Carl Washington et al v. CVS Pharmacy Inc.

Exhibit 29

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

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7 Exhibit 29 REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED 7 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA Christopher Corcoran, et al. on behalf of themselves and all others similarly situated, Case No. 15-CV-3504-YGR Plaintiffs, v. REDACTED VERSION OF CVS Pharmacy, Inc. DOCUMENT SOUGHT TO BE Defendant. SEALED (L.R. 79-5(c)(1)(C)) JANUARY 27, 2017 REBUTTAL REPORT OF BRETT E. BARLAG ON BEHALF OF CVS PHARMACY, INC. 7 January 27, 2017 Expert Report of Brett E. Barlag on behalf of CVS Pharmacy, Inc. Table of Contents I. SCOPE OF ASSIGNMENT ................................................................................................................. 3 II. OPINIONS ............................................................................................................................................ 3 a. The Prescription Purchase Data, and even Dr. Hay's own analysis, demonstrate that CVS collected the HSP annual membership fee from HSP members in accordance with company policy. ........................ 3 b. The Prescription Purchase Data shows that CVS did not offer the HSP price to Cash customers. ...... 9 1. Cash Purchases of Usual Drugs for a 90-Day Supply (Dr. Hay's Table 3) ......................................... 9 2. Usual Drug Cash Purchases Across All Days Supply (Dr. Hay's Table 2)........................................ 12 c. The Prescription Purchase Data shows that CVS did not prorate HSP prices. ................................... 16 d. The Prescription Purchase Data shows that CVS's U&C prices submitted to PBMs and Third Party Payers were routinely paid by Cash customers. .......................................................................................... 19 e. Dr. Hay's alternative calculations of U&C – his HSP-Based U&C price and his one percentile U&C price – fail to meet what Dr. Hay says constitutes the industry standard definition of U&C pricing. ........ 22 1. HSP-Based U&C ................................................................................................................................ 23 2. First Percentile Price U&C ................................................................................................................ 28 CONFIDENTIAL INFORMATION SUBJECT TO PROTECTIVE ORDER 2 7 7 January 27, 2017 Expert Report of Brett E. Barlag on behalf of CVS Pharmacy, Inc. 5. First, in his 69% of patients showing "no evidence" of membership fee payment, Dr. Hay includes any HSP member for whom he cannot observe payment of the membership fee in every calendar year for which the member was enrolled in the HSP program (i.e., in each calendar year the member made HSP program purchases). In his 56.71% calculation, Dr. Hay similarly counts an HSP member for whom he cannot observe payment of the membership fee in every 365-day period in which the member made HSP program purchases. For example, if the Prescription Purchase Data showed the member making HSP purchases over a seven-year period, and the data shows the membership fee payment for only six of those seven years, Dr. Hay counts that individual in his 69% of patients with "no evidence" of membership fee payments, as well as in his 56.71% of patients who did not pay the membership fee in at least one 365-day period.4 He does so despite the data clearly showing that the membership fee for the individual was paid 85% of the time (i.e., in six of seven years of membership). Thus, Dr. Hay's percentages understate the observable instances in which the data demonstrate the membership fee was paid. 6. In Figure 1 below, I display an example of an HSP member's history of HSP purchases and paying the HSP membership fee observed in the Prescription Purchase Data. The Figure reveals the misleading nature of Dr. Hay's 69% and 56.71% statistics, which fail to account for instances when HSP membership fees were demonstrably paid by the HSP member over multiple years of the HSP program but are not observed, for example, for the first year of enrollment. Figure 1: Example of HSP Membership Fee Payment Observable in Six of Seven Years5 7. Under Dr. Hay's approach, he would count the HSP member in the Figure above toward his 69%/56.71% calculations based solely on the absence of a membership fee in the Prescription Purchase Data prior to May 2010. However, his approach and resulting percentages exploit a limitation of the data that prevents both Dr. Hay and myself from observing in these data all instances 4 The 56.71% figure is reported as 56.73% elsewhere in Dr. Hay's Rebuttal Declaration. Compare Rebuttal Declaration ¶¶ 9 and 32. Dr. Hay does not explain which percentage reflects his actual calculation. 5 This member filled a prescription on 4/9/2010, one week before the end of their first HSP membership year. The next HSP prescription filled by this patient was on 8/5/2010, at which point they paid the membership fee for their second membership year. CONFIDENTIAL INFORMATION SUBJECT TO PROTECTIVE ORDER 4 7 January 27, 2017 Expert Report of Brett E. Barlag on behalf of CVS Pharmacy, Inc. in which HSP members paid annual membership fees. Specifically, the membership fee payments that HSP members paid prior to September 29, 2009 are not contained in the Prescription Purchase Data.6 8. The Prescription Purchase Data consists of transaction records of prescription purchases of medications on the HSP formulary occurring from November 9, 2008 through December 7, 2015 in certain states.7 On each transaction record within the Prescription Purchase Data, the purchased medication is identified by its National Drug Code ("NDC"). Before September 29, 2009, CVS did not process the HSP membership fee on the same transaction record as the HSP purchase itself (i.e., the transaction record reflecting the purchase of the HSP medication); instead, CVS pharmacists were to process the membership fee through a separate, dedicated transaction involving a so-called "dummy" NDC number (i.e., an NDC not associated with an actual medicine).8 It was not until September 29, 2009 that the membership fee was included on the same transaction record as the prescription purchase.9 Because the Prescription Purchase Data is limited to purchases of actual medications on the HSP formulary and thus does not contain transactions associated with the dummy NDC number, it does not reflect membership fees processed and paid through the dedicated dummy NDC.10 9. Given this limitation of the Prescription Purchase Data, one would not expect to observe in the data membership fees that HSP members paid prior to September 29, 2009. Dr. Hay's all-or-nothing approach to quantifying the incidence rate of membership fee payments thus distorts the record. To demonstrate this point, consider the following: 174,314 of the 517,479 HSP members in the Prescription Purchase Data (i.e., 33.69% of all HSP members) enrolled in the program prior to September 29, 2009 based on the earliest date of an observed HSP purchase.11 As a result, before ever analyzing a single transaction, Dr. Hay's approach would dictate that 33.69% of HSP members – or over half of Dr. Hay's 56.71% figure – did not pay the membership fee in at least one year that they were a member of the program. Furthermore, any HSP member who (1) enrolled in the program prior to September 29, 2009, and (2) did not re-enroll in the program at any point after September 29, 6 CVSC-0022954-22956. 7 Bates numbered DCVS-00000000001 through DCVS-00936214895; February 26, 2016 and April 15, 2016 Transmittal letters from G. Geyerman to R. Gilmore regarding data production. 8 CVSC-0022954-22956; CVSC-0397707. 9 CVSC-0022954-22956. 10 During that period HSP members could also pay their membership fees over the phone and online. See CVSC- 0022954-22956. Those payments would also not be reflected in the Prescription Purchase Data. 11 Due to differences in preparation of the transaction data, in certain instances, Dr. Hay may calculate slightly different numbers. My analysis indicates that any differences would not be material. CONFIDENTIAL INFORMATION SUBJECT TO PROTECTIVE ORDER 5 7 7 January 27, 2017 Expert Report of Brett E. Barlag on behalf of CVS Pharmacy, Inc. viewed in light of the data's limitations) are largely consistent and confirm that the membership fee consistently was paid by HSP members. 12. Second, unlike in my Original Report, Dr. Hay does not provide any reasons why neither he nor I should expect to observe all membership fees that HSP members actually paid, given the limitations of the Prescription Purchase Data. That is to say, Dr. Hay does not explain why his calculations about the membership fee (as well as my calculations) necessarily understate the incidence rate of HSP members paying the membership fee. I briefly address these reasons below, so that they may be considered when weighing Dr. Hay's calculations (and mine). 13. Membership fees paid prior to September 29, 2009. I discuss above the fact that HSP membership fees paid before September 29, 2009 are not reflected in the Prescription Purchase Data. Dr. Hay has not addressed this limitation. 14. Membership fees paid via telephone or online. In my Original Report, I referenced how HSP members were not limited to paying their membership fees at a CVS pharmacy store.15 HSP 16 members could pay their membership fee over the phone or online. Payments made over the phone or online are not reflected in the Prescription Purchase Data. Dr. Hay has not addressed this fact. 15. Membership fees paid outside the Corcoran Plaintiffs' 11 states. HSP members could pay their annual membership fee at any CVS pharmacy in the United States. Yet the Prescription Purchase Data is limited to transactions occurring at CVS pharmacies in the 11 states in which the Corcoran Plaintiffs reside and on behalf of whose consumers they are attempting to assert claims. Thus, the following potential arises: an HSP member made his or her HSP purchase(s) within the 11 states (and thus appears in the Prescription Purchase Data), but he or she paid the membership fee in a different state not within the Prescription Purchase Data. Because their HSP purchase occurred within the 11 states, both Dr. Hay and I would be looking for a membership fee payment by that member but would be unable to find one in the available data. Dr. Hay has not addressed this fact. 16. I can say with certainty that this circumstance – HSP members paid their annual membership fee outside the 11 Corcoran states – occurred. First, the data show that CVS customers can and do fill prescriptions in multiple states. The data reflect the customer's state of residence, which is not always one of the 11 states. Second, there is proof of payment of the membership fee outside the 11 15 December 9, 2016 Report of Brett E. Barlag ¶ 56 fn. 25. 16 CVSC-0022954-22956. CONFIDENTIAL INFORMATION SUBJECT TO PROTECTIVE ORDER 7 7 7 January 27, 2017 Expert Report of Brett E. Barlag on behalf of CVS Pharmacy, Inc. CVS stores nationwide were available for analysis, the percentage of the HSP members for whom payment of membership fees could be observed would only increase. 18. As demonstrated by my analysis, and confirmed by Dr. Hay's analysis, the Prescription Purchase Data demonstrate that CVS routinely collected the annual HSP membership fee from HSP members. b. The Prescription Purchase Data shows that CVS did not offer the HSP price to Cash customers. 1. Cash Purchases of Usual Drugs for a 90-Day Supply (Dr. Hay's Table 3) 19. In his Report, Dr. Hay states "[t]he HSP price is offered to the general public and is the most common cash price for the covered drugs."17 His claim is based, in part, on the figures he cites in Table 3 in his Report.18 Table 3 analyzes together both HSP and Cash purchases of Usual Drugs at a 90-day supply. From Table 3, Dr. Hay concludes that the "HSP price" was the "most common cash price" paid by cash customers during the class period.19 I disa