Date: 09-07-2007

Case Style: International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., Inc.

Case Number: A-22-2006

Judge: Per Curiam

Court: Supreme Court of New Jersey

Plaintiff's Attorney:

Christopher A. Seeger argued the cause for respondent (Seeger Weiss and Lynch Keefe Bartels, attorneys; Mr. Seeger, John E. Keefe, Jr., David R. Buchanan, Frederick S. Longer and Donald E. Haviland, Jr., on the briefs).

Theodore M. Lieverman argued the cause for amici curiae AARP; American Federation of State, County and Municipal Employees; Center for Medical Consumers; Central New York Citizens in Action; Citizen Action of New York; Commonwealth Care Alliance, Inc.; Florida Chain; Gray Panthers of Sacramento; Health Care for All; Lynn Health Task Force; Medicare Rights Center; New Jersey Citizen Action; New Jersey PIRG Law & Policy Center; Pennsylvania Employees Benefit Trust Fund; Prescription Access Litigation Project; United Senior Action of Indiana; Elaine Kleinman and Ronald Martin (Spector Roseman & Kodroff, attorneys; Mr. Lieverman and David J. Cohen, on the brief).

Edward J. Fanning, Jr. and David R. Kott submitted a brief on behalf of amicus curiae Healthcare Institute of New Jersey (McCarter & English, attorneys; Mr. Fanning, Mr. Kott and Marielena Piriz, on the brief).

Defendant's Attorney:

John H. Beisner, a member of the District of Columbia bar, argued the cause for appellant (Dechert, attorneys; Mr. Beisner, Diane P. Sullivan and Richard Jasaitis, III, on the briefs).

Michael Dore argued the cause for amicus curiae Pharmaceutical Research and Manufacturers of America (Lowenstein Sandler, attorneys; Mr. Dore and Rosemary E. Ramsay, of counsel and on the brief).

Anita R. Hotchkiss submitted a brief on behalf of amicus curiae Product Liability Advisory Council, Inc. (Porzio, Bromberg & Newman, attorneys; Ms. Hotchkiss and Michael E. Rowan, on the brief).

behalf of amici curiae The Commerce and Industry Association of New Jersey; The Somerset County Business Partnership and The Chemistry Council of New Jersey (McCarter & English, attorneys for The Commerce and Industry Association of New Jersey; Norris McLaughlin & Marcus, attorneys for The Somerset County Business Partnership and Reed Smith, attorneys for The Chemistry Council of New Jersey; Mr. Brenner, Steven A. Karg and Steven J. Picco, of counsel).

Description:

In July 2005, a Law Division judge granted the motion of plaintiff International Union of Operating Engineers Local #68 Welfare Fund "to certify a nationwide class of third-party[,] non-government payors who . . . paid any person or entity for the purchase of a prescription anti-inflammatory arthritis and acute pain medication marketed by defendant Merck & Company, Inc. . . . under the brand name Vioxx." The Appellate Division affirmed that decision and defendant moved for leave to appeal to this Court.

We granted that motion for leave to appeal, agreeing to consider the propriety of the order certifying a nationwide class. Because we conclude that the court erred in finding that common questions of fact or law predominate and that a class action would be superior to other mechanisms for adjudicating the claims, we reverse.

I

We accept as true all of the allegations in the complaint in light of the fact that we are considering the issues in the context of a challenge to class certification. See Riley v. New Rapids Carpet Ctr., 61 N.J. 218, 223 (1972); see also Delgozzo v. Kenny, 266 N.J. Super. 169, 180-81 (App. Div. 1993) (citing Blackie v. Barrack, 524 F.2d 891, 901 n.17 (9th Cir. 1975), cert. denied, 429 U.S. 816, 97 S. Ct. 57, 50 L. Ed. 2d 75 (1976)). For purposes of our analysis, we derive the essential facts from plaintiff's complaint and the record developed in connection with the motion for class certification.

According to the complaint, plaintiff "is a joint unionemployer Taft-Hartley trust fund,"1 which is organized and operates pursuant to the laws of New Jersey. As a part of its services, plaintiff acts as a party to benefit contracts, a policy issuer, and a sponsor of health benefit plans that provide prescription drug coverage for its members and beneficiaries. It is therefore a third-party payor, meaning that it makes payments to pharmaceutical companies for prescription medications for those for whom its benefit plans afford coverage.

Plaintiff asserts that as a third-party payor it made payments, and therefore incurred costs, for Vioxx, a prescription drug manufactured and marketed by defendant. More specifically, plaintiff asserts that it was induced to make those payments and incur those costs in response to defendant's wide-ranging fraudulent marketing scheme. In essence, the complaint alleges that defendant marketed its product as a safer and more effective alternative to other traditional pain medications, thus driving the price of its product substantially higher than the price charged for similar medications.

More to the point, however, plaintiff asserts that defendant did so through an aggressive marketing campaign undertaken at a time when defendant was aware that its product was neither more effective nor safer than other available products. Pointing in particular to three separate warning letters issued to defendant by the Food and Drug Administration (FDA), plaintiff asserts that defendant engaged in extensive efforts to conceal or otherwise minimize information coming to its attention to the effect that its product was not as safe as available alternatives.

At the same time, plaintiff contends that defendant was aware, through its ongoing clinical studies, that there were significant health and safety risks associated with continued use of its product and that defendant also either minimized or actively concealed those studies from the FDA, the public, and third-party payors. In particular, plaintiff asserts that beginning in 1998, defendant's clinical studies and internal analyses of the use of Vioxx demonstrated a link between the medication and adverse cardiovascular side effects. In spite of that discovery, however, defendant continued its marketing and promotional campaign and concealed those adverse findings until the product was withdrawn from the market in September 2004.

Plaintiff also asserts that the defendant intentionally targeted third-party payors that oversee, and make payments for, the vast majority of purchases of prescription medications. Although the specific allegations about defendant's marketing campaign are not important to our analysis, plaintiff asserts, as part of its class action allegations, that defendant engaged in a uniform series of fraudulent activities in its dealings with all members of the proposed nationwide class. As such, plaintiff asserts that it can fairly represent the interests of a variety of third-party payors, including other Taft-Hartley funds like itself, as well as such diverse entities as corporate health insurers, health maintenance organizations, private employers, self-insured employers, and multi-employer union benefit organizations.

The parties do not dispute the manner in which this plaintiff or other third-party payors operate in making decisions about payments for particular medications. Whenever a plan member receives a prescription and takes it to be filled, the plan member must first demonstrate that he or she is covered by a third-party payor plan. In general, the plan member submits membership information, such as a prescription insurance card, to the dispensing pharmacy for verification and approval by the third-party payor. Once the plan member has done so, the dispensing pharmacy verifies that the prescribed medication is one that the third-party payor has authorized for purchase. The drugs that each third-party payor has authorized are included within that third-party payor's approved purchase listing, known as a formulary.

Third-party payors do not independently select medications for inclusion in their formularies. Instead, each third-party payor relies on Prescription Benefit Managers (PBMs) whose functions include placing prescription drugs on the individual third-party payors' formularies. PBMs, in turn, utilize specialized committees of pharmacists, physicians, and healthcare professionals, which are known as Pharmacy and Therapeutics Committees (P&T Committees), to develop and maintain the formularies. The P&T Committees do so by conducting their own evaluation of the effectiveness, safety, and cost of each available medication.

In performing their function, P&T Committees evaluate a wide variety of available material bearing on the question of each drug's efficacy and safety. In general, according to plaintiff's expert, P&T Committees focus on materials referred to as "primary information." That includes published materials reporting on the results of randomized clinical trials; observational or epidemiological data; meta-analysis, which is a method of combining results of several studies in order to synthesize and evaluate data; and case reports. At least some of the published material rests on work done by or for the manufacturers of the particular products.

P&T Committees also consider information and data that is submitted to them by each product's manufacturer. In many cases, the manufacturer of a product being considered for inclusion in formularies compiles this information and data and submits it in a format known as a "formulary compendium." Defendant created such compendia in this case.

The P&T Committees' evaluations may result in the inclusion of a product on a particular third-party payor's formulary. The decision to include a medication, however, does not necessarily result in uniform treatment of that drug in every formulary, as each operates differently. Formularies are frequently comprised of tiers, with different treatment, for prescription authorization and payment purposes, accorded to the drugs assigned to different tiers. In a tiered formulary, some therapeutic drugs are "preferred," which may result in a lower co-payment obligation for the plan member and may result in greater overall sales of the drug. At the other end of the spectrum, for purposes of a tiered formulary, the work performed by the P&T Committee might result in a decision that some prescription drugs are not authorized for purchase at all.

During the relevant time period, some PBMs relied on "open" formularies which essentially included all prescription medications that were approved by the FDA. Even open formularies, however, involve decisions by P&T Committees that determine how any specific medication will be treated for purposes of placement. Those decisions may result in conditions relating to how a third-party payor will cover the cost of a medication.

As a practical matter, each PBM, through the work performed by the P&T Committee and its creation of the formulary, sets the terms under which the third-party payor agreed to be responsible for the costs of its members' prescriptions. Plaintiff's expert contends that there is an agreed-upon set of principles and guidelines governing the practices of third-party payors and PBMs in making these decisions. He points out that "in October 2000, the Academy of Managed Care Pharmacy (‘AMCP') published a Format for Formulary Submission, which is a standardized format for [manufacturers to submit] product, clinical, and economic data on a new drug."

Defendant's expert asserts that in spite of that effort to create a standardized format, the way in which PBMs operate in evaluating drugs for formulary purposes varies greatly. He certified that when he conducted his research, he discovered that, rather than operating in a uniform manner as plaintiff's expert opined, different managed care plans evaluated Vioxx and accorded it widely different formulary treatment. He found that because open formularies were common, Vioxx was included in most third-party payors' plans. Some, however, by giving it "preferred" status, assigned it to a "low co-payment tier." Others placed it in a "non-preferred" tier where a high copayment was required. In other plans, Vioxx prescriptions were essentially discouraged either because pre-approval was required before a physician could prescribe it or because it could only be prescribed after other, cheaper drugs had been tried without success. Defendant's expert also certified that different P&T Committees responded to ongoing releases of information about Vioxx in different ways, with some altering its placement in their formularies. He asserted that, as a factual matter, there are such divergences among class members and in how they analyzed the information received from defendant that class certification is inappropriate.

* * *In seeking class certification,2 plaintiff relied on the following definition of the proposed class, as set forth in its complaint:

All third-party payors in the United States of America, who have paid any person or entity for the purchase of the prescription drug Vioxx (rofecoxib) since May 1, 1999. Third-party payors include any non-governmental entity that is (i) a party to a contract, issuer of a policy, or sponsor of a plan, which contract, policy, or plan provides prescription drug coverage to natural persons, and is also (ii) at risk, pursuant to such contract, policy, or plan, to purchase or pay for all or part of the cost of prescription drugs dispensed to natural persons covered by such contract, policy, or plan. Excluded from the Class are (1) employees of defendant, including its officers or directors; (2) plaintiff's counsel; and (3) the Judge of the Court to which this case is assigned.

It is against this definition of the proposed class that we must consider the analysis of the Law Division and of the Appellate Division supporting the certification of a nationwide class of plaintiffs.

* * *

Outcome: The judgment of the Appellate Division is reversed and this matter is remanded to the Law Division for further proceedings consistent with this opinion.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None