Massachusetts v. Schering-Plough Corp.
779 F. Supp. 2d 224
D. Mass.2011Background
- Massachusetts sued Warrick and related defendants for overpayment to MassHealth due to inflated WAC prices for Warrick albuterol products; jury found fraud and MFCA/MMFCA liability resulting in $4,563,328 in damages.
- MassHealth reimburses prescriptions via an algorithm selecting the lowest of FUL, MULP, EAC (WAC+10%), or U&C, plus a dispensing fee.
- Warrick produced albuterol products after Proventil generic launch; it reported inflated WACs to First DataBank and did not timely update them despite price declines.
- First DataBank used manufacturers’ WAC data (often inflated) to compute EAC; pharmacists’ claims to MassHealth used U&C, while the pricing file contained WACs.
- The court later granted judgment as a matter of law against Prong 1 MFCA and the implied covenant claim, held MFCA retroactivity limited, and entered judgment for Prong 2 MFCA/MMFCA and common-law fraud, with treble damages under MMFCA and civil penalties.
- Damages were calculated by an expert at $4,563,328; the jury awarded treble damages under MMFCA totaling $13,689,984, plus other penalties and interest aggregated later by the court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Warrick’s conduct supports MFCA Prong 1 liability | Commonwealth argues Warrick caused false claims via underlying fraudulent pricing | Warrick contends no direct claim submission; Prong 1 not satisfied | Warrick not liable under MFCA Prong 1 |
| Whether MFCA applies retroactively to pre‑2000 conduct | MFCA retroactive by language | Ex Post Facto concerns prohibit retroactivity | MFCA retroactive only after July 28, 2000; pre‑2000 actions governed by prior law; MMFCA provides treble damages for entire period |
| Whether Commonwealth can maintain implied covenant claim related to Medicaid Rebate Agreement | Covenant entitles States to benefit of rebate program | Astra v. Santa Clara County bars third‑party beneficiary enforcement | Implied covenant claim cannot be maintained; granted JMOL for Warrick |
| What judgment should enter on remaining MFCA/MMFCA/fraud claims | Jury verdict supports damages and penalties | JMOL on Prong 1 precludes MFCA liability | Judgment in Commonwealth’s favor on Prong 2 MFCA, MMFCA, and common-law fraud; treble damages $13,689,984; civil penalties $152,000; prejudgment interest/costs to follow |
Key Cases Cited
- United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220 (1st Cir. 2004) (actual false claim required in FCA context)
- Marcus v. Hess, 41 F. Supp. 197 (W.D. Pa. 1941) (caused government to pay claims grounded in fraud; prong 1 scope tied to false claims)
- Hudson v. United States, 522 U.S. 93 (1997) (ex post facto/punitive nature of sanctions; civil penalties can be punitive)
- Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963) (seven-factor test for penal/civil distinction in ex post facto context)
- Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000) (treble damages; punitive/civil nature discussion in FCA context)
- Allison Engine Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662 (2008) (clarifies Prong 1 vs Prong 2 distinctions under FCA)
- Chandler v. United States, 538 U.S. 1239 (2003) (damages characteristics; punitive vs remedial considerations)
- Speakman v. Allmerica Financial Life Ins., 367 F. Supp. 2d 122 (D. Mass. 2005) (implied covenant limits; fruits of the contract must be contemplated by the agreement)