Pa. Govt. Wins $51 Mil. Verdict Against Johnson & Johnson
By Zack Needles
The Legal Intelligencer
December 08, 2010

The Commonwealth Court has entered a more than $51 million bench verdict in favor of the Pennsylvania state government against pharmaceutical manufacturer Johnson & Johnson for allegedly overcharging state programs and consumers for prescription drug reimbursements.

On Dec. 7, Judge Robert Simpson filed a non-jury decision ordering the New Brunswick, N.J.-based drugmaker to reimburse the state government $45,283,562 and pay civil penalties in the amount of $6,567,000.

The total amount of the verdict was $51,850,562.

In his decision in Commonwealth v. Johnson & Johnson , Simpson also barred Johnson & Johnson from quoting either to the Pennsylvania Department of Public Welfare or to state programs increased average wholesale prices (AWPs) for its drugs without also reporting current acquisition costs such as average manufacturers' prices or average sales prices.

In addition, Simpson prohibited the company from promoting or marketing "spreads" — the difference between the price a prescriber pays for a drug and the price it is reimbursed for that drug — for any of its drugs that are reimbursed by state programs.

Simpson's ruling came a little more than two-and-a-half weeks after the Nov. 19 close of a five-week trial in the case.

In its corrected amended complaint, the state alleged that Johnson & Johnson "deliberately overstated" the AWP for its drugs, resulting in state programs — particularly Medicaid and the Pharmaceutical Assistance Contract for the Elderly, or PACE, Program — and consumers paying too much to reimburse prescribers and creating a spread that Johnson & Johnson could then market to drug dispensers.

The complaint offered the example of the Johnson & Johnson-manufactured Remicade, a physician-administered rheumatoid arthritis drug, which the company marketed based on the notion that physicians could profit from dispensing the drugs since the price at which they purchased them was lower than the price at which they would be reimbursed by the state.
The complaint further alleged that Johnson & Johnson engaged in similar misconduct when marketing prescription drugs to pharmacists.

The complaint said the company attempted to conceal the actual AWPs of its drugs by providing rebates, discounts and other financial incentives to pharmacists and asking them to keep those incentives confidential.

According to the complaint, Johnson & Johnson raised the AWPs of its drugs yearly without reflecting these discounts.

The state said the drugmaker violated Pennsylvania's Unfair Trade Practice and Consumer Protection Law.

Simpson agreed, saying Johnson & Johnson engaged in "deceptive practices."

Johnson & Johnson argued in its motion for a compulsory nonsuit that the state knew the AWPs did not reflect actual acquisition costs but chose to rely on them anyway.

"The court need look no further than the commonwealth's own actions to conclude that full knowledge regarding what AWPs do and do not represent had no causal impact on its decision to use AWP as its pricing benchmark — it still uses AWPs today."

But co-lead counsel for the state government, Donald E. Haviland Jr. of Haviland Hughes in Philadelphia, argued that the state is required by law to rely on AWPs.

In a footnote to the decision, Simpson said the court rejected as not credible the testimony of Johnson & Johnson's expert, Ernest R. Berndt, and others that the state "had knowledge of the prices paid for Johnson & Johnson defendants' branded drugs which was superior to that enjoyed by those defendants."

The drugmaker also argued in its motion that the state was judicially estopped from taking the opposite position in this case that it has successfully taken in prior litigation in which it has argued that it intended its reimbursement rates to be higher than those in other states to ensure drug dispensers make a profit on the cost of ingredients.

Johnson & Johnson also said in its motion that the state government's claims presented a non-justiciable political question because they sought damages based on the rates the programs would have paid if they had relied on lower reimbursement rates implemented by other states and private payers.

But Simpson rejected both arguments without further elaboration.
Simpson did, however, rule in favor of Johnson & Johnson with regard to the plaintiffs' claims of unjust enrichment, misrepresentation/fraud and civil conspiracy.

Haviland said that, at trial, Johnson & Johnson further contended that the spreads it had created were not as large as those of other drug manufacturers.

But, according to Haviland, the state argued that any spread is wrong.
"If you're gaming the system, you're gaming the system," he said.
Haviland's co-lead counsel, Barry R. Eichen of Eichen Crutchlow & McElroy in Edison, N.J., said he felt the verdict was "fair to both sides."

"I think it was a good result for the state, but I also think it was a pretty good result for the defendants," he said. "Frankly, I think the overcharges were higher. Our damages model was $101 million."

Haviland, who worked on the case for 10 years before bringing Eichen in as co-lead counsel, said he was "really pleased" by the court's decision because it benefits Medicaid and the PACE Program.

Michael Heinley, spokesman for the Pharmaceutical Companies of Johnson & Johnson, said in an e-mailed statement that the company is "pleased with the court's decision dismissing the majority of the claims brought by the commonwealth."

"We respectfully disagree with the court's provisional finding under the Pennsylvania Unfair Trade Practices and Consumer Protection Law and intend to pursue our arguments through motions before the court during the next phase of this case," the statement continued. "We believe the record at trial establishes that the J&J Companies acted responsibly with regard to drug pricing, and that Pennsylvania made reimbursement decisions with full knowledge regarding Average Wholesale Price's role in the pharmaceutical industry as a starting point for determining drug reimbursements."

(Copies of the six-page opinion in Commonwealth v. Johnson & Johnson , PICS No. 10-3614, are available from The Legal Intelligencer . Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Some cases are not available until 1 p.m.) •