segmentation allowed BMS and OTN to effectively charge a premium to customers who placed the highest value on Taxol and offer lower prices to more price-sensitive customers.” (Bell BMS Aff. ¶ 46.) Thus, actual sales prices began to plummet and the spread began to rise. In 2001, the ASP to providers for Taxol dropped by 25%-50%. (Hartman Decl. ¶ 48.) By 2002 the spreads for certain Taxol NDCs were over 500%.

(See

Hartman Decl. Attach G.2.c.) By the fourth quarter of 2002, BMS was routinely providing large discounts on Taxol to high volume customers, some as high as 80% off of WLP.

(See

PX 203 at 6988; PX 204 at 6293; PX 205; PX 206 at 9756.) The result was that in 2002, hardly anyone was paying the list price. Less than 0.5% of sales of Taxol were within 5% of WLP and over 46% of sales were made at a price less than half of WLP.

(See

Bell BMS Aff. Exh. E.)

*65

[[Image here]]

(Hartman Decl. ¶ 49, Fig. 5.)

BMS carefully educated its sales force on the reimbursement system, the existence of the spread, and the subsequent profitability for a doctor administering Taxol. For example, BMS distributed to its sales force a document entitled “Taxane Economics.”

(See

PX 221.) The document presents in detail the costs, reimbursements, and spreads for Taxol and Aventis’s Taxotere for different administration periods.

(Id.)

The document indicates that it “should not be utilized in any sales presentations,” and there is no evidence that it ever was.

(Id.

at 423.) Sales representatives also received a presentation entitled “Practice Efficiencies & Quality Care Workshop” that provided revenue and expense information, including a display of the costs and reimbursement amounts for Taxol and Paraplatin. (PX 222.) Each drug had a slide that conveniently listed its AWP, the Medicare allowable percentage, and the OTN cost to the physician.

(Id.

at 2315-16.) As discussed above, this document was actually given to customers on at least a couple of occasions.

(See

Keighley Dep. 270:2-22.) Finally, BMS produced a series of sales documents that carefully calculate and illustrate the “profit to oncology practice” of using Taxol or a generic version.

(See

PX 225 at 8052.) Sales representatives were therefore fully prepared to discuss the spread and profitability.

There is substantial evidence that BMS marketed the spread on Taxol. As noted above, Taxol and Paraplatin were often marketed in combination. Thus, many of the sales representatives’ call notes cited in the section on Paraplatin also apply here. In addition, several other call notes focus specifically on Taxol. In 1998, a sales representative noted that he “[g]ot info on [Taxol] vs. [Taxotere] w. respect to AWC and AWPs. Also what medicare is reimbursing.” (PX 229 at 3600.) In some cases, it is clear that the sales representatives were responding to questions or concerns from the physicians. For example, a 1999 call note states, “message ... loud and clear. Bottom line, he wants us to raise our AWP or lower our price. I told

*66

him that our AWP is about 25% over acquisition cost, and that we are one of the best in terms of AWP.”

(Id.

at 6365.) Another call note reads: “Also said they are considering moving away from TAXOL due to cost issues and reimbursement. Talked about TAXOL going Generic and the advantages this will have for the office and reimbursement.”

(Id.

at 4566.) Many of the documents, however, simply show a focus on selling the economics of the drug. A 2000 call note candidly explains, “[w]e talked to him about Taxol and the profitability spread.”

(Id.

at 5895.) In other 2000 call notes, sales representatives were focusing specifically on explaining to physicians how Taxol would still be profitable after the entrance of generics in 2001. One sales representative wrote:

We discussed the financial impact of generic competition. I explained it as the greatest business opportunity for him in many years because for every dollar BMSO lost due to price reductions needed to stay competitive with generic competition, medical ocologists [sic] would make 95 cents due to the wide disparity of cost vs AWP reimbursement.

(Id.

at 8646.) Another representative documented his “very good conversation on generic paclitaxel and AWP situations.”

(Id.

at 8664.)

Spread marketing continued in 2001 and 2002. In 2001, a sales representative noted that he gave a physician the taxol profitability sheet.

(Id.

at 6459.) It is likely that this referred to one of the presentations given to the sales representatives about reimbursement.

(See, e.g.,

PX 222; PX 225.) In 2002, a sales representative documented his discussion of spread during a meeting at a physician’s office: “Discussed generic taxol. They do not want to switch. I told Melva that we are constantly lowering the cost of Taxol and that AWP is still strong. She will stay with OTN.” (PX 4048 at 8182.)

ii.

Vepesid

Vepesid (etoposide) is produced in an injectable form and in a capsule form. (Bell BMS Aff. ¶ 49.) The injectable form was launched in 1983 and became subject to generic competition in 1994.

(Id.

¶ 16.) Vepesid capsules were launched in 1987 and have been subject to generic competition since

2001.(Id)

Vepesid is primarily used in combination with other agents for the treatment of testicular cancer and lung cancer. (Hartman Decl. ¶ 52.)

Injectable Vepesid and the capsule form had very different pricing experiences. From 1993 through 2001, BMS increased the WLP for Vepesid capsules and made further increases after the launch of generic competition in 2001. (Bell BMS Aff. ¶ 50.) For reasons which were never well explained at trial,

even with the advent of competition, BMS never increased price concessions more than 2 percent.

(See

Bell BMS Aff. ¶ 52.) Thus, over 90% of sales were made within 5% of list price for almost all years of the class period, including those after the entrance of generics.

(See

Bell DX 2524.) The spreads were similarly very low.

The story for the injectable form of Vepesid was much different. At the point generic competition entered the market in 1994, BMS halted all price increases and left WLP at its current level. (Bell BMS Aff. ¶ 50.) In order to protect market share, however, BMS began to offer substantial concessions to compete with the

*67

generics on price. Contract discounts to large purchasers were as high as 94% off of WLP.

(See, e.g.,

PX 204 at 6293, PX 205; PX 206 at 9756, PX 207 at 4141.) For some NDCs the spread between ASP and AWP became astronomically high, exceeding 1000%.

(See

Hartman Decl. Attach. G.2.c.) Given those brand loyal and ignorant customers, however, BMS still made at least 10% of their Vepesid sales within 5% of the unchanged WLP.

(See

DX 2524.) Excluding the year 2000, however, virtually all the remaining sales were made at prices that were 50% or less of WLP.

(See id.)

Spreads thus reached over 1,000% percent.

(See

Hartman Decl. Attach. G.2.c.)

[[Image here]]

Hartman Decl. ¶ 52, Fig. 8.)

Aside from the “Cost Differential Report” available to customers online, (see PX 219), plaintiffs presented no further evidence that BMS proactively marketed the spread on either form of Vepesid. iii.

Cytoxan

Cytoxan (cyclophosphamide) is also produced in two forms, injectable and tablet. The injectable form of Cytoxan was originally approved in 1959 and has been subject to generic competition since 1982, before the start of the class period. (Bell ¶ 17.) Cytoxan tablets were approved pri- or to 1982 and have been subject to generic competition since 2000.(M) Cytoxan is often used in the treatment of breast canly in combination with other oncolytics.

(Id.)

The pricing trajectory for the two versions of Cytoxan are similar to those of the two forms of Vepesid. cer and non-Hodgkin’s lymphoma, typical-

The Cytoxan tablets were relatively unaffected by generic competition. BMS increased the WLP for the Cytoxan tablets from 1993 up until the launch of generic competition in 2000. (Bell BMS Aff. ¶¶ 53-54.) From that point forward, BMS stabilized the WLP.

(Id.)

Despite the entry of generics, BMS offered less than 2% in price concessions, such that the spreads remained relatively low and the overwhelming majority of sales were made within 5% of WLP.

(See

Hartman Decl. Attach. G.2.c: DX2524.)

*68

Pricing for the injectable Cytoxan, however, was marked by substantial discounting and dramatic increases in the spread. While BMS kept the WLP relatively constant, contract discounts reached 65%-75% off of WLP.

(See

PX 204 at 6293; PX 205; PX 207.) This resulted in several spreads of over 100%, even reaching 500% in certain years.

(See

Hartman Deck Attach. G.2.c.) From 1995 on, the majority of sales were made at prices less than 50% of WLP, and in certain years, as little as 6% of Cytoxan sales were made within 5% of WLP. (DX 2524.) BMS did reduce discounting somewhat from 2000-2002 because generic manufacturers were having difficulty producing the drug, and were starting to exit the market. (Rosenthal Deck ¶ 55; Marré Dep. 88-90.) In fact, by 2003 all competitors had abandoned the market. (Marré Dep. 88:16-89:6.)

[[Image here]]

(Hartman Deck 150, Fig. 6.)

Aside from the “Cost Differential Report” available to customers online,

(see

PX 219), plaintiffs presented no further evidence that BMS marketed the spread on either form of Cytoxan.

iv.

Blenoxane

Blenoxane (bleomycin) is a chemotherapy drug used to treat cancer including lymphomas and testicular cancers. (Hartman Deck ¶ 46.) Blenoxane was launched in 1973 and became subject to generic competition in 1996. (Bell BMS Aff. ¶ 18.)

Like most of its other drugs, BMS increased the WLP during the period of exclusivity and then held it constant once Blenoxane faced generic competition.

(See

Hartman Deck ¶ 47, Fig. 4.) Up until 1996, price concessions were small and the spread was therefore under 30%.

(See id.;

Bell BMS Aff. Exh. D.) In 1996, anticipating the entry of generics, BMS adjusted its pricing strategy. According to Dr. Bell, BMS attempted to get its top clients to commit to purchasing most of their bleomycin from BMS, and BMS would in return price Blenoxane competitively with any “bona fide offer for a generic.” (Bell BMS Aff. ¶ 56.) Thus, discounts quickly reached over 60% off of WLP, causing the ASP to drop and the spread to reach over

*69

100% for certain NDCs. (See Hartman Decl. ¶ 47, Attach. G.2.c.) In the post-generic years, only 6% to 15% of Blenox-ane’s sales continued to be made within 5% of WLP. (See Bell BMS Aff. Exh. E.)

[[Image here]]

(Hartman Decl. ¶ 47, Fig. 4.)

Aside from the “Cost Differential Report” available to customers online,

(see

PX 219), plaintiffs presented no further evidence that BMS marketed the spread on Blenoxane.

Multi-Source Drugs

Rubex

Rubex (doxorubicin hydrochloride) is used to treat a broad variety of cancers, often in combination with other therapies. (Bell BMS Aff. ¶ 19.) Rubex, a multi-source drug for the entire class period, was launched by BMS in 1989 as a branded version of Adriamycin RDF.

(Id.)

During 1992 and 1993, Rubex was marketed by Immunex Corporation, but reverted back to BMS in

1994.(Id.)

BMS phased out the drug in 2001 and discontinued production after 2002. (Marré Dep. 97:22-98:12.)

Since Rubex is a multi-source drug, BMS has always offered substantial concessions off of the WLP. While the WLP remained fairly constant, discounts have averaged as high as 94% off of WLP.

(See

Bell BMS Aff. Exh. D.) Thus, the spreads were large, peaking at over 400% toward the end of the 1990’s. (See Hartman Decl. Attach. G.2.c.) On average, 37% of the Rubex sales were made at list price, although that percentage ranged from 0% to 62% throughout the individual years. (DX 2524.)

*70

[[Image here]]

(Hartman Decl. ¶ 51, Fig. 7.)

Aside from the “Cost Differential Report” available to customers online, (see PX 219), plaintiffs presented no further evidenbe that BMS marketed the spread on Rubex.

4. The Schering-Plough Group

The Schering-Plough Group includes Schering-Plough Corporation and Warrick Pharmaceuticals Corporation, its subsidiary.

The Schering products at issue include the branded drugs Temodar, Proventil, and Intron-A. The only Warrick product at issue is generic albuterol sulfate, the same chemical compound as Schering’s branded Proventil.

Schering-Plough refers to its list prices as “direct prices” or “net direct prices.” (Kane Dep. 34:7-35:21.) Schering-Plough reports AWPs for its branded drugs to the pricing compendia. (Zahn Dep. 173:1-9.) It derives its reported AWPs by marking up the direct prices by 20 percent. (Kane Dep. 34:7-35:21; PX 809 at 315085.)

Warrick also reports its AWPs to the pricing publications.

(See

Weintraub Decl. ¶ 58.) Warrick sets the AWPs for a new generic at a value 10 to 20 percent below the AWPs for the branded counterpart. (Weintraub Decl. ¶ 54; Aug. 25, 2005 Weintraub Dep. 31:2-17; Feb. 2003 Wein-traub Dep. 494:17-495:6; PX 425 at 6155.) When competitor generic products are already on the market, Warrick slots the AWP for its product “somewhere in the pack” of the competitor AWP values. (Sept. 2006 Weintraub Dep. 527:6-528:8.) According to Harvey Weintraub, a former Warrick sales and marketing consultant who was responsible for setting the AWP, this was done simply to save the “time and trouble” of calculating its own price.

(Id.

527:15-23.)

Schering and Warrick never lowered their reported AWPs despite offering significant discounts that reduced the ASPs.

(See

Hartman Decl. Attach. G.4.b.) Schering-Plough and Warrick entered into contracts with pharmacies and other providers, which offered rebates for meeting certain market share targets.

(See

*71

453; PX 455; PX 612.) These rebates often reached 20%-25% of the direct price.

(See id.)

In addition, many customers were provided with free goods that further reduced their average acquisition costs.

(See

PX 505.) Some pharmacies, in order “to keep [their] pricing a secret” bought from a wholesaler at the wholesaler’s price and then made a “chargeback” to Warrick or Schering to make up the difference in the contracted price. (PX 433.) These various discounts all resulted in lower ASPs for Schering and Warrick drugs.

Schering and Warrick were well aware of the role that the spread played in driving purchasing decisions for their products. For example, in response to the government’s investigation into drug pricing under Medicare, a Schering document notes that “[t]he reduction or elimination of the ‘spread’ is likely to have a significant effect on choices of Medicare Part B drugs and on utilization in areas of treatment where generic and brand name drugs are available.” (PX 713 at 55875.) Similarly, Warrick produced a letter from a pharmacy buying group, indicating that Warrick had been chosen to be an “endorsed generic contract vendor” based on certain “Generic Product Selection Criteria,” one of which was “AWP Spread; MAC.” (PX 779 at 35102.)

The Schering and Warrick subject drugs are different from the other drugs in this litigation because they are primarily self-administered. Many of the drugs are administered through the use of a nebulizer, and patients are trained to self-administer the drug using a nebulizer at home.

(See

11/15/06 Tr. 113:11-114:2 (Rosenthal).) These drugs are covered and reimbursed under the durable medical equipment (“DME”) provisions of Medicare Part B.

(See

42 U.S.C. § 1395 et. seq.) Because the drugs are distributed through pharmacies, Schering sells principally to chain pharmacies, wholesalers, and other intermediaries, rather than physicians. (12/13/06 Tr. 42:19-43:8 (Kane).) Warrick does not market or sell albuterol sulfate to physicians at all. (Weintraub Deck ¶ 23.)

Schering-Plough and Warrick emphasize the differences in the market for SADs. First, many TPPs, including both BCBSMA and Sheet Metal Workers, use PBMs to manage their pharmacy dispensed drugs.

(See

12/12/06 Tr. 88:21-22 (Kolassa); 11/7/06 Tr. 6:2-5 (Faulkner); 11/20/06 Tr. 154:23-25 (Shramek); 12/13/06 Tr. 15:1-15 (Dutch).) PBMs can serve a variety of functions in the administration of pharmacy benefits.

(See

PX 4002, Ro-senthal Tutorial 12-17, Exh. 13.) Manufacturers contract with the PBMs, often offering rebates and chargebacks for drug purchases. PBMs then contract with retail pharmacy networks that dispense the drugs to patients.

(See id.; see also

DX 1275, Berndt Report ¶ 15.) PBMs are generally large entities which consolidate market power to negotiate better drug prices for their customers.

(See

11/28/06 Tr. 88:8-89:18 (Bell); 11/15/06 Tr. 21:25-22:2 (Rosenthal).) Schering and Warrick contend that the PBMs operate in a vigorously competitive market, which ensures that drug reimbursements are kept at a reasonable level.

Second, Schering-Plough argues that it had no incentive to manipulate or market AWPs. For a single-source self-administered drug, the prescribing physician is not being reimbursed for the drug, so there is no pecuniary reason to select drugs based upon the spread. (11/15/06 Tr. 115:1-14 (Rosenthal);

see

DX 1275, Berndt Report ¶ 188.) Furthermore, the pharmacies that are reimbursed for the drugs have “no control over the prescription” and must dispense whichever branded drug is prescribed by the physician.

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(11/15/06 Tr. 115:1-14 (Rosenthal);

see

Ad-danki Am. Decl. ¶ 28.) For a generic mul-ti-source drug, such as Warrick’s albuterol sulfate, pharmacies can choose which version of the drug that they will carry.

(See

Addanki Am. Decl. ¶ 29; 11/15/06 Tr. 115:15-116:5 (Rosenthal).) However, as discussed below, all versions of a generic drug are reimbursed based upon the same single measure, such as a median or MAC, so that there is no competitive gain from having a higher AWP.

(See

Addanki Am. Decl. ¶ 30.)

Temodar

Temodar is a self-administered pill used to treat brain cancer. (Kolassa Decl. ¶ 22.) Temodar was launched in 1999 and remained single-source throughout the class period. Throughout this time, 95% of all Temodar sales were within 5% of WAC. (DX 2935.) The spreads, as calculated by Dr. Hartman,

were all less than the 30% yardstick.

(See

PX 4109; DX 2968.) Furthermore, plaintiffs presented no evidence that Schering-Plough marketed the spread on Temodar.

Intron-A

Intron-A is used to treat hepatitis, leukemia, melanoma, follicular lymphoma, condyloma, and AIDS-related Kaposi’s Sarcoma. (Kolassa Decl. ¶ 21.) Intron-A is generally a pharmacy-dispensed drug, but certain larger dosage sizes are sometimes or always administered by physicians and thus can be reimbursed under Medicare Part B.

(Id.)

Dr. Hartman has identified six NDCs that are commonly physician-administered.

(See

Hartman Decl. ¶ 189 n. 221.) To be conservative, Dr. Hartman excluded all other Intron-A NDCs from his damage calculations.

(See id.)

Plaintiffs have presented no direct evidence that Schering-Plough was marketing the spread on Intron-A. However, plaintiffs do offer a 1998 internal memorandum to the oncology sales representatives which emphasized the continuing existence of profit potential to physicians after Medicare’s move to reimbursing at 95% of AWP. The message exclaimed:

Treating bladder patients with Intron is still very profitable!! One patient on Intron can represent $16,956.36 of incremental sales and $2,373.84 of profit for our physicians just on the drug alone. These figures are based on having your physicians buy Intron-A at Net Direct pricing and treating on high dose of Intron (12 weeks of lOOrniu weekly then 50miu monthly for 1 year). As you know this dose is very tolerable when given intravesieally.

(PX 394.) It is unclear whether this information was used to market the spread to physicians, but as Schering-Plough points out, the spread that can be calculated from the numbers in this document is only 14%. Dr. Hartman’s spreads for 1998, the year of this memo, were also all under 30%. In fact, the spreads for the physician administered NDCs of Intron-A were nearly all under the 30% threshold.

(See

PX 4109; DX 2968.) In only four instances was the spread above 30%, and the largest of those spreads was merely 32.6%.

(See id.)

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Proventil

Proventil is a branded form of albuterol sulfate used to treat the symptoms of asthma, chronic bronchitis, emphysema, and other lung diseases. (Kolassa Decl. ¶ 23.) In its solution form, which is the only form at issue in this case, Proventil is almost exclusively self-administered and dispensed by pharmacies.

{See id.

¶¶ 20, 23 ; 11/15/06 Tr. 114:3-5 (Rosenthal).) Proven-til was subject to competition from brand or generic forms of albuterol sulfate since the beginning of the class period. (Hartman Decl. ¶ 62.)

Schering set the AWP for Proventil at 20 percent above its WAC. As a multi-source drug, however, Proventil’s (and generic albuterol sulfate’s) reimbursement under Medicare is not usually based upon the brand AWP. Instead, it is determined by the lower of the median of generic AWPs and the lowest branded version of the drug.

{Id.)

As a practical matter, though, the branded AWPs were generally much higher than the generic AWPs and thus the median generic was generally used for Medicare reimbursement. (Hartman Decl. ¶ 31 n. 47.) For liability purposes, Dr. Hartman still calculates the spread as the difference between the Pro-ventil brand AWP and Proventil’s ASP.

{See

12/13/06 Tr. 88:7-19 (Addanki).) Dr. Hartman then uses the median generic AWP for his damage calculations.

{See id.)

Dr. Addanki, however, notes that when calculating the spread using the median generic that is actually used for reimbursement, most of the spreads are below 30% and many are, in fact, negative because Proventil’s ASPs are higher than the median generic AWP.

{See

DX 2967.) Schering argues that there was no incentive for them to market or manipulate the spread on Proventil, because on average, “pharmacists would have

lost money

had they dispensed Proventil to a Medicare patient.” (Schering and Warrick’s Post-Trial Br. 16 (emphasis in original).) Consistent with this observation, plaintiffs produced no evidence that Schering was marketing the spread on Proventil.

Despite facing generic competition, Schering increased both the Proventil AWP and ASP throughout the period. It appears that this strategy was possible because of the introduction of Warrick’s generic albuterol sulfate which allowed Schering-Plough to segment the market; sophisticated, price sensitive customers could purchase Warrick’s generic albuter-ol, and the less powerful or brand loyal customers would continue to pay higher prices for the branded Proventil.

{See

PX 409; PX 418.) An internal Schering-Plough memorandum responds to a customer’s demand for lower prices on albu-terol by stating, “[rjather than lowering our Proventil contract prices, I recommend we offer a 2-year Warrick Solution and syrup market driven contract addendum to their existing GeriMed contract” because it would allow Schering to “maintain existing Proventil sales.” (PX 418 at 44924.) Given this segmentation, Schering-Plough maintained 83% of its sales within 5% of WAC. The spreads, as calculated by Dr. Hartman using the brand AWP and illustrated for one NDC in the chart below, exceeded 30% in every year from 1991 to 1997 and later for one NDC in 2002.

{See

Hartman Decl. Attach G.4.c.)

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[[Image here]]

(Hartman Decl. ¶ 63, Fig. 10.)

Generic albuterol sulfate

Like the branded Proventil solution, Warrick’s generic albuterol sulfate solution is used to treat asthma, chronic bronchitis, emphysema, and other lung diseases. (Weintraub Decl. ¶22.) In fact, the two products, Proventil and generic albuterol, were identical and manufactured in the same facility, but had different NDCs. (Aug. 2005 Weintraub Dep. 63:9-64:16.) The generic albuterol sulfate is thus also primarily dispensed by pharmacies for patients to self-administer at home with a nebulizer. (Weintraub Decl. ¶ 23.) Both Warrick’s 0.5% albuterol solution and the 0.083% albuterol solution were launched in the early 1990’s, shortly after Warrick was formed in 1993.

(Id.

¶¶ 14, 24.) At that time, other manufacturers’ versions of al-buterol were already in the market.

(Id.

¶ 24.) Albuterol sulfate was a multi-source drug for the remainder of the class period, facing competition from over 25 different manufacturers.

(See

PX 4007 at 4;

see also

DX 2919; DX 2920.)

Warrick set the AWP for albuterol sulfate between 10% and 20% below the AWPs of the branded versions of the drugs. (Weintraub Decl. ¶ 52.) According to Dr. Hartman, “[i]t is generally true that once the generic manufacturers set their AWPs, most manufacturers maintain them at constant levels.” (Hartman Decl. ¶ 32(c).) Warrick, however, did change the AWP on three occasions. First, in 1993 Warrick lowered the AWP on one size of the 0.083% solution in order to make the AWPs the same for all forms of the product on a per unit basis. (Weintraub Decl. ¶ 58.) Then, in 1995, Warrick raised the AWP for its 20 mL albuterol solution twice, from $12.50 to $13.95, and later to $14.99.

(See

Sept. 2006 Weintraub Dep. 462:17-463:4; Hartman Decl. Attach. G.4.b.) At that time, Warrick was the only producer of the solution because a competitor was having manufacturing problems. (Weintraub Decl. ¶ 59.) The increases in AWP were matched by an identical per

*75

centage increase in the direct sales price to customers,

(see

PX 4079), such that the average sales price for the 20 raL solution also increased in 1995.

(See

Hartman Decl. Attach. G.4.a.)

After 1995, no changes were made to AWP. (Weintraub Decl. ¶ 59.) However, Warrick’s selling prices for all NDCs of albuterol sulfate declined substantially over time as Warrick sought to match the price of its generic competitors.

(See id.;

Weintraub Decl. ¶ 31.) The spreads for every NDC in every year were all over 100%,

reaching over 800% in 2008. (See

Hartman Decl. Attach. G.4.C.)

As explained above for Proventil, Medicare reimbursed for albuterol sulfate based on the median AWP of all generics. Plaintiffs allege that generic manufacturers engaged in tacit collusion to set a high AWP and then marketed the resulting spread. When Warrick announced its price increases in 1995, it did send out memos to its customers that featured the AWP and the direct price for albuterol sulfate next to each other for easy comparison.

(See, e.g.,

PX 437; PX 445; PX 4080; PX 4082.) A 1993 advertisement for albuterol sulfate similarly quotes the AWP and direct price, but markets the product on the basis of “Quality,” “Service,” “Reliability,” and “Trust.” (PX 719 at 1836.) Plaintiffs offered no further evidence that Warrick marketed the spread on albuterol sulfate. As noted before, defendants contend that there was no economic incentive to market the spread on generic albuterol.

Warrick did, however, provide at trial detailed information regarding the AWP for each branded and generic form of albu-terol sulfate during each year of the class period.

(See

DX 2919; DX 2920.) According to these charts, Warrick’s AWPs were almost always below the median. There are a few exceptions. For the 0.5% solution, Warrick’s AWP was at or above the median from 1996 through 1999.

(See

DX 2920.) The significance, as explained later, is that if Warrick had reported a true AWP then the median would have shifted downward and a lower price would have been used for Medicare reimbursement.

II.

CONCLUSIONS OF LAW

The parties raise five threshold crosscutting issues that must be addressed before the Court reaches the merits of the claims against each drug manufacturer. First, defendants argue that the claims are time-barred. Second, they argue that plaintiffs can only bring a claim under Mass. Gen. L. ch. 93A, § 11. Third, plaintiffs assert that there is per se liability under Chapter 93A because AWP is not a true average of wholesale prices. Fourth, defendants raise a Daubert challenge to the admissibility of Dr. Hartman’s testimony. Finally, the Court must address difficult issues of liability and causation for multi-source drugs.

Statute of Limitations

The defendants assert that the plaintiffs’ claims are barred by the four-year statute of limitations for consumer protection claims.

See

Mass. Gen. Laws ch. 260, § 5A. “Ordinarily, actions in tort accrue at the time the plaintiff is injured.”

Taygeta Corp. v. Varian Assoc., Inc.,

436 Mass. 217 , 763 N.E.2d 1053, 1063 (2002) (citation omitted). In this case, because the plaintiffs filed their first complaint in December 2001, the statute of limitations would ordinarily bar all claims for damages prior to December 1997. However, the plaintiffs seek to toll the statute of limitations for injuries prior to December 1997 by invoking the discovery rule or fraudulent concealment doctrine. The burden is on the plaintiffs to show that the limitations period should be tolled.

Saenger Org., Inc. v.

*76

Nationwide Ins. Licensing

Assocs.,

Inc.,

119 F.3d 55, 65 (1st Cir.1997).

Massachusetts has recognized that the general rule that accrues time from the date of injury is unfair “in actions where the wrong is ‘inherently unknowable.’ ”

Taygeta,

763 N.E.2d at 1063 . Under the discovery rule, “a cause of action ... does not accrue until the plaintiff knew, or in the exercise of reasonable diligence should have known of the factual basis for his cause of action.”

Wolinetz v. Berkshire Life Ins. Co.,

361 F.3d 44, 47-48 (1st Cir.2004). The appropriate test for determining whether plaintiffs should have known about facts

giving rise

to their claims is an objective one.

McIntyre v. United States,

367 F.3d 38, 52 (1st Cir. 2004). The first question is “whether sufficient facts were available to provoke a reasonable person in the plaintiffs circumstances to inquire or investigate further.”

Id.

If so, then the plaintiff is charged with the knowledge of “what he or she would have uncovered through a reasonably diligent investigation.”

Id.

The court must then determine if that information is sufficient “to permit a reasonable person to believe that she had been injured” and that the defendants caused that injury.

Id.

Plaintiffs argue that until quite recently class members were unaware of the real prices being paid for oncology and other Medicare Part B drugs in the marketplace. Even if class members knew of the existence of some discounting prior to 1997, in plaintiffs’ view, that information would still be insufficient to put plaintiffs on notice of the systematic super-sized inflation of AWP and of the marketing of the spread. Defendants retort that by 1996, TPPs knew or should have known, through the exercise of reasonable diligence, that AWP did not equal ASP and that there was no predictable relationship between AWP and acquisition costs. Defendants have produced a variety of articles and government publications that they claim should have put plaintiffs on notice that AWP was not related to acquisition costs. Therefore, defendants contend that all of the plaintiffs’ claims prior to December 1997 are barred because they were filed over four years later.

By the early 1990’s, the more sophisticated payors generally understood that AWP was a 20 to 25 percent markup over WAC, and that some discounting off of WAC was generally available. However, payors, even the most savvy, were not typically aware that mega-spreads were available to physicians and that drug manufacturers were marketing those spreads. Furthermore, plaintiffs were not typically aware of the publicly available reports and articles that began surfacing about the AWP abuse early in the class period. Thus, plaintiffs typically had no actual knowledge of the abuse of the AWP system for PADs prior to December 1997.

The difficult question, then, is when the amount of publicly available information in the marketplace was sufficient to provoke a reasonable TPP to investigate further. Defendants’ expert, Dr. Bell, testified about the articles and reports that were published between the beginning of the class period and 1998, which defendants assert disclosed the existence of significant spreads. The Court must determine whether, despite Bell, the statute of limitations tolls.

In 1992, the OIG studied 13 chemotherapy drugs, using a sample of patients and physicians in New York state, and reported to HCFA that “AWP is not a reliable indicator of the cost of a drug to physicians.” (DX 1053 at 5.) The OIG showed that Doxorubicin (Rubex) could be purchased at a discount of 59% off of AWP (a Hartman spread of 144%).

(Id.

at 6.) In

*77

1993, a GAO survey examined the impact of the Medicaid rebates on prices offered to HMOs and hospital group purchasing organizations (“GPOs”), finding that the groups were able to purchase drugs at discounts of 34% to 38% off of list prices. (Bell T1 Aff. Attach. A, ¶ 16.) From 1990 to 1993, news outlets discussed pharmaceutical discounts in connection with the Congressional hearings on the federal Medicaid Best Prices legislation. The Los Angeles Times, New York Times, Seattle Times, and Drug Topics reported the levels of discounts, some as high as 70%, available to different classes of trade and the federal government.

{Id.

Attach. B, ¶ 6.) In 1993, the Los Angeles Times and the Chicago Sun-Times reported that retail drugstores stated that they paid up to 1,200% or 1,245% higher prices for drugs than did HMOs and mail order pharmacies.

{Id.

118.) These were primarily self-administered drugs.

In 1996, the OIG focused on the pricing of nebulizer drugs, and albuterol sulfate (at issue in this ligation) in particular. A February 1996 report concluded that Medicare, reimbursing based on AWP, was paying higher prices than Medicaid for two of three nebulizer drugs, resulting in costs of over $11.7 million.

{Id.

Attach. A, ¶ 18.) A June OIG report concluded, “Medicare’s allowances for albuterol sulfate substantially exceed suppliers’ acquisition costs for the drug.” (DX 1065 at I.) In May of that year, the OIG reported that Medicare could have saved $122 million if it used the Medicaid reimbursement standard, rather than AWP, to calculate drug allowances. (DX 1062 at 7.) Later in 1996, the New York Times and the Chicago Tribune reported the large discounts available to HMOs, (Bell T1 Aff. Attach. B, ¶ 9), and the Washington Post reported that AWP is a “price that is used as a baseline to negotiate prices and reimbursement rates.”

{Id.)

In June 1996, Barron’s published an article entitled

Hooked on Drugs: Why Do Insurers Pay Such Outrageous Prices for Pharmaceuticals?

(DX 2641.) The article reported the pricing for “the top 20 Medicare drugs (which account for about 75% of the program’s drug spending), as well as for various intravenous solutions.”

{Id.

at 15.) The analysis showed that the manufacturer’s prices were 10%-20% below AWP for single-source drugs and 60%-85% below AWP for generic drugs.

{Id.)

The article concluded that manufacturers are producing drugs “that cost far less than the published Average Wholesale Price that Medicare and other insurers pay on claims.”

{Id.

at 16.) The article also addressed current investigations by the DOJ and the possible filing of suits under the False Claims Act.

{Id.

at 18.)

In January of 1997, the Washington Post printed an article entitled

Battling the High Prices Medicare Pays for Drugs,

which reported that “doctors can buy drugs from a supplier at less than the AWP, then bill Medicare for the full AWP price.” (DX 1726 at 2.) The article also explained that HCFA was proposing a change to reimburse doctors only for the amount they actually pay for drugs.

{Id.)

In June of 1997, leading up to the passage of the BBA, the Committee on the Budget of the House of Representatives issued a report that stated:

The Inspector General for the Department of Health and Human Services has found evidence that over the past several years Medicare has paid significantly more for drugs and biologieals than physicians and pharmacists pay to acquire such pharmaceuticals. For example, the Office of Inspector General reports that Medicare reimbursement for the top 10 oncology drugs ranges from 20 percent

*78

to nearly 1000 percent per dosage more than acquisition costs.

(DX 1071 at 1354.)

Of great significance here, in August of 1997, Congress passed the BBA which changed reimbursement to 95% of AWP.

See

BBA of 1997, Pub.L. 105-33, 111 Stat. 251. In December 1997, the OIG issued another report noting that “published AWPs ... bear little or no resemblance to actual wholesale prices that are available to the physician and supplier communities that bill for these drugs.” (DX 1075 at ii.) The OIG stated its belief that the 5 percent discount off of AWP “is not a large enough decrease” given the existence of spreads from 11% to 900%.

(Id.

at ii-iii.)

Under the discovery rule, the question is when there was sufficient information such that a reasonable TPP in the plaintiffs’ position would have been on notice to investigate the possibility that AWP had become unhinged from acquisition costs causing plaintiffs to overpay for drugs.

See Taygeta,

763 N.E.2d at 1063 . “Where events receive ... widespread publicity, plaintiffs may be charged with knowledge of their occurrence.”

McIntyre,

367 F.3d at 60 (quoting

United Klans of Am. v. McGovern,

621 F.2d 152 , 154 (5th Cir.1980)). The relevant factors include the geographical scope of the coverage vis-a-vis the plaintiffs, the content of the stories, and the degree of press and media saturation.

Cascone v. United States,

370 F.3d 95, 99 (1st Cir.2004). This is a “fact-intensive inquiry into the pervasiveness and content of the publicity and the particular circumstances of the relevant plaintiff(s).”

In re Mass. Diet Drug Litig.,

338 F.Supp.2d 198, 208 (D.Mass. 2004). I begin by looking at the most sophisticated named plaintiff, BCBSMA.

The plaintiffs cite to several cases, which they claim stand for the proposition that tens of articles in major news outlets and coverage on the national news may not constitute widespread publicity such that plaintiffs should have discovered their claims.

They argue that this case involves only a few articles and government reports, well below the threshold for constructive notice. However, BCBSMA is fundamentally a different plaintiff than the individual consumers in the cases cited by plaintiffs. BCBSMA is a sophisticated non-profit entity in the business of providing health care. Reimbursing for drugs was a substantial part of this mission. From 1991 to 1997, the period discussed here, BCBSMA was also the Medicare carrier for Massachusetts. (11/08/06 Tr. 18:2-11 (Mulrey).)

A reasonable plaintiff in BCBSMA’s situation would be closely following any information that reported on drug reimbursement under Medicare. Although staff at BCBSMA might not have read the scattered national news articles or the handful of OIG reports, a reasonable TPP in the position of BCBSMA, as a major insurer, would have monitored major Congression

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al actions regarding Medicare reimbursement policies. In August of 1997 when the BBA was signed into law, reducing Medicare Part B reimbursement to 95% of AWP, BCBSMA should have been alerted to the fact that it could have been overpaying for drugs using AWP. At that time, a reasonable investigation would have uncovered the OIG reports finding that spreads on certain oncology drugs reached nearly 1,000% and the Barron’s article highlighting the spreads and the recent investigations into AWP fraud. At the least, BCBSMA could have conducted the reasonable investigation undertaken by the Barron’s staff to uncover the fact that physician costs were well below AWP.

Plaintiffs’ appeal to the “importance of being unimportant” is not persuasive here. While the relative insignificance of Medicare Part B drugs may be a reason for not changing their reimbursement system, it does not negate the fact that they were on notice of the problems with AWP and could have taken legal action.

I find that in August of 1997 (the date of passage of the BBA) sufficient facts were available for BCBSMA and any similarly situated large TPP to discern the basis for both the Class 2 and Class 3 claims.

It is a much more difficult question as to whether the other class representatives, Pipefitters and Sheet Metal Workers, should have been put on notice of their claims at this time. At trial, it was clear that these Taft-Hartley funds were much less sophisticated organizations than BCBSMA. However, as less sophisticated entities, both organizations hired third parties to handle their medical benefits, including drug reimbursement. Under standard agency principles, “[w]hen an agent acquires knowledge in the scope of [his] employment, the principal ... is held to have constructive knowledge of that information.”

Sunrise Props., Inc. v. Bacon, Wilson, Ratner, Cohen, Salvage, Fialky & Fitzgerald, P.C.

425 Mass. 63 , 679 N.E.2d 540, 543 (1997) (citing

DeVaux v. Am. Home Assurance Co.,

387 Mass. 814 , 444 N.E.2d 355 (1983)). As the Taft-Hartley funds stated at trial, a key reason for hiring outside consultants and administrators was to obtain experience and expertise in the provision of health benefits.

Pipefitters, a Class 3 representative, contracted with BCBSMA and thus was put on notice at the same time as BCBSMA. Sheet Metal Workers, a Class 2 representative, hired Southern Benefits Administrators (“SBA”) to handle its health benefits, including the Medicare Part B payments. SBA, like BCBSMA, is actively engaged in the health care and insurance industries, and should reasonably have been on inquiry notice at the same time as BCBSMA. Because Sheet Metal Workers relied on SBA as its agent to provide expertise on health care matters, Sheet Metal Workers also should have been on inquiry notice at that time.

Therefore, Plaintiffs cannot bring claims for any damages arising before December

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1997.

Liability Under Section 9 or 11 of Chapter 93A

Defendants argue that the class representatives, BCBSMA, Pipefitters, and Sheet Metal Workers, although technically nonprofit entities, were acting in a business context and therefore can only proceed under § 11 of Chapter 93A.

The significance of this challenge is that defendants contend plaintiffs cannot satisfy additional requirements imposed by § 11. Plaintiffs respond that their claims are properly brought under § 9 because the class representatives are not-for-profit entities, acting in furtherance of their core missions.

The Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, § 2, protects against unfair or deceptive acts or practices in the conduct of any trade or commerce. Chapter 93A distinguishes between claims actionable under § 9 and “business” claims actionable under § 11.

Frullo v. Landenberger,

61 Mass.App.Ct. 814 , 814 N.E.2d

1105,

1111 (2004) (citing

Lantner v. Carson,

374 Mass. 606 , 373 N.E.2d 973, 976 (1978)). Section 11 provides a cause of action to “individuals acting in a business context,”

Lantner,

373 N.E.2d at 976 , while § 9 grants a cause of action to “[a]ny person, other than a person entitled to bring action under section eleven of this chapter.” Mass. Gen. Laws ch. 93A, § 9. The two sections are mutually exclusive and plaintiffs’ claims can proceed under only one section.

See Frai-lo,

814 N.E.2d at 1112 (“[A] plaintiff who acts in a business context has a cause of action exclusively under § 11.”);

see also Continental Ins. Co. v. Bahnan,

216 F.3d 150, 156 (1st Cir.2000) (“By their terms, however, [sections 9 and 11] of chapter 93A ... are mutually exclusive.”).

The dividing line between a claim under § 9 and a business claim under § 11 is as clear as mud.

See Frullo,

814 N.E.2d at 1112 . By its text, § 11 applies to any “person

who engages in the conduct of any trade or commerce.” Mass. Gen. Laws ch. 93A, § 11. Trade and commerce include “the sale, rent, lease or distribution of any services and any property.”

Id.

§ 1. Given this capacious definition, Massachusetts courts look to the circumstances of each individual case, to see whether the case arose in a “business context.”

Linkage Corp. v. Trs. of Boston Univ.,

425 Mass. 1 , 679 N.E.2d 191, 207 (1997). Relevant factors include the nature of the transaction, the character of the parties involved, and “whether the transaction is motivated by business or personal reasons.”

Id.

(citing

Begelfer v. Najarian,

381 Mass. 177 , 409 N.E.2d 167, 176 (1980)).

Plaintiffs rely on two cases to support their contention that their claims fall un

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der § 9 of Chapter 93A. While the cases were both decided by federal courts outside of Massachusetts, the cases involve the same plaintiff, BCBSMA, and factual circumstances that are quite similar to this case. In

In re Lorazepam & Clorazepate Antitrust Litig.,

295 F.Supp.2d 30, 33 (D.D.C.2003), BCBSMA brought Chapter 93A claims against Mylan Laboratories, Inc. for unlawfully raising prices on generic drugs that were reimbursed by BCBSMA. In addressing this threshold issue of whether plaintiffs could sue under § 9 or § 11 of Chapter 93A, the Court held that BCBSMA “is a charitable institution not engaged in trade or commerce when it undertakes activities in furtherance of its core mission.... [P]ayment[s] for members’ prescription drug claims ... are clearly at the core of BCBS Massachusetts’s charitable mission.”

Id.

at 45. The court gave considerable weight to the fact that BCBSMA “is a creation of statutory law,” specifically prohibited from operating for profit.

Id.

at 46.

Similarly, in

In re Cardizem CD Antitrust Litig.,

No. 99-mdl278, slip. op. (E.D.Mich. May 27, 2003), BCBSMA brought a Chapter 93A claim against certain pharmaceutical companies alleging unlawful, anti-competitive acts that caused BCBSMA to pay millions of dollars in overcharges on drug reimbursement. The Court held that:

BCBS Massachusetts has pled facts showing that it is a nonprofit corporation created by statute and regulated by the Commonwealth of Massachusetts, and that the activity in question — its customary payment or reimbursement for its members’ prescription drug benefits^ — falls within its charitable mission as set forth by statute and case law.

Id.

at *7-8.

Defendants contend that these cases were wrongly decided because the Massachusetts case law discussing whether nonprofits are engaged in trade or commerce for the purposes of Chapter 93A involves entities being sued as defendants, rather than entities suing as plaintiffs. It is true that the same entity can sue as a plaintiff under § 11 in one case, and be immune to suit under § 11 in a different case.

See Boston Hous. Auth. v. Howard,

427 Mass. 537 , 695 N.E.2d 192, 194 (1998) (refusing to impose § 11 liability on the Boston Housing Authority while recognizing that it had been allowed to sue as a plaintiff under § 11 in prior cases). However, the determination of whether the entity is engaged in a business context must focus on the transaction at issue in the particular case.

See Begelfer,

409 N.E.2d at 176 (“[B]usiness context must be determined from the circumstances of each case.”).

Although not dispositive, a party’s status as a non-profit influences this analysis.

Boston Hous. Auth.,

695 N.E.2d at 193 . “In most circumstances, a charitable institution will not be engaged in trade or commerce when it undertakes activities in furtherance of its core mission.”

Linkage Corp.,

679 N.E.2d at 209 ;

see also Trs. of Boston Univ. v. ASM Communs. Inc.,

33 F.Supp.2d 66, 77 (D.Mass.1998) (“A nonprofit or charitable corporation, however, is not engaged in trade or commerce ‘if, in the transaction in question, the non-profit is merely engaged in the customary business necessary to meet its charitable purpose.’ ”) (citation omitted);

Shin v. Mass. Inst. of Tech.,

2005 WL 1869101 , at *14, 2005 Mass.Super. LEXIS 333, at *22 (Mass.Super. Ct. June 27, 2005) (“Federal courts interpreting Massachusetts law have held that colleges and universities, as charitable corporations, are not engaged in ‘trade or commerce’ for purposes of c. 93A ‘when [they] undertake[ ] activities in fur

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therance of [their] core mission.’ ”) (citation omitted). This Court has specifically applied that test to a non-profit plaintiff that, like BCBSMA here, was attempting to sue under § 11.

See Trs. of Boston Univ.,

33 F.Supp.2d at 77 (finding that Boston University, a nonprofit entity, was not engaged in trade or commerce when it purchased term papers from a corporation because investigating cheating was “central to a university’s educational mission” and therefore could not bring a claim under § 11 of Chapter 93A).

Based on this caselaw and the record, I conclude that BCBSMA is a nonprofit organization acting pursuant to its legislative mandate,

and that the reimbursement for prescription drugs is a key part of its core mission. There is no evidence that BCBSMA profited from its reimbursement for those over-priced drugs during the non-time-barred portion of the class period.

A fortiori, the Taft-Hartley funds may bring their claims under § 9 of Chapter 93A because they were not motivated by the desire to make money from the drugs and were acting within their core mission. Class 3 consumers who made co-payments have a claim under § 9. Plaintiffs are, therefore, not engaged in trade or commerce for the purposes of this case and their claims are properly brought under § 9 of Chapter 93A.

Per Se Unfair or Deceptive Conduct Under Chapter 93A

Plaintiffs advance the theory that the defendants’ acts and practices are per se unfair or deceptive in violation of Chapter 93A. Plaintiffs base this contention on three sources of law: the Federal Trade Commission Act, Massachusetts Attorney General Regulations, and the federal Medicare statute.

Chapter 93A protects against “unfair or deceptive acts or practices in the conduct of any trade or commerce.” Acting in accordance with authority granted in Chapter 93A, § 2(c),

the Massachusetts Attorney General enacted 940 Mass.Code Regs. 3.16, which states:

An act or practice is a violation of M.G.L. c. 93A, § 2 if:

(1) It is oppressive or otherwise unconscionable in any respect; or

(2) Any person or other legal entity subject to this act fails to discl

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