Drug Wholesaler Must Defend RICO Claims of Conspiracy to Artificially Inflate Prices

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

The State of Utah could pursue civil RICO claims against a prescription drug wholesaler that allegedly conspired to artificially inflate the average wholesale price (AWP) of hundreds of prescription drugs, the federal district court in San Francisco has ruled.

The wholesaler allegedly conspired with a publisher of AWPs to raise the wholesale markup on over 400 brand-name drugs from 20 percent above the wholesale acquisition cost (WAC) to 25 percent above the WAC.

Pattern of Racketeering

The wholesaler’s argument that the RICO claim was deficient—because it involved a single scheme, with a single purpose, based on a single core falsehood—was rejected. Utah successfully argued that a multi-year pattern of racketeering was present because the wholesaler had engaged in a separate but related predicate act each time it increased, under false pretenses, the markup on a prescription drug.

The fact that the alleged activities could be described as having a single overarching goal, and as being fraudulent for a single overarching reason, did not warrant the dismissal of the State’s claims.

Causation

Utah sufficiently alleged that the wholesaler’s conspiracy to inflate the AWP of more than four hundred brand-name drugs had proximately caused an injury to the State’s Medicaid program.

The complaint included assertions that:

(1) The reimbursement rates for prescription drugs covered under Utah’s Medicaid program were directly tied to the drugs’ AWPs;

(2) The wholesaler had committed fraud in order to increase those reimbursement rates;

(3) The wholesaler’s fraudulent activity actually caused the AWPs (and thus the reimbursement rates) to increase; and

(4) Based on the wholesaler’s fraud, the State of Utah continued to tie its prescription drug reimbursement rates to the AWP of each drug.

The wholesaler argued that Utah’s allegations of proximate cause were deficient because the State failed to proffer an alternate course of conduct that it would have taken had it known the true reason for the cost increases. The State was not, however, required to allege what measures it would have taken had the wholesaler disclosed the true basis for its “unilateral” actions.

Utah alleged that the wholesaler’s fraud, rather than any other factor, had caused its reimbursement rates to increase, and that was sufficient.
The decision is State of Utah v. McKesson Corp., CCH RICO Business Disputes Guide ¶12,088.

Further information about CCH RICO Business Disputes Guide appears here.