GlaxoSmithKline Must Face Insurers’ Drug Fraud Claims

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Dana A. Elfin

Nov. 15 — More than 40 insurance plans can proceed with claims GlaxoSmithKline misled them about the safety and effectiveness of drugs manufactured at a plant in Puerto Rico that failed quality standards ( Blue Cross Blue Shield Ass’n v. GlaxoSmithKline LLC , 2016 BL 375277, E.D. Pa., No. 13-cv-4663, 11/9/16 ).

The plaintiff insurers adequately alleged they suffered a concrete injury under the Racketeer Influenced and Corrupt Organizations Act (RICO), Judge Juan R. Sánchez of the U.S. District Court for the Eastern District of Pennsylvania said in a Nov. 9 opinion.

The health plans alleged they purchased tainted drugs and included them in their formularies based on GSK’s misrepresentations that the drugs were safe and effective. Factual issues about the statute of limitations in the case also precluded dismissing the case at this stage, the judge said.

Sánchez’s ruling is significant because it is part of a trend toward expanding what type of claims can be brought under RICO, plaintiff and defense lawyers told Bloomberg BNA Nov. 14.

The plaintiffs, including the Blue Cross Blue Shield Association, multiple Blue Cross plans, Aetna Inc., Wellcare Health Plans, Government Employees Health Association and Medical Mutual Insurance of Ohio, overcame GSK’s bid to have their suit thrown out.

GSK is disappointed in the ruling but will continue to vigorously defend the case, spokeswoman Frances DeFranco told Bloomberg BNA Nov. 14.

Lawyers for the plaintiff insurers didn’t respond to requests for comment on the ruling.

Significant Decision

“This is a very significant decision,” Kevin P. Roddy, of Wilentz, Goldman & Spitzer, P.A. in Woodbridge, N.J., told Bloomberg BNA Nov. 14.

“As the Pink Floyd song says, it’s another brick in the wall,” Roddy, who co-chairs Wilentz’s class action team, said.

In the opinion, Sánchez relied heavily on the Third Circuit’s 2015 decision in In re Avandia Marketing, Sales Practices & Product Liability Litigation, 804 F.3d 633 (3d Cir. 2015), which allowed health insurers to pursue federal racketeering claims over GlaxoSmithKline’s alleged deceptive marketing of the diabetes drug Avandia.

Sánchez’s ruling is “significant but not really surprising, given Avandia‘s expansive view of RICO,” defense attorney Ricardo Solano Jr., with Friedman Kaplan Seiler & Adelman LLP, in New York, told Bloomberg BNA Nov. 14.

“It’s significant in that it’s another decison that applies Avandia,” he said. Solano’s practice includes defending health-care providers in federal racketeering cases.

Roddy said Sánchez’s ruling may wind up benefiting his firm’s current cases as well as potential claims the firm is investigating. “The law in the Third Circuit may be shifting over to the plaintiffs’ side,” Roddy said.

Persuasive Appellate Rulings

The U.S. Court of Appeals for the First Circuit also has adopted an expansive view of RICO.

In In re Neurontin Marketing & Sales Practices Litig., 712 F.3d 21 (1st Cir. 2013), several health plans and insurers successfully sued Pfizer and an affiliate under the RICO statute. They alleged the drugmaker misrepresented the effectiveness of the anti-seizure drug Neurontin for indications that the Food and Drug Administration hadn’t approved and suppressed negative information about the drug.

The First Circuit ruled Pfizer was liable for the injury because it was “plainly foreseeable” the third-party payers would reimburse more for the expensive drugs being prescribed because of Pfizer’s “fraudulent marketing plan.”

“These are two pretty well-respected circuits, and they ruled the same way,” Solano said. “It’s going to be persuasive.”

Plaintiffs Still Face Hurdles

But the insurers’ case against GSK over the adulterated drugs produced in its now-shuttered Cidra, Puerto Rico, facility isn’t going to be a cakewalk by any means, Solano said.

Plaintiffs in RICO cases, including in the insurers’ case against GSK over the tainted drug lots, still face substantial hurdles, he said. The plaintiffs are still going to have to prove that they purchased the adulterated lots and that those lots were distributed to the public, Solano said. They also are going to have to prove the alleged fraud was part of continuing conduct rather than just a one-time occurrence, he said.

In 2011, GSK paid $40.75 million to settle allegations of deceptive trade practices related to allegedly substandard manufacturing processes at its former manufacturing facility in Cidra.

The insurers are represented by Lowey Dannenberg Cohen & Hart PC in White Plains, N.Y., and West Conshohocken, Pa.; Rawlings & Associates PLLC in La Grange, Ky.; Getnick & Getnick LLP in New York; and G. Robert Blakey in Paradise Valley, Ariz.

Covington & Burling LLP, in Washington, and Lavin O’Neil Cedrone & DiSipio, in Philadelphia, represent GlaxoSmithKline.

To contact the reporter on this story: Dana A. Elfin in Washington at

To contact the editor responsible for this story: Brian Broderick at

For More Information

The opinion is at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law