Corcoran et al v. CVS Health Corporation

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 1998 to 2008 I was a member of the 15 Pharmacy Practice Research Roundtable, which was a cross-cutting multi-disciplinary academic 16 organization focused on developing innovative approaches to the delivery of pharmacy services.6 In 17 addition to the hundreds of pharmacoeconomic studies that I have conducted, I have published numerous 18 peer-reviewed scientific articles and abstracts on the economic value of drugs, screening programs, and 19 prevention programs. 20 20. In April 2015, I was one of three invited outside experts who presented to the Directors 21 and Staff of the Office of Medical Policy (Dr. Jonathan Jarow) and the Center for Drug Evaluation and 22 Research (Dr. Robert Temple) at the U.S. Food and Drug Administration (FDA) on the regulation of 23 economics claims for pharmaceutical products. I also contributed on this topic as an invited speaker to 24 the Academy of Managed Care Pharmacy Partnership Forum, FDAMA 114: Improving the Exchange 25 of Pharmacoeconomic Data in March 2016. 26 27 6 Knapp KK, Ray MD. (for the Pharmacy Practice Research Roundtable, JW Hay, member). A pharmacy response to the Institute of Medicine's 2001 initiative on quality in health care. Am J Health-Syst. Pharm. 2002; 59:2443-50. Pharmacy 28 Practice Research Roundtable (JW Hay, member). Advancing Pharmacy Practice Through Research: A 2004 Perspective. J Am Pharm Assoc. 2004;44:621–628. EXPERT REPORT OF JOEL W. HAY, PHD 5 6 1 21. I have served as a consultant to the U.S. Centers for Medicare and Medicaid Services, 2 U.S. Agency for Healthcare Research and Quality, U.S. Centers for Disease Control and Prevention, 3 U.S. Public Health Service, U.S. Food and Drug Administration (FDA), U.S. Environmental Protection 4 Agency, Revenue Canada, Department of Justice Canada, Government of Hungary, Hong Kong Centre 5 for Economic Research, Hong Kong Medical Executives Association, World Bank, California AIDS 6 Commission, California Medi-Cal Drug Advisory Board, County of San Diego Medically Indigent 7 Adult Program, and County of Sacramento Homeless Program. 8 22. I have served as an Executive Committee member for the federally-sponsored Southern 9 California Evidence-Based Medicine Practice Center; and a member of the JAMA Web Site HIV/AIDS 10 Editorial Review Panel. I also recently completed a third consecutive two-year term as a Study Section 11 member for the Extramural Grants Review Program for the Agency for Healthcare Research and Quality 12 of the U.S. Department of Health and Human Services. 13 23. From 2004 to 2010, I was a founding member of the Health Policy Scientific Council of 14 the International Society for Pharmacoeconomics and Outcomes Research (ISPOR). From 2006 to 2010, 15 I was founding Co-Chair of ISPOR's Drug Cost Task Force. In 2010, this Task Force published six 16 peer-reviewed guideline papers on pharmaceutical costing methodology in the journal Value in Health, 17 all of which I edited and co-authored. 18 24. I served as the Founding Editor-in-Chief of Value in Health, the peer-reviewed scientific 19 journal of ISPOR, from its 1998 inception until 2003. In its first scientific citation impact factor, Value 20 in Health was ranked number one in two categories for the year 2004 by the ISI Journal Citation 21 Reports® (JCR) with an impact factor of 3.657. Value in Health led all other journals listed in both the 22 Health Care Sciences and Services category of the JCR Science Edition and in the Health Policy & 23 Services category of the JCR Social Sciences Edition. These categories include all journals relating to 24 health economics and pharmaceutical economics. 25 25. I am a member of many professional societies, including Academy of Managed Care 26 Pharmacy, American Association of Colleges of Pharmacy, American Economic Association, American 27 Public Health Association, American Society of Health Economists, Disease Management Association 28 of America, Eastern Economics Association, Econometrics Society, International Academy of Health EXPERT REPORT OF JOEL W. HAY, PHD 6 6 1 Preferences Research, International Health Economics Association, International Society for 2 Pharmacoeconomics and Outcomes Research, International Society for Quality of Life Research, 3 International Society of Technology Assessment in Health Care, Southern Economics Association, and 4 Western Economics Association. 5 26. I have provided sworn testimony and expert opinions in numerous legal cases and 6 arbitration hearings on issues relating to pharmaceutical pricing, pharmaceutical markets, economic 7 evaluation of pharmaceuticals, and many other issues relating to the pharmacy and pharmaceutical 8 industries and prescription drugs. I have been qualified as an expert witness dozens of times by courts 9 to provide expert opinion testimony (and my testimony has never been excluded), and I have testified 10 for both plaintiffs and defendants. 11 IV. BASIS OF OPINIONS 12 27. In reaching my opinions below, I have reviewed and rely on pharmacy industry materials, 13 which I cite in this report, as well as documents that CVS has produced in discovery and testimony from 14 CVS witnesses who have been deposed. I also rely on my more than two decades of experience teaching 15 and conducting research at the USC School of Pharmacy and teaching thousands of pharmacy students 16 about how drugs are purchased and paid for. I further rely on my more than three decades of experience 17 in evaluating and researching drug prices and pharmaceutical market transactions. 18 28. In addition, I received from Plaintiffs' counsel retail pharmacy transactions data covering 19 the time period of November 9, 2008 to December 7, 2015 for all transactions of HSP eligible drugs 20 occurring at CVS retail pharmacies in thirteen states: Arizona, California, Florida, Georgia, Illinois, 21 Massachusetts, Maryland, New Jersey, New York, Ohio, Pennsylvania, Texas, and the District of 22 Columbia.7 These data include 936,214,763 transactions for 462 different products covered by the HSP 23 program,8 including generic medications, women's health products, flu vaccines, antibiotics and diabetic 24 test strips. The transactions included those made using prescription drug insurance coverage, as well as 25 "cash" transactions – those made without such coverage (in other words, where the patient herself 26 purchases the drug entirely out of her own pocket, without a third-party making a payment to the 27 7 I understand from Plaintiffs' counsel that, at the present time, Plaintiffs are not seeking to certify classes from Maryland 28 and the District of Columbia. Therefore, I have not included data from those two states in my analyses. 8 As determined by unique generic code numbers (GCNs). EXPERT REPORT OF JOEL W. HAY, PHD 7 6 1 pharmacy). This latter category includes transactions that CVS identified as being made under the HSP 2 program. 3 29. As per counsel's data request, all of these transactions were taken to be final 4 transactions.9 I understand that CVS's corporate representative confirmed this during her Rule 30(b)(6) 5 Deposition. 6 30. The CVS retail pharmacy transaction data definitions were provided by CVS's counsel 7 in letters dated February 2, February 26, and April 15, 2016. 8 9 A. Opinion 1: CVS's claims adjudication process has multiple common, standard features that apply across the transactions of class members 10 31. The structure and logic of CVS's claims data system demonstrate several common 11 features of CVS's claims adjudication. 12 i. CVS uniformly collects total reimbursements equal to or less than the U&C 13 price it submits to TPPs. 14 32. According to the deposition of CVS executive Scott Tierney and CVS Rule 30(b)(6) 15 witness Hilary Dudley, CVS actively limits the total reimbursement due from the TPP and patient to the 16 lesser of the negotiated price and the U&C for TPPs that limit total reimbursement to the lesser of the 17 negotiated price and the U&C.10 The transaction data suggests that this is a nearly universal process. 18 33. 19 20 21 22 23 24 25 26 27 9 These transactions include 45,278,323 observations indicating a coordination of benefits where multiple payers process 28 the same purchase creating multiple observations. I have controlled for this in my analysis. 10 Tierney Dep. 46:23-47:7; Dudley Dep. 88:13-22, 89:19-90:3, 94:7-95:7. EXPERT REPORT OF JOEL W. HAY, PHD 8 6 6 1 "11 2 3 4 5 6 7 8 9 B. Opinion 2: CVS's HSP prices properly should be considered CVS's true U&C prices. 10 36. CVS's transaction data across the class shows that the HSP price properly should be 11 considered CVS's actual U&C price with respect to class members' claims. 12 i. Usual and Customary Price ("U&C") 13 37. In the pharmacy context, Usual & Customary (U&C) price is the cash price for which a 14 drug is sold. The National Council of Prescription Drug Programs (NCPDP), which maintains the 15 industry standard for electronic transmission and adjudication of pharmacy claims, defines U&C as the 16 "Amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed."12 17 38. A standard feature in government programs and third party payors is a requirement that 18 they will not reimburse pharmacies more than the pharmacies' U&C charges for any medication. This 19 reimbursement refers to the total reimbursement including the cost sharing with the patient. This is 20 referred to as the U&C "fee screen." Fee screens are often established for drugs and other medical care 21 items to ensure that the payor and the patient are obtaining these goods and services at prudent and 22 reasonable rates.13 23 ii. The U&C prices CVS submits to PBMs and TPPs are inflated. 24 39. 25 Melkonian Dep. 64:14-65:7. 26 11 Dudley Dep. 83:1-23. In certain pharmacies, CVS submits as its U&C the calculated U&C minus a senior discount for 27 eligible seniors citizens. Id. 12 NCPCP, Telecommunication Version 5 Questions, Answers and Editorial Updates, 2010; pg. 38. 28 13 Yett, D., Der, W., Ernst, R. and Hay JW. "Fee Screen Reimbursement and Physician Fee Inflation," Journal of Human Resources 20(2), (Spring 1985), pp. 278-291. EXPERT REPORT OF JOEL W. HAY, PHD 10 6 1 2 3 4 5 6 7 8 iii. A U&C price based on CVS's HSP price is the appropriate U&C price for the covered drugs. 9 10 40. The HSP price is offered to the general public and is the most common cash price for the 11 covered drugs. An analysis of cash transactions demonstrates that the HSP prices of $11.99 and $9.99 12 are greater than 44 times and 52 times more common, respectively, than the second most common prices 13 for the same drugs and quantities. Cash paying customers pay the HSP price or lower more than 75% of 14 the time for these prescriptions. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 Melkonian Dep. 22:6-12, 44:7-45:19, 38:14-39:14. EXPERT REPORT OF JOEL W. HAY, PHD 11 6 6 6 1 45. For these reasons, it is my opinion that CVS's true U&C prices should have been prorated 2 up and down from the quantity listed on the HSP formulary for quantities above and below those listed. 3 This approach uses the policy that Mr. Melkonian described, but includes the HSP program price as the 4 basis for calculating CVS's U&C prices. CVS's transaction data shows that CVS's policy of setting 5 U&C prices that excluded its HSP price resulted in significantly inflated reported U&C prices. CVS 6 reported a U&C price to TPPs and PBMs that, on average, was inflated by $21.89 (pre-2011) and by 7 $23.14 (post-2011) over CVS's HSP price, and consequently led to the inflated copayments at issue in 8 this case. 9 10 C. Opinion 3: Even excluding the HSP program transactions from cash transactions and calculating a U&C based on what CVS itself contends are what cash 11 customers paid for each GCN, QTY and Year yields U&C prices far below what CVS submitted to TPPs. 12 46. I have reviewed declarations from several employees of PBMs that CVS has submitted 13 in connection with its opposition to Plaintiffs' motion for class certification.19 These employees assert 14 that they did not view CVS's HSP program prices to be considered for inclusion as U&C prices. 15 47. I disagree with their position for the reasons stated in this report, including, among other 16 reasons, (1) the HSP prices commonly were offered to the general public, (2) CVS frequently charged 17 non-HSP members the HSP prices for HSP drugs, (3) the supposed HSP membership fee was nominal, 18 and (4) HSP members frequently did not pay the supposed HSP membership fee each year they were 19 enrolled in the program. 20 48. But even taking an approach to determining U&C prices in light of what these PBM 21 employees assert shows that CVS's submitted inflated U&C prices. John Lavin, an employee of 22 Caremark (CVS's PBM subsidiary), references a definition of a U&C price as "the lowest price the 23 Provider would charge," and asserts that "the most frequently charged" price for a particular prescription 24 25 19 Declaration of Amber D. Compton, Vice President of Retail Strategy & Contracting for Express Scripts, Inc., November 26 21, 2016 ("Compton Declaration"); Declaration of Franceen Spadaccino, Senior Director of Provider Relations and Network Strategy for Medco Health Solutions, Inc., November 18, 2016 ("Spadaccino Declaration"); Declaration of G. 27 William Strein, Vice President of Provider Relations at Medco Health Solutions, Inc., November 18, 2016 ("Strein Declaration"); Declaration of Michael D. Reichardt, Senior Director of Network Relations for OptumRx, Inc., November 28 20, 2016 ("Reichardt Declaration"); and Declaration of John M. Lavin, Senior Vice President of Network Administration for Caremark, LLC, November 18, 2016 ("Lavin Declaration"). EXPERT REPORT OF JOEL W. HAY, PHD 14 6 6 1 30 days 3.04% 86.33% 1.06% 0.91% 4.59% 2.49% 1.58% 2 90 days 2.57% 12.15% 13.12% 15.21% 49.75% 3.89% 3.31% 3 4 53. Using the fee screen approach at the 1st percentile of cash transaction prices (excluding 5 HSP transactions) as the U&C yields damages that approximate the pro-rated HSP damages, as set forth 6 below in part E. The consistency between the scope of the two damages estimates, using two different 7 approaches, reinforces the validity of using the pro-rated HSP price as the U&C price. And, both 8 approaches demonstrate the inflated nature of the purported U&C prices CVS submitted to TPPs. 9 54. Should the Court or finder of fact determine that there is liability, but some other measure 10 of U&C prices is more appropriate to determine the amount of damages, it will be straightforward for 11 me to calculate damages amounts based on any such alternative U&C prices. 12 13 D. Opinion 4: The transaction data for the named Plaintiffs' relevant purchases indicate that Plaintiffs meet the class definition. 14 55. I have examined CVS's transaction data for drug purchases that the named Plaintiffs 15 made in this litigation. 16 56. CVS produced Excel spreadsheets that have certain transaction information about the 17 named Plaintiffs' purchases of prescription drugs from CVS. 18 57. Plaintiffs' counsel identified certain specific transactions that Plaintiffs have asserted are 19 the basis for their lawsuit against CVS. 20 58. I used attributes from the information in these spreadsheets to identify the corresponding 21 transactions in CVS's transaction data. 22 59. This allowed me to verify that these purchases were of drugs that were offered through 23 the HSP program at the time of the transaction, because (as I have been informed) CVS only produced 24 transactions for HSP-offered drugs in its data set. 25 60. I also confirmed that for each of the relevant transactions of the named Plaintiffs, CVS 26 in fact charged Plaintiffs a copayment that exceeded what I have determined to be CVS's true U&C 27 prices, those based on CVS's HSP prices (including pro-rated HSP prices). A list of all such transactions 28 is included in Exhibit E. to my report. EXPERT REPORT OF JOEL W. HAY, PHD 16 6 1 61. Additionally, I confirmed that for each of the relevant transactions of the named 2 Plaintiffs, CVS in fact charged Plaintiffs a copayment that exceeded U&C as defined by the 1st percentile 3 fee screen. A list of all such transactions is included in Exhibit F. to my report. 4 5 E. Opinion 5: There are approximately 40 million class members who CVS charged copayments that exceeded CVS's true U&C prices. 6 62. To determine the number of class members, I utilized and rely on CVS's transaction data, 7 contracts, and deposition testimony that was produced in discovery. Patients in the class are all 8 customers of TPPs or PBMs that limit what a pharmacy can be paid for a prescription drug to the lower 9 of a contracted rate or the U&C price that the pharmacy submits, and that do not expressly exclude 10 discount program prices from U&C prices. 11 63. 12 13 14 15 16 17 18 19 20 21 22 23 64. 24 25 26 23 "When a Condor code is associated with a PBM, the operative CVS/PBM main agreement would provide the relevant 27 terms and conditions… But where a Condor code relates to a specific payer, in order to determine the controlling contract, my team would first identify whether the payer had a direct contract with CVS at the time of the transaction. If so, that 28 CVS-payer contract governs the transaction; if not, then CVS's contract with the PBM utilized by the payer would govern." Declaration of Colbert 2:12 – 2:20. EXPERT REPORT OF JOEL W. HAY, PHD 17 6 1 2 65. The approach I took is consistent with how CVS's Rule 30(b)(6) witness described the 3 approach to match a patient's transaction to a contract that CVS has with a PBM or TPP.24 4 66. I then identified the class members from this pool of patients by determining whether 5 CVS overcharged the patient for one or more purchases, in the manner described in part F below. 6 67. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 Dudley Dep. 71:4-12. EXPERT REPORT OF JOEL W. HAY, PHD 18 6 6 1 MA 3,518,047 340,129 2 NY 3,390,981 476,496 3 PA 3,064,902 415,947 4 NJ 2,097,080 257,059 5 OH 2,173,515 305,168 6 GA 2,380,366 261,379 7 IL 1,507,295 193,192 8 AZ 4,568,932 160,411 9 69. Should additional or revised CVS retail pharmacy transactions data, contracts or other 10 relevant information be provided to me, it will be straightforward to update my determination of class 11 members. 12 13 F. Opinion 6: The calculation of damages for the class is common and uniform, and totals $1,677,018,081 using the HSP-based U&C prices, and $1,308,985,550 using 14 the non-HSP 1st percentile fee screen U&C prices. 15 i. HSP-based U&C Damages 16 70. To calculate the damages that Plaintiffs and class members have suffered, I have used a 17 simple, arithmetic damages model that involves an essentially uniform calculation methodology and 18 known, common metrics, and does not involve individualized determinations. 19 71. Patients in the class all suffered the common damage: CVS charging copayments that 20 were higher than CVS's true U&C prices, ones that should have been based on CVS's HSP prices. 21 72. In order to make these damages calculations, I employ a retrospective forensic 22 accounting methodology that compares the co-payment paid by the insured class members to the true 23 recalculated U&C price. I have applied the explicit U&C pricing calculations to determine the damages 24 that CVS caused the class, using the following formula: 25 Actual copay Plaintiff paid, minus the U&C price I have recalculated using CVS's HSP 26 prices = overcharge damages. 27 73. As I was asked to do with identification of the numbers of class members, I have also 28 broken out the damages attributable to transactions that CVS's data indicates occurred under a Medicare EXPERT REPORT OF JOEL W. HAY, PHD 20 6 6 6 6 6 6 6 6 6 6 6 6 6 6 1 2 3 Dated: December 9, 2016 4 Joel W. Hay 5 6 7 8 9 10 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 34