In RE McKESSON GOVERNMENTAL ENTITIES
767 F. Supp. 2d 263
D. Mass.2011Background
- In two proposed national class actions, SFHP and Douglas County allege McKesson engaged in a RICO scheme to raise brand-name drug prices by secret WAC-to-AWP markups beginning in late 2001, with concealment tied to other WAC-based price announcements.
- Courts previously certified related classes in Carpenters litigation; here the court must assess Rule 23(a) and (b)(3) for nationwide public payors using AWP data from First DataBank or Medi-Span.
- AWP is the reimbursement benchmark relied on by public payors; publishers apply a markup to WAC, historically around 20–25%, which was alleged to have been increased to 25% under the scheme.
- The court concludes the proposed California/public-payor and nationwide public-payor classes, as defined, fail the Rule 23(b)(3) requirements of superiority and predominance due to inclusion of states and due to individualized mitigation/knowledge issues.
- The court certifies a liability-only class for non-federal/non-state entities paying for Marked-Up Drugs based on AWP from Aug. 1, 2001 to June 2, 2005, and a damages class from Aug. 1, 2001 to Dec. 31, 2003, with RICO liability adjudicated through June 2, 2005, excluding states and their agencies from the substantive class.
- Key factual issue areas include whether the WAC-to-AWP margin was increased via an agreement (FDB-McKesson), whether that constitutes a RICO enterprise, and whether public payors’ damages can be calculated on a common basis despite varying mitigation efforts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Rule 23(b)(3) predominance and manageability | Douglas County argues common liability issues predominate across public payors. | McKesson contends individualized mitigation and timing destroy predominance and make management infeasible. | Predominance and manageability lacking after 2003; class narrowed to non-federal/non-state entities for liability/damages within specified periods. |
| Inclusion of states in the class | States are needed to represent public payors nationwide. | State inclusion raises sovereignty/Eleventh Amendment concerns and harms manageability. | States excluded from the liability/damages class; class definition limited to non-federal/non-state entities. |
| Statute of limitations impact | Timeliness does not defeat class certification; accrual issues individualized. | Knowledge of increases could trigger accrual earlier. | SOL defenses do not defeat certification; reliance on injury discovery ruled insufficient to bar class. |
| Mitigation and clawbacks post-2003 | Mitigation occurred but usually after 2003; damages model accounts for early-period effects. | Public payors’ renegotiations vary and post-2003 differences yield individualized damages. | Post-2003 mitigation creates individualized damages; damages class limited to 2003 cutoff. |
| Damages methodology and scope | Hartman methodology captures common damages across class. | Methodology overinclusive, missing capitated programs and other data variations. | Class narrowed; specific exclusions addressed; damages period limited to 2001–2003 for liability. |
Key Cases Cited
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (establishes predominance/superiority framework under Rule 23(b)(3))
- In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6 (1st Cir. 2008) (rigorous analysis required for certification and factual determinations at the class stage)
- Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (requires circuit-level determinations of Rule 23 criteria and underlying facts)
- In re Initial Public Offerings Secs. Litig., 471 F.3d 24 (2d Cir. 2006) (demonstrates that factual disputes relevant to Rule 23 must be resolved at certification)
- Smilow v. Southwestern Bell Mobile Sys., Inc., 323 F.3d 32 (1st Cir. 2003) (predominance requires common issues predominate, not all issues)
- Carpenter v. New England Carpenters Health Benefits Fund, 244 F.R.D. 79 (D. Mass. 2007) (Carpenters I—initial class certification framework and predominance discussion)
- Carpenters Health Benefits Fund v. First DataBank, 248 F.R.D. 363 (D. Mass. 2008) (Carpenters II—damages period limitation to manageably resolve clawbacks)
- Reynolds v. Merck & Co., 130 S. Ct. 1784 (U.S. 2010) (discovery rule considerations for scienter and accrual in securities context)