Opinion ID: 204019
Heading Depth: 2
Heading Rank: 3

Heading: AstraZeneca's Challenge

Text: AstraZeneca makes only a passing challenge to the district court's decision to admit Dr. Hartman's expert testimony under Daubert v. Merrell Dow Pharm., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and thus it has waived this objection on appeal. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir.1990) ([I]ssues adverted to in a perfunctory manor, unaccompanied by some effort at developed argumentation, are deemed waived.). Instead, AstraZeneca focuses its objections on the district court's decision to credit Dr. Hartman's testimony, and on the legal propriety of the district court's decision to adopt the 30% speed limit as a trigger for potential liability. The finder of fact's determinations of credibility, and of the weight of the evidence in general, are not disturbed on appeal except for clear error. Mitchell v. United States, 141 F.3d 8, 17 (1st Cir. 1998). To find a clear error, we must be left with the definite and firm conviction that a mistake has been made. Id. ( citing Anderson, 470 U.S. at 573, 105 S.Ct. 1504). In the context of an expert's testimony that has been credited by the trier of fact, finding clear error requires that we find the testimony inherently implausible, internally inconsistent, or critically impeached. Id. ( citing Keller v. United States, 38 F.3d 16, 25 (1st Cir.1994)). Hoping to demonstrate the district court's clear error in adopting Dr. Hartman's methodology and his 30% speed limit, AstraZeneca attacks the evidentiary basis for Dr. Hartman's conclusions and points up a number of alleged methodological flaws. It first argues that Dr. Hartman's conclusions were implausible. It points to extensive evidence from TPP witnesses suggesting that the TPPs viewed AWP as having no predictable relationship to acquisition costs, and that some TPP witnesses were aware of spreads exceeding 30%. It further argues that some TPP's had themselves purchased drugs from manufacturers at discounted prices, and it asserts that Dr. Hartman did not account for the actual knowledge and expectations of class members. Dr. Hartman's evidence, AstraZeneca concludes, is therefore inadequate to support the district court's decision to credit his submissions and adopt his methodology and 30% potential liability trigger. The testimony that AstraZeneca relies on suggests that some third-party payors may have doubted the wisdom of pegging reimbursement rates to AWP, or that some may have known of instances of significant spreads, but it is not one-sided enough to call the district court's weighing of the evidence into question under the clear error standard of review that we must apply. Mitchell, 141 F.3d at 17. As an initial matter, some of the testimony cited by AstraZeneca to demonstrate TPP knowledge of increased spreads is contradicted by the testimony of other representatives from the same organization, and occasionally by other portions of testimony from the same representative. For instance, whereas AstraZeneca correctly notes that John Killion of Blue Cross Blue Shield of Massachusetts (BCBS-MA) referred to AWP as an artificial price, the appellant omits the fact that this comment was made in a speculative manner (I think there were discussions internally within the company in regards to AWP and people referring to AWP as ... an artificial price) and with regard to another TPP, Tufts Health Plan, not BCBS-MA. Nor does AstraZeneca mention that Mr. Killion also stated that he did not understand how AWP was calculated or how it related to the actual prices that were paid by physicians for physician-administered drugs. Other witnesses from BCBS-MA who were more familiar with physician-administered drugs testified to their belief that AWP was an actual average, or at least an accurate pricing signal. And while BCBS-MA may have purchased some drugs at steeply discounted prices, these purchases were made through subsidiaries that were sold in 1997, just two years after BCBS-MA instituted AWP-based pricing. In re Pharm., 491 F.Supp.2d at 48. Moreover, in those two years, the subsidiaries did not share detailed pricing information for their purchases with their parent. Id. Additionally, the record contains ample evidence, some of which is recited in the district court's opinion, that third-party payors depended on the AWP as a reliable indicator of actual acquisition costs. See In re Pharm., 491 F.Supp.2d at 35-36. Finally, testimony at trial from the fund administrator at plaintiff Pipefitters Local 537 (Pipefitters) demonstrated that Pipefitters believed AWP to be an actual average of prices, and testimony from Plaintiff Sheet Metal Workers National Health Fund's third-party administrator, Southern Benefits Administrators, Inc., indicated that the administrator itself shared that belief. Thus, we cannot say that the record evidence is inconsistent with the district court's decision to credit Dr. Hartman's submissions. See Fed. Refinance Co., Inc. v. Klock, 352 F.3d 16, 29 (1st Cir.2003) (noting that a trial court, sitting as factfinder, is free to choose between the two versions of the truth and draw appropriate inferences ( citing Anderson, 470 U.S. at 574, 105 S.Ct. 1504; Keyes v. Sec'y of the Navy, 853 F.2d 1016, 1020 (1st Cir.1988))). Nor are we persuaded by AstraZeneca's argument that Dr. Hartman's methodology inadequately accounted for the effects of generic competition, which AstraZeneca argues would, as a matter of common sense, lead industry participants to expect a larger spread. Far from abandoning common sense, Dr. Hartman's methodology was grounded in it: he began with the fair assumption, consistent with the record evidence, that third-party payors expected a spread large enough to ensure a reasonable margin for providers, but not so large as to allow them to earn egregious profits. This assumption is beyond cavil. Then, to determine where that line was likely to have been drawn, he focused on breakthrough innovator drugs, which because they were uniquely efficacious, did not depend on deep provider margins to maintain their market share. See Home Placement Serv., Inc. v. Providence Journal Co., 819 F.2d 1199, 1205-06 (1st Cir. 1987) (noting, in the antitrust context, that the proper approach to measure damages is with reference to the performance of... closely comparable firms in the same industry that, unburdened by the proscribed anticompetitive activity, successfully managed to earn profits). His study indicated that 30% provided a conservative estimate of the expected spread for those drugs. Of course, the introduction of generic competition undoubtedly introduces new market share considerations, creating incentives for manufacturers to inflate AWPs to deepen provider margins for their drugs. But the existence of these incentives does not prove that third-party payors acquiesced in, or expected the manufacturers' creation of, mega-spreads leading to egregious provider profits. The contrary suggestion strike us as being akin to arguing that, because car owners and mechanics have strong incentives to overstate the costs of repairs and then share in insurers' overpayments, the insurers who overpay have acquiesced in the scheme or should expect to be defrauded on a widespread basis. And even if third-party payors might have had reason to expect increased spreads when generic competition entered the market, significant portions of the record evidence demonstrate that TPPs in fact believed AWP to be reflective of acquisition costs. On balance, any infirmities in Dr. Hartman's handling of generic competition were insufficient to render clearly erroneous the district court's decision to credit his analysis. See Mitchell, 141 F.3d at 17. AstraZeneca's attempt to demonstrate the internal inconsistency of Dr. Hartman's submissions is no more successful. To support the claim, AstraZeneca argues that Dr. Hartman's use of the revealed preferences method, which looked to the contracts between TPPs and providers for evidence of TPPs' expectations regarding acquisition costs, was inconsistent with both the extensive evidence at trial showing that TPPs knowingly permitted doctors to earn a profit on the drugs at issue, and with Dr. Hartman's own data showing that some TPPs were willing to pay fifteen percent above AWP. As noted by the district court, the defendants below did not challenge[] the revealed preferences method as unreliable, In re Pharm., 491 F.Supp.2d at 88, and consequently this argument is waived on appeal. Campos-Orrego v. Rivera, 175 F.3d 89, 95 (1st Cir.1999) (We have reiterated, with a regularity bordering on the echolalic, that a party's failure to advance an issue in the nisi prius court ordinarily bars consideration of that issue on appellate review.). In any event, as to the matter of the evidence showing that TPPs permitted some spread, it is enough to say that the issue at trial was not the existence of a spread, but the extent of it, and that the evidence presented generally supported Dr. Hartman's identification of a 30% speed limit as a conservative estimate of the outer limit of TPPs' expectations. And as to the matter of Dr. Hartman's own data showing that TPPs occasionally paid 15% above AWP, it is significant that Dr. Hartman specifically considered this data in his report and found that the above-AWP payments were typically made by less-informed TPPs who believed that AWP was an actual average, whereas the better informed TPPs expected spreads on the order of 20-25%, or in other words, within the 30% speed limit. See In re Pharm., 491 F.Supp.2d at 88 & n. 64. We see nothing so internally inconsistent or implausible on its face about these findings that a reasonable factfinder would not credit it, see Anderson, 470 U.S. at 575, 105 S.Ct. 1504, and therefore we discern no clear error warranting reversal. [20] Finally, we reject AstraZeneca's argument that the district court's decision to adopt a 30% trigger for potential liability was inconsistent with its own ruling that there was no basis for imposing per se liability under Chapter 93A, and therefore constituted an error of law. On the contrary, the 30% trigger represents not a per se threshold for liability based on the violation of a separate legal duty, but instead, as is clear from the intensely factual nature of Dr. Hartman's report and the district court's June 2007 order, constitutes a specific factual conclusion about what conduct in this case would trigger potential liability under Chapter 93A as to these plaintiffs based on the TPPs' actual commercial expectations. In short, Dr. Hartman's testimony was admissible and the district court was entitled to rely on it: it was plainly plausible and internally consistent, and it was not critically impeached. See Mitchell, 141 F.3d at 17. It was also consistent with testimony suggesting that TPPs and their administrators were unaware of the extent of mega-spreads and, on occasion, even believed AWP to be an actual average of prices. See id. ; Fed. Refinance Co., Inc., 352 F.3d at 29. We therefore conclude that the evidence before the district court was sufficient to permit the court to adopt Dr. Hartman's finding that the outer limit of TPPs' expectations for a reasonable spread was 30%, and consequently for the court to use that figure as a trigger for potential liability under Chapter 93A.