- - Monday, May 30, 2016

ANALYSIS/OPINION:

Many political candidates this campaign season have criticized what they imply are conspiratorially high drug prices, and some irresponsibly prescribe policies that could limit incentives to develop life-improving and life-saving medications in the future.

Curiously, none of the candidates prescribe reasonable limits on civil liability, even though America’s lawsuit industry routinely targets innovative pharmaceutical companies with often meritless litigation. Drugmakers currently face thousands of pending lawsuits in state and federal courts across the country and spend billions of dollars annually to defend against them. And those costs are passed on to consumers.

Troublingly, a relatively new line of meritless litigation against pharmaceutical defendants seeks to exploit state consumer protection laws and the federal Racketeer Influenced and Corrupt Organizations Act (RICO), originally signed into law in 1970 as a powerful prosecutorial weapon in the fight against organized crime.

Decades later, a growing group of profit-seeking personal injury law firms has been teaming up with political allies, including some health insurance providers run by organized labor, to pervert and wield the RICO law — specifically its provision for tripling civil damages awards — against drugmakers in what one defense attorney calls “a shameless pursuit of free money.”

With questionable logic, this new strain of RICO lawsuits accuses pharmaceutical companies of fraudulent marketing when they update their drugs’ safety labeling to include new risk information that sound science had not previously established. Once a label is updated, the lawsuits claim, all previous marketing of the drug was ipso facto fraudulent.

Such “fraud on the market,” plaintiffs claim, tricked them into paying more for the drug than they otherwise would have, so they are entitled to compensation — times three. And because the RICO statute also allows plaintiffs to sidestep a typical class action’s certification process, during which a degree of “commonality” among class members’ injuries and circumstances must be established before the case can proceed, plaintiffs and their lawyers don’t even claim that anyone was ever harmed by or received substandard care as a result of using the drug in question.

What plainly puts the lie to these lawsuits is the fact that the plaintiffs, or third-party payers, are all experienced in negotiating prices for drugs and healthcare services. And the third-party payers and their lawyers are well aware of the long-established process by which the drug companies and the FDA periodically update safety label language with new risk information when new clinical and longitudinal research becomes available.

The good news is that most courts have seen through the lie. They’ve dismissed most of these cases for lack of so-called “proximate cause” since neither the third-party payers nor those they insure can claim they were directly defrauded by safety label language that is typically interpreted by learned physicians who prescribe medications based on anticipated benefits and risks for any given patient.

But in Philadelphia, once criticized by The Wall Street Journal as “The City of Unbrotherly Torts” and twice in the past six years ranked by my organization as the worst of the nation’s civil court “Judicial Hellholes,” a federal trial judge denied GlaxoSmithKline’s motion to dismiss the dubious fraud claims of three labor union-affiliated health insurers. And splitting with three other circuit courts, the U.S. Third Circuit Court of Appeals recently upheld the trial court’s decision to proceed with the case.

So GSK has appealed again to the U.S. Supreme Court, which now has a chance to clarify the law and end this pernicious new line of legal extortion that will only exert more upward pressure on drug prices as still higher litigation costs are passed on to consumers. Justices are expected to meet June 2 to decide on additional cases they’ll hear next term, and everyone concerned about the affordability of medicines should hope they agree to hear this appeal.

If the Third Circuit’s decision is allowed to stand, opportunistic personal injury lawyers, their third-party payer clients and even some politically ambitious state attorneys general will be encouraged to misuse frivolous RICO lawsuits every time a pharmaceutical company changes warning label language in the interest of public safety.

The circuit court’s loose application of well-settled RICO causation and injury principles, and its disregard of general pleading standards under the Supreme Court’s Twombly and Iqbal decisions, can only invite third-party payers to seek windfalls — even if they never directly relied on a drug company’s allegedly fraudulent marketing or suffered an injury. After all, these lawsuits seek to recoup monies spent on prescription drugs that worked as prescribed.

Politicians can demagogue the issue of prescription drug prices if they choose. But our Supreme Court justices can constructively help to contain those prices and encourage future innovations in medicine by taking up this important case and obvious misuse of RICO.

Tiger Joyce is president of the American Tort Reform Association in Washington, D.C.

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