Opinion ID: 204019
Heading Depth: 2
Heading Rank: 1

Heading: Dr. Hartman's Approach

Text: In developing this approach and setting the speed limit, the district court relied heavily on the submissions of the plaintiffs' expert, Dr. Raymond S. Hartman, a healthcare economist specializing in microeconomics and econometrics, with a focus on healthcare economics. Dr. Hartman's testimony concluded that the difference between the published AWP and the provider's acquisition cost for Zoladex (and other drugs) exceeded the expectations of Class 3 plaintiffs. To reach that conclusion, Dr. Hartman began with the analytic assumptions that the Class 3 plaintiffs were aware of some amount of discounting from the published AWP by drug manufacturers in their pricing to providers (i.e., a spread between the published AWP and the actual acquisition cost), and that because of this awareness, the third-party payors reimbursed for drugs at a rate some percentage lower than AWP. According to Dr. Hartman, however, calibrating the proper reduction to AWP was tricky: the third-party payors would want to allow physicians to cover their costs and perhaps earn a `reasonable margin,' but not allow them to reap an `egregious profit.' He noted, however, that because it was practically impossible for the Class 3 plaintiffs to determine the actual amount of AWP inflationthe cost of gathering this data was prohibitivethird-party payors were forced to estimate what discount to apply to the AWPs for purposes of reimbursement. These estimates, Dr. Hartman continued, would be the rule of thumb that [TPPs] would use when bargaining with providers. If manufacturers then secretly increased spreads such that reimbursement rates negotiated by TPPs with the expectation of [allowing for a reasonable margin] led in reality to egregious overcharges and profits unbeknownst to TPPs, ... it would seem that those secret spreads constitute fraud injuring the Class members. Dr. Hartman therefore testified that the key to defining a liability trigger in this case was to understand whether the Class 3 plaintiffs expected spreads as large as those at issue in this case, or whether those spreads so far exceeded TPP expectations as to constitute fraud. To determine the Class 3 plaintiffs' expectations of the average spread between AWP and acquisition cost, Dr. Hartman used three different approaches. First, he examined the actual pricing history of a sample of single-source drugs that did not face competition. This inquiry was focused on understanding what spread was necessary to ensure that the providers would earn a reasonable profit when market-share considerations, and therefore AWP inflation, were not at issue. He found that this baseline spread was somewhere between 18%-27%, depending on the publication source for the AWP, and he thus chose 30% as his baseline spread [t]o be conservative. [17] Therefore, Dr. Hartman concluded, spreads exceeding that baseline of 30%whether because of a raised AWP, a lowered actual acquisition cost due to rebates or discounts, or both-indicated that the manufacturer had increased the spread on the drug in question beyond the amount necessary to ensure a reasonable margin for providers, presumably to manipulate market share. Dr. Hartman concluded that this 30% speed limit should trigger potential liability for fraud. [18] Dr. Hartman's second method for determining the expectations of Class 3 plaintiffs was to review publically available government, academic, and popular studies of physician-assisted drugs concerning the relationship between AWP and actual acquisition cost for branded and generic physician-administered drugs. Dr. Hartman's review found that Class 3 plaintiffs reasonably anticipated spreads of 11% to 25%, well within his conservative 30% trigger for potential liability. Finally, Dr. Hartman determined the expectations of Class 3 plaintiffs by examining the contracts between third-party payors and providers for evidence of what the parties expected the spread between AWP and actual acquisition cost to be. It was his position that the contract prices reflected information in the marketplace about provider costs. Dr. Hartman's review concluded that the reimbursement rates found in these contracts ranged from 16% below to 15% above AWP, although the better informed third-party providers expected spreads on the order of a 20 to 25 percent markup above acquisition cost. Noting his belief that the results of his review of contracts were consistent with available literature and with Medicare reimbursement rates over the relevant time periods, Dr. Hartman concluded that the contracts showed that Class 3 plaintiffs generally believed that spreads ranged somewhere between 0%-25%, which again fell well within his conservative 30% trigger for potential liability.