Corcoran et al v. CVS Health Corporation

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

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1 Exhibit 27 REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED 1 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. DECLARATION 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 JOEL W HAY, PHD DECLARATION 1 1 I. INTRODUCTION 2 1. I, Joel W. Hay PhD, have been retained by counsel for Plaintiffs Christopher Corcoran, 3 Elizabeth Gardner, Tyler Clark, Michael Norkus, Zulema Avis, Robert Garber, Toni Odorisio, Onnolee 4 Samuelson, Robert Jenks, Debbie Barrett, Carl Washington, Vincent Gargiulo, Zachary Hagert, Carolyn 5 Caine, Walter Wulff, Amanda Gilbert, and Gilbert Brown (collectively, "Plaintiffs"), on behalf of 6 themselves and all others similarly situated, in the above-captioned case against CVS Pharmacy, Inc. 7 ("CVS"). Plaintiffs' counsel have asked me to submit this declaration evaluating CVS's usual and 8 customary ("U&C") prices, aspects of CVS's transaction data related to sales of generic drugs to 9 Plaintiffs and class members using insurance, and the economic damages associated with Plaintiffs' 10 allegations of CVS' conduct. 11 2. Plaintiffs allege that CVS knowingly and intentionally overcharged pharmacy customers 12 for generic prescription drugs by submitting to patients and third-party payors claims for payment at 13 prices that CVS fraudulently inflated far above its true U&C prices. 1 I understand that CVS created the 14 "Health Savings Pass" ("HSP") program to remain competitive in the face of similar standardized 15 generic pricing programs from other national pharmacy retail chains such as Walmart and Kmart. 2 The 16 HSP program allowed cash-paying patients to purchase generic prescriptions for competitive prices 17 (e.g., $9.99 for a 90-day prescription for most drugs from November 2008 through 2010, and $11.99 for 18 a 90-day prescription for most drugs in the program from 2011 until CVS discontinued the program in 19 February 2016). 3 According to Plaintiffs' allegations, rather than recognizing that the HSP price should 20 be included in its determination of the U&C price for drugs available under the program, CVS charged 21 insured patients inflated prices based on an artificial and inflated U&C price. 22 3. I understand that Plaintiffs seek certification of 11 single-states classes. I have been 23 given the following definition of each class: 24 All CVS customers in [California] [Arizona] [Massachusetts] [New York] [Ohio] 25 [Texas] [Florida] [Illinois] [New Jersey] [Pennsylvania] [Georgia] 4 who, between November 2008 and the present (the "Class Period"), (1) purchased one or more generic 26 1 27 Plaintiffs' Third Amended Complaint 2 Morrison Dep. 142:23-143:12 3 28 CVS Pharmacy, Inc. Answer to Plaintiffs' Third Amended Complaint, para. 60, 62. 4 Each of the state classes has the same definition. DECL. OF JOEL W. HAY 1 1 1 prescription drugs that were offered through CVS's Health Savings Pass ("HSP") program at the time of the purchase; (2) were insured for the purchase(s) through a third-party payor 2 plan5 (except those plans that did not use usual and customary pricing or expressly excluded discount programs from usual and customary pricing); and (3) paid CVS an out- 3 of-pocket payment for the purchase greater than the HSP price for a 90-day supply of the 4 prescription (or, greater than a price proportionate to the HSP price but for a prescription less than or greater than a 90-day supply). 5 4. A copy of my curriculum vitae is attached hereto as Exhibit A. 6 5. A listing of legal cases where I have testified at trial or by deposition in the last four years 7 is attached hereto as Exhibit B. 8 6. In conducting my analysis, I have reviewed the materials specifically identified in this 9 report and those identified in Exhibit C. 10 7. I reserve the right to supplement this opinion as new or additional information becomes 11 available to me. 12 8. I am being compensated for my testimony in the present case at my standard rate of 13 $950.00 per hour, plus any reasonable out-of-pocket expenses. No payments to me are contingent upon 14 the outcome of this or any other hearings or litigation or upon the nature of my opinions. 15 II. SUMMARY OF OPINIONS 16 9. Opinion 1: CVS's claims adjudication process has multiple common, standard features 17 that apply across the transactions of class members: The structure and logic of CVS's claims data 18 system demonstrates several common features of CVS's claims adjudication that is uniform across the 19 claims, including, among other things, (1) the reimbursements, including the copayments, CVS charges 20 do not exceed the U&C price that CVS reports to third party payors ("TPPs") and pharmacy benefit 21 managers ("PBMs"), (2) and the U&C prices CVS submits TPPs do not vary in any meaningful way 22 based on the TPP or PBM to which the prices are submitted. 23 10. Opinion 2: CVS's HSP prices properly should be considered CVS's true U&C prices: 24 CVS's retail pharmacy transaction data across the class shows that the HSP price properly can be 25 considered CVS's U&C price with respect to class members' claims. A majority of CVS's transactions 26 with cash-paying customers occurs at or below the HSP price for the products and quantities listed in 27 the HSP formulary in the retail pharmacy transactions data provided by CVS. And the HSP prices 28 5 A list of qualifying third-party payor contracts is set forth in Exhibit 12 to Plaintiffs' Motion for Class Certification. DECL. OF JOEL W. HAY 2 1 1 themselves are the single most common cash prices appearing in the transaction data as many as 52 2 times more than the next most common cash prices. 3 11. Opinion 3: The transaction data for the named Plaintiffs' relevant purchases indicate 4 that Plaintiffs meet the class definition: Each plaintiff made a purchase of one or more drugs covered 5 by the HSP program using insurance. CVS submitted a U&C price to each plaintiff's TPP or PBM that 6 was inflated above the HSP price. Each plaintiff was charged a copay that exceeded the HSP price – 7 which was CVS's true U&C price for the drugs. 8 12. Opinion 4: There are over 37 million class members who CVS charged copayments 9 that exceeded CVS's true U&C prices. Based on applying objective criteria to transaction data that 10 CVS has produced in this case, I have identified the patients whose characteristics and purchases meet 11 the class definition that Plaintiffs have offered. Across all 11 state classes, there are 37,114,569 class 12 members; I have broken this total down by individual states 13 13. Opinion 5: The calculation of damages for the class is common and uniform, 14 conservatively measured, and totals at least $1,230,250,909.80. The damages model involves an 15 essentially uniform calculation methodology and known, common metrics, and does not involve 16 individualized determinations. 17 III. QUALIFICATIONS AND EXPERIENCE 18 14. I received my B.A. in Economics, summa cum laude, from Amherst College in 1974. I 19 then went on to receive my M.A. in Economics in 1975 and my M.Ph. in Economics in 1976 from Yale 20 University. In 1980, I received my Ph.D. in Economics from Yale. 21 15. I am a tenured Full Professor and Founding Chair of Pharmaceutical Economics and 22 Policy in the School of Pharmacy, with joint appointments in the Department of Economics and at the 23 Schaeffer Center for Health Policy and Economics at the University of Southern California (USC). I 24 also served for 15 years as the USC Project Coordinator for the Rand Evidence-Based Medicine Practice 25 Centers of Southern California funded by the U.S. Agency for Healthcare Research and Quality. I am 26 a Health Economics Research Scholar at the UCLA Center for Pediatric Vaccine Research. I am a 27 founding member and founding Executive Board member of the American Society for Health 28 Economics (ASHEcon) and a founding member and founding Executive Board member of the DECL. OF JOEL W. HAY 3 1 1 International Society of Pharmacoeconomics and Outcomes Research (ISPOR). 2 16. I have previously served as an Assistant Research Professor at the University of Southern 3 California (1978–1980), Assistant Professor in the University of Connecticut's Department of 4 Behavioral Sciences and Community Health and Department of Economics (1980–1984), Visiting 5 Lecturer in the Public Health Master's Program at Yale University's Department of Epidemiology and 6 Public Health and Institution for Social and Policy Studies (1981–1983), Senior Policy Analyst for 7 Project HOPE's Center for Health Affairs (1983–1985), Senior Research Fellow at Stanford 8 University's Hoover Institution (1985–1992), and other ranks within the University of Southern 9 California's School of Pharmacy and Department of Economics (1992–present). I was also a Senior 10 Policy Analyst with Project Hope from 1983 to 1985. Then from 1985 to 1992, I was a Senior Research 11 Fellow at the Hoover Institution at Stanford University. In 1992, I was recruited to USC to found the 12 Department of Pharmaceutical Economics and Policy. I have been a tenured USC faculty member since 13 then. 14 17. I have authored or coauthored over 500 scientific abstracts, reports, and presentations, 15 including more than 200 peer-reviewed scientific articles and commentaries in the fields of 16 pharmaceutical pricing, retail pharmacy, pharmaceutical markets, pharmaceutical economics, health 17 economics, outcomes research, disease management, statistics, econometrics, epidemiology, and health 18 care in journals including: American Journal of Cardiology; American Journal of Health-Systems 19 Pharmacy; American Journal of Managed Care; American Journal of Public Health; Archives of 20 Neurology; Cancer; CNS Drugs; Haemophilia; Health Care Financing Review; Health Economics; 21 Health Policy; JAMA; Journal of AIDS; Journal of the American Geriatrics Society; Journal of Business 22 & Economic Statistics; Journal of Clinical Gastroenterology; Journal of Health Economics; Journal of 23 Health Politics, Policy and Law; Journal of Human Resources; Journal of Managed Care and Specialty 24 Pharmacy, Journal of the Royal Statistical Association; Medical Care; New England Journal of 25 Medicine; Pharmacy and Therapeutics; Pediatrics; and Value in Health. 26 18. From 1995 to 2000 I was a member of the Expert Advisory Panel on Drug Utilization 27 Review of the United States Pharmacopoeial Convention. From 1998 to 2008 I was a member of the 28 Pharmacy Practice Research Roundtable, which was a cross-cutting multi-disciplinary academic DECL. OF JOEL W. HAY 4 1 1 organization focused on developing innovative approaches to the delivery of pharmacy services.6 In 2 addition to the hundreds of pharmacoeconomic studies that I have conducted, I have published numerous 3 peer-reviewed scientific articles and abstracts on the economic value of drugs, screening programs, and 4 prevention programs. 5 19. In April 2015, I was one of three invited outside experts who presented to the Directors 6 and Staff of the Office of Medical Policy (Dr. Jonathan Jarow) and the Center for Drug Evaluation and 7 Research (Dr. Robert Temple) at the U.S. Food and Drug Administration (FDA) on the regulation of 8 economics claims for pharmaceutical products. I also contributed on this topic as an invited speaker to 9 the Academy of Managed Care Pharmacy Partnership Forum, FDAMA 114: Improving the Exchange 10 of Pharmacoeconomic Data in March 2016. 11 20. I have served as a consultant to the U.S. Centers for Medicare and Medicaid Services, 12 U.S. Agency for Healthcare Research and Quality, U.S. Centers for Disease Control and Prevention, 13 U.S. Public Health Service, U.S. Food and Drug Administration (FDA), U.S. Environmental Protection 14 Agency, Revenue Canada, Department of Justice Canada, Government of Hungary, Hong Kong Centre 15 for Economic Research, Hong Kong Medical Executives Association, World Bank, California AIDS 16 Commission, California Medi-Cal Drug Advisory Board, County of San Diego Medically Indigent 17 Adult Program, and County of Sacramento Homeless Program. 18 21. I have served as an Executive Committee member for the federally-sponsored Southern 19 California Evidence-Based Medicine Practice Center; and a member of the JAMA Web Site HIV/AIDS 20 Editorial Review Panel. I also recently completed a third consecutive two-year term as a Study Section 21 member for the Extramural Grants Review Program for the Agency for Healthcare Research and Quality 22 of the U.S. Department of Health and Human Services. 23 22. From 2004 to 2010, I was a founding member of the Health Policy Scientific Council of 24 the International Society for Pharmacoeconomics and Outcomes Research (ISPOR). From 2006 to 2010, 25 I was founding Co-Chair of ISPOR's Drug Cost Task Force. In 2010, this Task Force published six 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. DECL. OF JOEL W. HAY 5 1 1 peer-reviewed guideline papers on pharmaceutical costing methodology in the journal Value in Health, 2 all of which I edited and co-authored. 3 23. I served as the Founding Editor-in-Chief of Value in Health, the peer-reviewed scientific 4 journal of ISPOR, from its 1998 inception until 2003. In its first scientific citation impact factor, Value 5 in Health was ranked number one in two categories for the year 2004 by the ISI Journal Citation 6 Reports® (JCR) with an impact factor of 3.657. Value in Health led all other journals listed in both the 7 Health Care Sciences and Services category of the JCR Science Edition and in the Health Policy & 8 Services category of the JCR Social Sciences Edition. These categories include all journals relating to 9 health economics and pharmaceutical economics. 10 24. I am a member of many professional societies, including Academy of Managed Care 11 Pharmacy, American Association of Colleges of Pharmacy, American Economic Association, American 12 Public Health Association, American Society of Health Economists, Disease Management Association 13 of America, Eastern Economics Association, Econometrics Society, International Academy of Health 14 Preferences Research, International Health Economics Association, International Society for 15 Pharmacoeconomics and Outcomes Research, International Society for Quality of Life Research, 16 International Society of Technology Assessment in Health Care, Southern Economics Association, and 17 Western Economics Association. 18 25. I have provided sworn testimony and expert opinions in numerous legal cases and 19 arbitration hearings on issues relating to pharmaceutical pricing, pharmaceutical markets, economic 20 evaluation of pharmaceuticals, and many other issues relating to the pharmacy and pharmaceutical 21 industries and prescription drugs. I have been qualified as an expert witness dozens of times by courts 22 to provide expert opinion testimony (and my testimony has never been excluded), and I have testified 23 for both plaintiffs and defendants. 24 IV. BASIS OF OPINIONS 25 26. In reaching my opinions below, I have reviewed and rely on pharmacy industry materials, 26 which I cite in this declaration, as well as documents that CVS has produced in discovery and testimony 27 from CVS witnesses who have been deposed. I also rely on my more than two decades of experience 28 teaching and conducting research at the USC School of Pharmacy and teaching thousands of pharmacy DECL. OF JOEL W. HAY 6 1 1 students about how drugs are purchased and paid for. I further rely on my more than three decades of 2 experience in evaluating and researching drug prices and pharmaceutical market transactions. 3 27. In addition, I received from Plaintiffs' counsel retail pharmacy transactions data covering 4 the time period of November 9, 2008 to December 7, 2015 for all transactions of HSP eligible drugs 5 occurring at CVS retail pharmacies in thirteen states: Arizona, California, Florida, Georgia, Illinois, 6 Massachusetts, Maryland, New Jersey, New York, Ohio, Pennsylvania, Texas, and the District of 7 Columbia.7 These data include 936,214,763 transactions for 462 different products covered by the HSP 8 program,8 including generic medications, women's health products, flu vaccines, antibiotics and diabetic 9 test strips. The transactions included those made using prescription drug insurance coverage, as well as 10 "cash" transactions – those made without such coverage (in other words, where the patient herself 11 purchases the drug entirely out of her own pocket, without a third-party making a payment to the 12 pharmacy). This latter category includes transactions that CVS identified as being made under the HSP 13 program. 14 28. As per counsel's data request, all of these transactions were taken to be final transactions. 15 I understand that CVS's corporate representative confirmed this during her Rule 30(b)(6) Deposition. 16 29. The CVS retail pharmacy transaction data definitions were provided by CVS's counsel 17 in letters dated February 2, February 26, and April 15, 2016. 18 19 A. Opinion 1: CVS's claims adjudication process has multiple common, standard features that apply across the transactions of class members 20 30. The structure and logic of CVS's claims data system demonstrate several common 21 features of CVS's claims adjudication. 22 i. CVS uniformly collects total reimbursements equal to or less than the U&C 23 price it submits to TPPs. 24 31. According to the deposition of CVS executive Scott Tierney and CVS Rule 30(b)(6) 25 witness Hilary Dudley, CVS actively limits the total reimbursement due from the TPP and patient to the 26 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). DECL. OF JOEL W. HAY 7 1 1 1 1 drug is sold. The National Council of Prescription Drug Programs (NCPDP), which maintains the 2 industry standard for electronic transmission and adjudication of pharmacy claims, defines U&C as the 3 "Amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed."11 4 37. A standard feature in government programs and third party payors is a requirement that 5 they will not reimburse pharmacies more than the pharmacies' U&C charges for any medication. This 6 reimbursement refers to the total reimbursement including the cost sharing with the patient. This is 7 referred to as the U&C "fee screen." Fee screens are often established for drugs and other medical care 8 items to ensure that the payor and the patient are obtaining these goods and services at prudent and 9 reasonable rates.12 10 ii. The U&C prices CVS submits to PBMs and TPPs are inflated. 38. 11 12 13 14 15 16 17 18 19 39. For a pharmacy to submit U&C prices to TPPs and PBMs that are not routinely paid by 20 cash customers, much less not paid at all, is contrary to the industry standard of a U&C price and the 21 concept of the U&C fee screen. 22 23 24 25 26 11 27 NCPCP, Telecommunication Version 5 Questions, Answers and Editorial Updates, 2010; pg. 38. 12 Yett, D., Der, W., Ernst, R. and Hay JW. "Fee Screen Reimbursement and Physician Fee Inflation," Journal of Human 28 Resources 20(2), (Spring 1985), pp. 278-291. 13 Melkonian Dep. 22:6-12, 44:7-4:19, 38:14-39:14. DECL. OF JOEL W. HAY 10 1 1 1 1 iv. If the court/jury determines that a different price other than the HSP price is CVS's true U&C price, the model can readily be adjusted to generate 2 damages calculations with this different price 3 44. I have presented damages calculations derived from what I find to be a reasonable and 4 reliable assessment of CVS's true U&C prices – prices based on CVS's HSP prices. Should the Court 5 or finder of fact determine that some other measure of U&C prices is more appropriate, it will be 6 straightforward for me to generate new damages calculations based on any such alternative U&C prices. 7 C. Opinion 3: The transaction data for the named Plaintiffs' relevant purchases 8 indicate that Plaintiffs meet the class definition. 9 45. I have examined CVS's transaction data for transactions that the named Plaintiffs made 10 in this litigation. 11 46. CVS produced Excel spreadsheets that have certain transaction information about the 12 named Plaintiffs' purchases of prescription drugs from CVS. 13 47. Plaintiffs' counsel identified certain specific transactions that Plaintiffs have asserted are 14 the basis for their lawsuit against CVS. 15 48. I used attributes from the information in these spreadsheets to identify the corresponding 16 transactions in CVS's transaction data. 17 49. This allowed me to verify that these purchases were of drugs that were offered through 18 the HSP program at the time of the transaction, because (as I have been informed) CVS only produced 19 transactions for HSP-offered drugs in its data set. 20 50. I also confirmed that for each of the relevant transactions of the named Plaintiffs, CVS 21 in fact charged Plaintiffs a copayment that exceeded what I have determined to be CVS's true U&C 22 prices, those based on CVS's HSP prices. 23 24 D. Opinion 4: There are more than 37 million class members who CVS charged copayments that exceeded CVS's true U&C prices. 25 51. To determine the number of class members, I utilized and rely on CVS's transaction data, 26 contracts, and deposition testimony that was produced in discovery. Patients in the class are all 27 customers of TPPs or PBMs that limit what a pharmacy can be paid for a prescription drug to the lower 28 DECL. OF JOEL W. HAY 13 1 1 of a contracted rate or the U&C price that the pharmacy submits, and that do not expressly exclude 2 discount program prices from U&C prices. 3 52. 4 5 6 7 53. 8 9 .18 10 54. I then identified the class members from this pool of patients by determining whether 11 CVS overcharged the patient for one or more purchases, in the manner described in part E below. 12 55. In total, there are 37,114,569 class members. This total can be broken down according 13 to the 11 states for which Plaintiffs seek certification, as set forth in the chart below. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 17 28 Exhibit 12 to Plaintiffs' Motion for Class Certification 18 Dudley Dep. 71:4-12. DECL. OF JOEL W. HAY 14 1 1 1 59. In order to make these damages calculations, I employ a retrospective forensic 2 accounting method that compares the co-payment paid by the insured class members to the true U&C 3 price. I have applied the explicit U&C pricing calculations to determine the damages that CVS caused 4 the class, using the following formula: 5 Actual copay Plaintiff paid, minus the U&C price I have recalculated using CVS's HSP 6 prices = overcharge damages. 7 60. Based on this methodology, my damages calculations are as follows:20 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 20 Price changes applied to the Usual Medication, Women's Health, Flu Vaccines and Antibiotics as follows: 1/1/2011, the Usual Medication switched from $9.99 to $11.99 per 90-day supply; Women's Health switch from $23.99 to $25.99 per 28 90-day supply. 8/1/2011, Flu Vaccine switched from $26.95 to $26.99. 11/1/2013, Antibiotics switched from $8.99 to $10.99 per 30-day supply. DECL. OF JOEL W. HAY 16 1 1 1 1 1 1 1 1 1 1 1 1 1 1 contracts, and other documents and information. 2 3 I declare that the foregoing is true and correct to the best of my knowledge and belief 4 5 6 Dated: October 3, 2016 7 Joel W. Hay 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DECL. OF JOEL W. HAY 29