TJOFLAT, Circuit Judge:
These cases involve payments made by health insurers
The insurers claim that physicians prescribed Seroquel for many of these off-label uses because AstraZeneca fraudulently induced them to do so. Specifically, the insurers say that AstraZeneca, through an illegal off-label marketing campaign, falsely represented that Seroquel was safer and more effective in treating many off-label conditions than less expensive drugs also used to treat those conditions.
Each of the cases before us is a class action brought against AstraZeneca
The allegations of these cases have been merged within a consolidated complaint consisting of seven counts.
AstraZeneca moved the district court to dismiss the plaintiffs' claims under Federal Rule of Civil Procedure 12(b)(6), and the court granted its motion. See Ironworkers Local Union No. 68 v. AstraZeneca Pharms. LP, 585 F.Supp.2d 1339, 1342, 1347 (M.D.Fla.2008). The court ruled that the complaint did not adequately plead that AstraZeneca's false representations proximately caused the plaintiffs' purported economic losses.
The court first noted the proximate causation a RICO plaintiff must establish to make out a case under 1964(c): a plaintiff has to show "some direct relation between
The district court subsequently dismissed the state law
"We review de novo the district court's grant of a motion to dismiss under 12(b)(6) for failure to state a claim, accepting the allegations in the complaint as true and construing them in the light most favorable to the plaintiff." Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1288 (11th Cir.2010). In assessing the sufficiency of the complaint's allegations, we are bound to apply the pleading standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). That is, the complaint "must ... contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Am. Dental Ass'n, 605 F.3d at 1289 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. at 1974) (emphasis added).
In subpart B, we affirm the district court's dismissal of the insurers' claims in all seven counts of the complaint. The insurers, under the terms of their insurance policies, consciously exposed themselves to pay for all prescriptions of Seroquel, including those that were medically unnecessary or inappropriate—even if such prescriptions were birthed by fraud. In light of such broad exposure, conventionally a rational insurer would have charged its enrollees higher premiums than it would have if its policies offered more limited prescription drug coverage. These higher premiums, in turn, would compensate the insurer for its increased number of prescription payments, including payments for prescriptions that were medically unnecessary or inappropriate. Moreover, to the extent the insurer's payments for medically unnecessary or inappropriate prescriptions exceeded the premiums charged, only actuarial errors would be to blame. Here, the insurers plead no facts to suggest that they somehow established premiums in a manner distinct from this conventional understanding; consequently, the district court had to dismiss their claims because they failed to allege plausibly that AstraZeneca's false representations caused them to suffer economic injury.
In subpart C, we affirm the district court's dismissal of the claims brought by the individual enrollee, Cheryl Martin, because the complaint fails to allege any facts concerning her economic injury from payment for medically unnecessary or inappropriate drugs that would satisfy the Twombly and Iqbal plausibility standard.
Section 1 of this subpart highlights that economic injury is an essential element that must be alleged under each of the plaintiffs' causes of action. From there, section 2 establishes that, to assert a plausible economic injury arising from the purchase of prescription drugs, the plaintiffs must have alleged that the purchased drugs either were medically unnecessary or inappropriate for their prescribed use.
A plaintiff asserting a claim under § 1964(c) of RICO must allege economic injury arising from the defendant's actions. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (declaring that a § 1964(c) plaintiff "only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the [RICO] violation"). A "defendant who violates section 1962 is not liable for treble damages to everyone he might have injured by other conduct, nor is the defendant liable to those who have not been injured." Id. at 496-97, 105 S.Ct. at 3285 (emphasis added) (citations omitted). Although the Supreme Court has demanded that "RICO is to be read broadly," id. at 497, 105 S.Ct. at 3285, the injury to business or property limitation on RICO standing has a "restrictive significance." Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331, 60 L.Ed.2d 931 (1979). It "helps to assure that RICO is not expanded to provide a federal cause of action and treble damages to every tort plaintiff." Steele v. Hosp. Corp. of Am., 36 F.3d 69, 70 (9th Cir.1994) (citations omitted) (internal quotation marks omitted); see also Maio v. Aetna, Inc., 221 F.3d 472, 483 (3d Cir.2000) (quoting Steele, 36 F.3d at 70). Otherwise, "[t]o allow recovery by persons who have not been injured or to allow recovery for an injury greater than that caused by the offending conduct would run counter to the plain language of [18 U.S.C. § 1964(c)]." Sikes v. Teleline, Inc., 281 F.3d 1350, 1365 (11th Cir.2002) (citations omitted), abrogated on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008).
Injury also is a necessary element of each of the plaintiffs' claims based on state law.
Although there is a dearth of Eleventh Circuit precedent on the issue, for tort-based causes of action, the scope of potential economic injury arising from a patient's—or her health insurer's—purchases of prescription drugs is limited. As the district court noted, when a doctor prescribes a drug, he presumably does so only if, in the exercise of his independent medical judgment, he believes the drug will benefit his patient. See Ironworkers Local Union No. 68, 585 F.Supp.2d at 1344 ("Presumably ... physicians use their independent medical judgment to decide whether Seroquel is the best treatment for a given patient."). This presumption applies regardless of whether the prescription is for an FDA-approved or off-label use.
Several considerations shape the physician's medical judgment, including both individual patient concerns and drug-specific information regarding the propriety of a drug's use for treatment of a patient's given condition—that is, a drug's relevant safety and efficacy under the circumstances. See, e.g., Reyes v. Wyeth Labs., 498 F.2d 1264, 1276 (5th Cir.1974)
In light of physicians' exercise of professional judgment, a patient suffers no economic injury merely by being prescribed and paying for a more expensive drug; instead, the prescription additionally must have been unnecessary or inappropriate according to sound medical practice—i.e., the drug was either ineffective or unsafe for the prescribed use. This is true even when the physician's decision to prescribe the more expensive drug in lieu of a cheaper alternative is the product of fraud. See, e.g., Heindel v. Pfizer, Inc., 381 F.Supp.2d 364, 380 (D.N.J.2004) (concluding that there is no economic injury for the purchase of a prescription drug when the drug proves at all beneficial to the patient prescribed it (quoting In re Rezulin Prods. Liab. Litig., 212 F.R.D. 61, 68-69 (S.D.N.Y.2002))). To allow recovery based purely on the fact that the prescription was comparatively more expensive than an alternative drug—but otherwise safe and effective—would mean that physicians owe their patients a professional duty to consider a drug's price when making a prescription decision.
No such duty exists. While it might be true, as the complaint states, that "[t]he medical community generally encourages physicians to prescribe the most effective and cost-efficient treatment for their patients," Second Am. Consol. Compl. ¶ 70, "[p]hysicians generally do not take the price of a drug into account when deciding among treatment options, and often do not even know the price of the drugs they prescribe. This is particularly true in the treatment of mental disorders, which is an extremely individualized process." UFCW Local 1776, 620 F.3d at 126-27.
Rather, to assert an economic injury, the plaintiff must allege that her purchase payments were the product of a physician's medically unnecessary or inappropriate prescriptions. The issue of whether prescriptions are medically unnecessary or inappropriate—like most health care delivery questions—depends on the standards of practice in the medical profession. See, e.g., Barry R. Furrow et al., Health Law: Cases, Materials, and Problems 336 n.2 (6th ed.2008) [hereinafter Furrow et al.] ("The medical profession sets standards of practice and the courts have historically enforced these standards in tort suits."). Therefore, the prescription allegedly must be one that, in the practice of profession-accepted sound medicine, the physician should not have prescribed because the drug was unsafe or ineffective for its prescribed use. See, e.g., Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315, 319-21 (5th Cir.2002) (finding that plaintiffs lacked Article III standing because they did not assert a concrete injury arising from their purchase of prescription painkillers when the drugs were not alleged to have been ineffective in treating the plaintiffs' conditions or to have caused them physical injury).
Thus, when a physician's decision to prescribe a drug for a particular use purportedly was caused by false representations concerning the drug's safety and efficacy in that use, a plaintiff must allege that she not only paid for the drug, but also that its prescription was medically unnecessary or inappropriate. To make this showing, the payer-plaintiff must allege a counterfactual: that her physician— had he known all the true information about the medication—would not have prescribed the drug under the standards of sound medical practice because the drug actually was unsafe or ineffective in treating the plaintiff's condition. See, e.g., In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774,
In light of the principles presented in subpart A, we turn now to the insurers' allegations. In short, we find that the insurers have not alleged plausible economic injury arising from their payments for medically unnecessary or inappropriate off-label Seroquel prescriptions caused by AstraZeneca's false representations to physicians. Insurers, to sustain profitability, charge their enrollees an up-front fee, i.e., a "premium," in exchange for insurance coverage. Typically, insurers adjust premiums to compensate for known risks assumed under that coverage. Here, the insurers assumed the risk of paying for all prescriptions of drugs covered by their policies, including medically unnecessary or inappropriate prescriptions—even those caused by fraudulent marketing. The insurers, however, have not pled any facts to suggest plausibly that they did not charge their enrollees premiums or, in turn, adjust those premiums to compensate for this known risk.
In general, health insurers enter into a contractual bargain with enrollees in which, in exchange for their service—assuming the risk of payment for enrollees' future health care costs—they receive a "premium," an up-front fee that represents the price of the insurance policy.
The premiums charged may or may not be sufficient to cover the claims the insurers pay; when the claims exceed the insurers' projections, they bear the loss. When, however, the premiums received exceed the value of the claims paid by the insurers, the enrollees bear the loss because the insurers keep the remaining premium proceeds. Thus, in sum, the insurance contract represents a conscious bargain in which both sides hope to, at least, come out even—but know they might not.
Because of how paramount premiums are to their profitability, insurers engage in a technical actuarial analysis to price them. Through this ratemaking process, insurers aim to "predict[] future losses and future expenses and allocat[e] those costs among the various classes of insureds."
Because the value of estimated claims drives the premium rate, the premium charged for a policy largely depends on the scope of coverage under that policy. The broader the coverage offered—i.e., the more health care services indemnified by the insurer—the higher the premiums charged for that policy. In other words, covering more health care services creates a likelihood of more claims and, correspondingly, a greater projected claims value. The insurer will fund these higher costs through escalated premiums.
In the present matter, the insurers' policies broadly covered prescriptions of Seroquel because it was listed on the insurers' drug formularies. Drug formularies, in brief, are insurers' lists of medications approved for coverage. See UFCW Local 1776, 620 F.3d at 126 (discussing generally the common use and operation of drug formularies in the prescription drug insurance industry). Formularies are managed by Pharmacy Benefit Managers ("PBMs"), which act as agents for the insurers.
Although placed on the formularies based only upon its FDA-approved uses, Seroquel's placement on those formularies contractually obligated the insurers to pay the drug's price anytime it was prescribed. Therefore, the insurers had to pay regardless of the facts surrounding that prescription; they had to pay if the drug was prescribed for an FDA-approved use or an off-label use—even if the prescription was medically unnecessary or inappropriate.
The insurers, however, could have excluded coverage for medically unnecessary or inappropriate prescriptions of Seroquel and other formulary-listed drugs.
Here, however, the insurers made the conscious business decision not to require preauthorization review in their policies. The complaint, by suggesting that the insurers could have required preauthorization review for off-label Seroquel, see Second Am. Consol. Compl. ¶ 276, avows that the insurers have the capacity to utilize the procedure.
Their enrollees, however, we must infer from our common understanding of insurance practices—as well as common sense—did not receive this extensive prescription drug coverage for free. The insurers have pled no facts in the complaint that suggest the insurers established premiums in a way inconsistent with the insurance industry's conventional ratemaking procedures. We therefore must infer that the insurers do charge premiums established in that conventional manner. As a consequence, because the insurers consciously chose to assume the risk of paying for all medically unnecessary or inappropriate prescriptions of formulary-listed drugs—like Seroquel—we must further infer that they adjusted their premiums upward to reflect the projected value of claims for these prescriptions.
One such risk is fraud within the health care industry. Fraud is a well-known contributor to increased costs for health care services. See Furrow et al., supra, at 570 ("Fraud and abuse probably account for more than a trivial share of health care costs—aggressive enforcement of fraud and abuse laws appears to have played a role in decreasing Medicare costs in the late 1990s."); see also Nat'l Health Care Anti-Fraud Assoc., The Problem of Health Care Fraud, http://www.nhcaa.org/eweb/ DynamicPage.aspx?webcode=anti_fraud_ resource_centr&wpscode=TheProblemOf HCFraud (estimating "conservatively" that at least 3% of all health care spending— $68 billion—is lost to health care fraud annually). Thus, the risk that fraud—including fraudulent marketing by drug manufactures—might result in insurers paying for medically unnecessary or inappropriate prescriptions is just another cost to be factored into premiums.
As discussed generally in part II.B.1, supra, the insurers gambled that their estimates would prove sufficient to cover their payments for all medically unnecessary or inappropriate off-label Seroquel prescriptions. If their estimates exceeded the actual payments for these drugs, then the insurers paid nothing out of pocket to purchase Seroquel; instead, they earned a profit on their bargain. See, e.g., Int'l
Either way, the insurers have not alleged facts suggesting that they plausibly suffered economic injury caused by AstraZeneca's false representations. Therefore, because they have not met their Twombly and Iqbal pleading burden, we affirm the district court and dismiss the entirety of the insurers' claims.
We now address the allegations raised by the individual enrollee, Cheryl Martin, of whom we know very little from the complaint. In fact, the complaint discusses Martin only once, stating that, since 2003, she "has paid for a portion of her Seroquel prescription which was prescribed for her by her physician for an offlabel use." Second Am. Consol. Compl. ¶ 26. Thus, unlike the insurers, Martin has paid out of her own pocket to purchase off-label Seroquel prescriptions. As a result, she potentially has viable claims against AstraZeneca based on her prescription of Seroquel in lieu of cheaper substitutes.
Yet, as presented in part II.A.2, supra, allegations of out-of-pocket overpayment in the purchase of prescription drugs do not, alone, give rise to an actionable injury, notwithstanding the presence of underlying fraud. Rather, Martin, to meet her pleading burden under Twombly and Iqbal, must allege that she plausibly purchased medically unnecessary or inappropriate Seroquel prescriptions. Martin's bareboned allegations in the complaint, however, do not meet this burden. Nowhere in the complaint does she state the medical condition for which Seroquel was prescribed off-label, let alone whether Seroquel proved unsafe or ineffective in treating her condition.
To summarize, we affirm the judgment of the district court dismissing the entirety of the complaint for failing to state a claim upon which relief can be granted. We reach this conclusion, however, on different grounds: the insurers and Martin fail to allege sufficient facts suggesting they suffered a plausible injury from AstraZeneca's false representations regarding Seroquel's off-label benefits.
AFFIRMED.
MARTIN, Circuit Judge, concurring in the result:
I agree with the majority's conclusion that this action must be dismissed, but I concur specially to express my view that there is a much simpler reason why the appellees should prevail. As the Second Circuit explained in UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir.2010), the independent decisions of the physicians and other intermediaries involved in Seroquel's allegedly increased usage and pricing eviscerates the chain of causation necessary to demonstrate a RICO violation. See id. at 134-36. I believe that these breaks in the chain of causation, which were conceded by the appellants in their complaint and at oral argument, dictate the result of this appeal. I therefore do not join the broader analysis of the majority opinion, and concur in the outcome only.
The plaintiffs are not traditional commercial insurers. They are, instead, labor unions and the self-funded health and welfare funds ("health benefit plans") of those labor unions. In simple terms, these health benefit plans are trust funds established, and funded, by the labor unions to pay for the health care services received by their enrollees—active and retired members of the unions who enrolled in the health benefit plans—when those services are covered under the terms of the health benefit plans. Therefore, through these self-funded health benefit plans, the unions assume, and thus bear, the risk of loss from payment of enrollees' covered health care services—i.e., they function as health insurers. See generally, e.g., Int'l Bhd. Of Teamsters Local 734 Health & Welfare Trust Fund v. Phillip Morris Inc., 196 F.3d 818, 823 (7th Cir. 1999) (referring to similar labor union health and welfare funds as "insurers"). (It should also be noted that the unions contract with third-party administrators ("TPAs"). TPAs simply are agents that, since the unions lack the competency of an insurance company, deal with administration of the health benefit plans—i.e., collecting contributions from the unions, maintaining records, paying claims. Nevertheless, the unions remain the risk-bearing entity.)
Seroquel is a second-generation atypical antipsychotic ("SGA") drug. The term SGA refers to the second wave of medications commonly used in the treatment of schizophrenia. The first wave consisted of approximately ten drugs—coined first-generation, or typical, antipsychotics—first introduced in the 1950s that, until the 1990s, served as the common drug therapy for schizophrenia.
Common non-FDA-approved Seroquel use includes treatment of: Autistic Spectrum Disorders for adults, dementia, Obsessive-Compulsive disorder, Post-Traumatic Stress Disorder, Personality Disorders, Tourette's Syndrome, Alzheimer's Disease, anxiety, Attention Deficit Disorder, Attention Deficit Hyperactivity Disorder, sleep disorders, anger management, and mood enhancement or mood stabilization. See generally Paul Shekelle, et al., U.S. Dep't of Health & Human Res., Agency for Healthcare Research & Quality, Efficacy and Comparative Effectiveness of Off-Label Use of Atypical Antipsychotics (2007), available at http://www.effective healthcare.ahrq.gov/ehc/products/5/63/ Atypical_Antipsychotics_Final_Rep ort.pdf.
As noted in the text, infra, the district court combined the cases via a Consolidated Amended Complaint. The named plaintiffs in that complaint are Ironworkers Local Union No. 68 and Participating Employers Health and Welfare Funds of Trenton, NJ; Ironworkers Local Union No. 399 & Participating Employers Health and Welfare Funds of Trenton, NJ; Ironworkers District Council of Philadelphia and Vicinity Benefits and Pension Plan of Philadelphia, PA; International Brotherhood of Electrical Workers Local 98 of Philadelphia, PA; and Teamsters Joint Council Local No. 53 Retiree Health & Welfare Fund of Pennsauken, NJ. As stated, supra note 1, the named plaintiffs are union health benefit plans that provide insurance coverage to union members who enroll in their plans. They represent a nation-wide class of third-party insurers who, like the plaintiffs, paid all or part of the purchase price of Seroquel prescribed to their insureds for non-FDA uses as part of the insurance coverage they provided.
An "`enterprise' includes any individual, partnership, corporation, association, or other legal entity." 18 U.S.C. § 1961(4).
"Racketeering activity" consists of the commission of any of the criminal offenses, commonly referred to as "predicate acts," identified in 18 U.S.C. § 1961(1). A "pattern" of racketeering activity consists of the commission of "at least two distinct but related predicate acts." Pelletier v. Zweifel, 921 F.2d 1465, 1496 (11th Cir. 1991) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985)).
To be clear, a drug is medically necessary and appropriate when a physician, in practicing sound medicine, may reasonably prescribe his patient that drug to treat a condition because the drug has some positive effect on and is appropriate (i.e., safe) in treating that condition. Therefore, simply because a drug is medically necessary and appropriate for a use, it does not suggest necessarily that it is the only drug that may be prescribed. In other words, several drugs can be medically necessary and appropriate in treating a given condition.
At oral argument, the plaintiffs' counsel admitted that the plaintiffs do charge "a premium" in exchange for health care coverage. Counsel also agreed that the "premium is adjusted from time to time depending on the market for drugs and so forth." Furthermore, at a later point in their supplemental brief, the plaintiffs declare that the health benefit plans operate similarly to health maintenance organizations because they "assum[e] the financial risk of providing benefits promised, in exchange for an up-front fee." (emphasis added). Any disparity the plaintiffs perceive between an "up-front fee" and a premium is illusory.
Experience rating is the most accurate measure of an insurer's loss potential. Under this model, insurers set premiums based on past experience of the group to be insured. Id., as reprinted in Furrow et al., supra note 1, at 646.
Under the community rating scheme, which proves less accurate but administratively more simple than an experience-based model, premium rates are based on the allocation of total costs to all the individuals or groups to be insured, without regard to the past experience of any particular group. Id., as reprinted in Furrow et al., supra note 1, at 646.
Moreover, generally an insurer may adjust its charged premium rate when the coverage is renewed to reflect such factors as increases in health care costs, increases in the use of health care, costs borne from new technologies, changes in enrollment, changes in regulations, or to adjust actuarial assumptions based on actual experience from the past year.
A drug's formulary tier primarily matters when the insurer's prescription drug coverage is subject to a co-pay obligation, which often is tied to the drug's location on the insurer's formulary. As a result, a higher-tiered drug (i.e., a brand name or a preferred brand name drug) often has a higher associated co-pay obligation than a lower tiered drug (i.e., a generic drug).
See Kevin J. Dunne & Ciara R. Ryan, How Management of Medical Costs is Revolutionizing the Drug Industry, 62 Def. Couns. J. 177, 178-79 (1995).
Paragraph 276 of the complaint carries further importance here because it also suggests that the insurers, had they known of AstraZeneca's fraudulent scheme, could have limited their loss exposure under their policies in alternative fashions. They claim that, had they known of the fraud, they "could have excluded Seroquel altogether from their approved schedules [or] set a low scheduled value ... or dissuaded doctors from prescribing Seroquel." Second Am. Consol. Compl. ¶ 276. In other words, had they known of the fraudulent conduct, they could have removed Seroquel, at least for off-label use, from their already approved formularies; adjusted their purchase price for the drug when prescribed off-label; or told plan doctors not to prescribe the medicine for off-label use.
This argument suggests that AstraZeneca's conduct not only defrauded the insurers indirectly—through the prescriptions written to their enrollees by doctors who relied on AstraZeneca's misrepresentations—but also directly through a fraud-by-omission based on AstraZeneca's failure to disclose to them its fraudulent marketing scheme. Thus, in essence, this direct fraud theory entails four steps: (1) Seroquel became available on the market and received FDA approval; (2) PBMs, based on Seroquel's approved uses, added the drug to the drug formularies of the insurers, whose policies required payment for all drugs listed on their formularies; (3) AstraZeneca initiated its fraudulent marketing scheme to dupe doctors into prescribing Seroquel for off-label uses by misrepresenting its efficacy and safety for off-label uses as superior to other treatments; and (4) the fraud was borne by the insurers because AstraZeneca did not inform them of its fraudulent conduct to allow the insurers to amend their existing business practices.
For such a theory based on nonfeasance to prove tenable, the insurers would need to establish that AstraZeneca owed them a legal duty of disclosure. No such duty exists, however, absent a special relationship between the parties. See United States v. Brown, 79 F.3d 1550, 1557 (11th Cir.1996) ("[C]ertain people must always disclose facts where nondisclosure could result in harm. This circumstance exists when there is a special relationship of trust, such as a fiduciary relationship, between people." (citations omitted)), overruled on other grounds by United States v. Svete, 556 F.3d 1157 (11th Cir.2009). The insurers have failed to allege the presence of a special relationship here—because none existed. Consequently, the insurers have asserted no cognizable fraud-by-omission claim against AstraZeneca.
196 F.3d at 824 (emphasis added).
We cannot, however, give the same benefit of the doubt to an individual enrollee like Martin. Martin has a specific condition for which she was prescribed Seroquel off-label. Therefore, to plead a plausible claim, her portion of the complaint must allege her particular condition and that use of Seroquel to treat that condition was medically unnecessary or inappropriate.
