Seventh Circuit Bars RICO Claims by Third-Party Payors Against Drug Companies Based on Off-Label Promotion

On October 12, 2017, in Sidney Hillman Health Center of Rochester v. Abbott Laboratories, —F.3d —-, 2017 WL 4544834 (7th Cir. 2017), the Seventh Circuit affirmed the dismissal of a civil RICO class action by third-party payors against drug manufacturer Abbott Laboratories. The decision appears to completely foreclose payors’ suits against drug companies for off-label promotion under the Racketeer Influenced and Corrupt Organizations Act (RICO) and potentially signals a bar against tort claims of any kind by payors against drug companies for off-label promotion practices.

In 2012, Abbott paid $1.6 billion to settle qui tam actions filed against it under the False Claims Act for off-label promotion of its drug Depakote (divalproex sodium). It is alleged to have used intermediaries to encourage the prescribing of the drug for off-label purposes. In 2013, two welfare benefit plans sued Abbott in a putative class action under RICO claiming Abbott’s practices caused the payors damage in the form of payments for its insured’s prescriptions that would not otherwise have been prescribed in the absence of Abbott’s illegal conduct. After being dismissed and reversed on grounds unrelated to the recent decision, the district court dismissed the action again, on the grounds that the plaintiffs could not establish proximate causation. The court held that the illegal market was directed at physicians and may have caused harm to patients, but “tracing loss through the steps between promotion and payment would be too complex.”

According to the Seventh Circuit, which affirmed the district court, the connection between the off-label promotion and the payors decision to pay is too indirect and contingent. The immediate effect of the off-label promotion is to possibly cause a physician to prescribe something she would not otherwise have prescribed. Then, the patient may have a more positive or negative effect from the promoted drug than it would have had from another drug. Then the payor may pay some percentage of the cost of the drug, which may be more expensive or may be cheaper than another drug that could have been prescribed if not for the illegal promotion. For the Seventh Circuit, these many layers of removal from the illegal promotion, and the many independent decisions made by doctors and patients before any payor is even potentially affected by the drug company’s representations renders the causal chain too long for RICO liability. The Seventh Circuit’s decision is in line with those of the Second, Ninth, and Eleventh Circuits, but at odds with the First Circuit, which permits such suits where the drug company makes representations directly to the payor.

The open question is whether the causal chain that is too long for proximate cause in the RICO context is therefore too long for all tort contexts. Given that off-label promotion generally involves truthful representations about a drug’s potential (but unapproved) uses, it is difficult to imagine a scenario where drug companies make false claims to a payor. And given drug companies’ exposure to litigation from so many other sources, taking this one claim off the menu must be a small relief to the industry.

 

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