Carl Washington et al v. CVS Pharmacy Inc.

Exhibit 24

Northern District of California, cand-4:2015-cv-03504

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6 Exhibit 24 REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED 6 1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 OAKLAND DIVISION 4 Christopher Corcoran, et al. Case No. 15-civ-03504-YGR 5 on behalf of themselves and all others similarly situated, CLASS ACTION 6 Plaintiffs, 7 v. EXPERT REPORT OF 8 CVS Pharmacy, Inc. PROFESSOR JOEL W. HAY, PhD 9 10 Defendant. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 EXPERT REPORT OF JOEL W. HAY, PHD 6 1 I. INTRODUCTION 2 1. I, Joel W. Hay PhD, have been retained by counsel for Plaintiffs Christopher Corcoran, 3 Tyler Clark, Zulema Avis, Robert Garber, Toni Odorisio, Onnolee Samuelson, Robert Jenks, Debbie 4 Barrett, Carl Washington, Vincent Gargiulo, Zachary Hagert, Carolyn Caine, Walter Wulff, Amanda 5 Gilbert, and Gilbert Brown (collectively, "Plaintiffs"), on behalf of themselves and all others similarly 6 situated, in the above-captioned case against CVS Pharmacy, Inc. ("CVS"). Plaintiffs' counsel have 7 asked me to submit this report evaluating CVS's usual and customary ("U&C") prices, aspects of CVS's 8 transaction data related to sales of generic drugs to Plaintiffs and class members using insurance, and 9 the economic damages associated with Plaintiffs' allegations of CVS' conduct. In connection with 10 Plaintiffs' motion for class certification, I submitted an initial declaration on October 3, 2016, as well 11 as a supplemental declaration on November 7, 2016. This report sets forth my opinions and analyses in 12 those two declarations, as well as additional and revised analyses based on additional requests from 13 counsel and additional information identified through discovery. 14 2. Plaintiffs allege that CVS knowingly and intentionally overcharged pharmacy customers 15 for generic prescription drugs by submitting to patients and third-party payors claims for payment at 16 prices that CVS fraudulently inflated far above its true U&C prices.1 I understand that CVS created the 17 "Health Savings Pass" ("HSP") program to remain competitive in the face of similar standardized 18 generic pricing programs from other national pharmacy retail chains such as Walmart and Kmart. 2 The 19 HSP program allowed cash-paying patients to purchase generic prescriptions for competitive prices 20 (e.g., $9.99 for a 90-day prescription for most drugs from November 2008 through 2010, and $11.99 for 21 a 90-day prescription for most drugs in the program from 2011 until CVS discontinued the program in 22 February 2016).3 According to Plaintiffs' allegations, rather than recognizing that the HSP price should 23 be included in its determination of the U&C price for drugs available under the program, CVS charged 24 insured patients inflated prices based on an artificial and inflated U&C price. 25 3. I understand that Plaintiffs seek certification of 11 single-states classes. I have been 26 given the following definition of each class: 27 1 Plaintiffs' Third Amended Complaint 2 28 Morrison Dep. 142:23-143:12 3 CVS Pharmacy, Inc. Answer to Plaintiffs' Third Amended Complaint, para. 60, 62. EXPERT REPORT OF JOEL W. HAY, PHD 1 6 1 All CVS customers in [California] [Arizona] [Massachusetts] [New York] [Ohio] 2 [Texas] [Florida] [Illinois] [New Jersey] [Pennsylvania] [Georgia]4 who, between November 2008 and the present (the "Class Period"), (1) purchased one or more generic 3 prescription drugs that were offered through CVS's Health Savings Pass ("HSP") program 4 at the time of the purchase; (2) were insured for the purchase(s) through a third-party payor plan5 (except those that did not use usual and customary pricing or expressly excluded 5 discount programs from usual and customary pricing); and (3) paid CVS an out-of-pocket payment for the purchase greater than the HSP price for a 90-day supply of the prescription 6 (or, greater than a price proportionate to the HSP price but for a prescription less than or 7 greater than a 90-day supply). 4. A copy of my curriculum vitae is attached hereto as Exhibit A. 8 5. A listing of legal cases where I have testified at trial or by deposition in the last four years 9 is attached hereto as Exhibit B. 10 6. In conducting my analysis, I have reviewed the materials specifically identified in this 11 report and those identified in Exhibit C. 12 7. I reserve the right to supplement this opinion as new or additional information becomes 13 available to me. 14 8. I am being compensated for my testimony in the present case at my standard rate of 15 $950.00 per hour, plus any reasonable out-of-pocket expenses. No payments to me are contingent upon 16 the outcome of this or any other hearings or litigation or upon the nature of my opinions. 17 II. SUMMARY OF OPINIONS 18 9. Opinion 1: CVS's claims adjudication process has multiple common, standard features 19 that apply across the transactions of class members. The structure and logic of CVS's claims data 20 system demonstrates several common features of CVS's claims adjudication that is uniform across the 21 claims, including, among other things, (1) the reimbursements, including the copayments, CVS charges 22 do not exceed the U&C price that CVS reports to third party payors ("TPPs") and pharmacy benefit 23 managers ("PBMs"), (2) and the U&C prices CVS submits TPPs do not vary in any meaningful way 24 based on the TPP or PBM to which the prices are submitted. 25 10. Opinion 2: CVS's HSP prices properly should be considered CVS's true U&C prices. 26 27 4 28 Each of the state classes has the same definition. 5 I have been provided with a revised list of qualifying third-party contracts set forth in Exhibit D. EXPERT REPORT OF JOEL W. HAY, PHD 2 6 1 CVS's retail pharmacy transaction data across the class shows that the HSP price properly can be 2 considered CVS's U&C price with respect to class members' claims. A majority of CVS's transactions 3 with cash-paying customers occurs at or below the HSP price for the products and quantities listed in 4 the HSP formulary in the retail pharmacy transactions data provided by CVS. And the HSP prices 5 themselves are the single most common cash prices appearing in the transaction data as many as 52 6 times more than the next most common cash prices. 7 11. Opinion 3: Even excluding the HSP program transactions from cash transactions and 8 calculating a U&C based on what CVS agrees cash customers paid for each GCN, QTY and Year 9 yields U&C prices far below what CVS submitted to TPPs. As an alternate analysis, I have examined 10 the prices CVS charged customers in cash transactions not categorized as HSP program transactions in 11 CVS's transaction data. My analysis reveals that the prices CVS submitted to TPPs as its supposed 12 U&C prices are significantly inflated even when compared directly to the prices CVS charged in non- 13 HSP cash transactions. 14 12. Opinion 4: The transaction data for the named Plaintiffs' relevant purchases indicate 15 that Plaintiffs meet the class definition. Each plaintiff made a purchase of one or more drugs covered 16 by the HSP program using insurance. CVS submitted a U&C price to each plaintiff's TPP or PBM that 17 was inflated above the HSP price. Each plaintiff was charged a copay that exceeded the HSP price – 18 which was CVS's true U&C price for the drugs. Each plaintiff also has a qualifying transaction in the 19 1st percentile fee screen model, a component of the alternate analysis that I have developed using only 20 CVS cash transactions not categorized as HSP transactions. 21 13. Opinion 5: There are approximately 40 million class members who CVS charged 22 copayments that exceeded CVS's true U&C prices. Based on applying objective criteria to transaction 23 data that CVS has produced in this case, I have identified the patients whose characteristics and 24 purchases meet the class definition that Plaintiffs have offered. I have broken the total number of class 25 members down by individual states. 26 14. Opinion 6: The calculation of damages for the class is common and uniform, and totals 27 $1,677,018,081 using the HSP-based U&C prices, and $1,308,985,550 using the non-HSP 1st 28 percentile fee screen alternate analysis U&C prices. The damages model involves an essentially EXPERT REPORT OF JOEL W. HAY, PHD 3 6 1 uniform calculation methodology and known, common metrics, and does not involve individualized 2 determinations. 3 4 III. QUALIFICATIONS AND EXPERIENCE 5 15. I received my B.A. in Economics, summa cum laude, from Amherst College in 1974. I 6 then went on to receive my M.A. in Economics in 1975 and my M.Ph. in Economics in 1976 from Yale 7 University. In 1980, I received my Ph.D. in Economics from Yale. 8 16. I am a tenured Full Professor and Founding Chair of Pharmaceutical Economics and 9 Policy in the School of Pharmacy, with joint appointments in the Department of Economics and at the 10 Schaeffer Center for Health Policy and Economics at the University of Southern California (USC). I 11 also served for 15 years as the USC Project Coordinator for the Rand Evidence-Based Medicine Practice 12 Centers of Southern California funded by the U.S. Agency for Healthcare Research and Quality. I am 13 a Health Economics Research Scholar at the UCLA Center for Pediatric Vaccine Research. I am a 14 founding member and founding Executive Board member of the American Society for Health 15 Economics (ASHEcon) and a founding member and founding Executive Board member of the 16 International Society of Pharmacoeconomics and Outcomes Research (ISPOR). 17 17. I have previously served as an Assistant Research Professor at the University of Southern 18 California (1978–1980), Assistant Professor in the University of Connecticut's Department of 19 Behavioral Sciences and Community Health and Department of Economics (1980–1984), Visiting 20 Lecturer in the Public Health Master's Program at Yale University's Department of Epidemiology and 21 Public Health and Institution for Social and Policy Studies (1981–1983), Senior Policy Analyst for 22 Project HOPE's Center for Health Affairs (1983–1985), Senior Research Fellow at Stanford 23 University's Hoover Institution (1985–1992), and other ranks within the University of Southern 24 California's School of Pharmacy and Department of Economics (1992–present). I was also a Senior 25 Policy Analyst with Project Hope from 1983 to 1985. Then from 1985 to 1992, I was a Senior Research 26 Fellow at the Hoover Institution at Stanford University. In 1992, I was recruited to USC to found the 27 Department of Pharmaceutical Economics and Policy. I have been a tenured USC faculty member since 28 then. EXPERT REPORT OF JOEL W. HAY, PHD 4 6 1 18. I have authored or coauthored over 500 scientific abstracts, reports, and presentations, 2 including more than 200 peer-reviewed scientific articles and commentaries in the fields of 3 pharmaceutical pricing, retail pharmacy, pharmaceutical markets, pharmaceutical economics, health 4 economics, outcomes research, disease management, statistics, econometrics, epidemiology, and health 5 care in journals including: American Journal of Cardiology; American Journal of Health-Systems 6 Pharmacy; American Journal of Managed Care; American Journal of Public Health; Archives of 7 Neurology; Cancer; CNS Drugs; Haemophilia; Health Care Financing Review; Health Economics; 8 Health Policy; JAMA; Journal of AIDS; Journal of the American Geriatrics Society; Journal of Business 9 & Economic Statistics; Journal of Clinical Gastroenterology; Journal of Health Economics; Journal of 10 Health Politics, Policy and Law; Journal of Human Resources; Journal of Managed Care and Specialty 11 Pharmacy, Journal of the Royal Statistical Association; Medical Care; New England Journal of 12 Medicine; Pharmacy and Therapeutics; Pediatrics; and Value in Health. 13 19. From 1995 to 2000 I was a member of the Expert Advisory Panel on Drug Utilization 14 Review of the United States Pharmacopoeial Convention. From 1