Texas County’s Deceptive Trade Practices Act Claim Survives Dismissal in Insulin Price-Fixing Case

Judge Gray H. Miller of the Southern District of Texas on Thursday denied a motion to dismiss a claim alleging violations of the Texas Deceptive Trade Practices Act (DTPA) against pharmaceutical companies and pharmacy benefit managers over purportedly operating an insulin price-fixing scheme.

The broad argument that plaintiff Harris County, Texas, made was that drug manufacturers — Eli Lilly and Company, Novo Nordisk Inc., and Sanofi-Aventis U.S. LLC — and pharmacy benefit managers (PBMs) — Express Scripts Holding Company, CVS Health Corporation, Caremark RX LLC, Aetna Pharmacy Management Services LLC, and Optum, Inc., among others — “have in lockstep raised the reported prices of their respective diabetes drugs in an astounding manner” through a conspiracy between the PBMs and manufacturers, which have substantial market power, causing insulin prices to inflate up to 1,000%. Harris County claimed that the defendants’ alleged conduct has increased costs for entities, such as itself, that provide employee health benefits.

The defendants moved to partially dismiss the second amended complaint by Harris County, targeting only the plaintiff’s DTPA claim, arguing that to state such a claim, Harris County would need to sufficiently demonstrate that it acted as a consumer. Accordingly, the plaintiff stated that given it is “a subdivision … of this state who seeks or acquires by purchase or lease, any goods or services,” it is a consumer through its purchasing of insulin products and pharmacy benefit management services for its employees and for Harris County inmates.

The defendants disagreed, contending that Harris County should not be characterized as a consumer under the DTPA because “the drugs were not purchased for Harris County’s benefit,” thus making any benefit the county received incidental, the court explained. Further, because the DTPA has a statutory limit of $500,000, the defendants said, the claim should fail because Harris County alleged that it “spent tens of millions of dollars” on diabetes products. The defendants also said the county failed to state an underlying DTPA claim to sufficiently allege conspiracy.

In a response, Harris County said it provides insurance coverage subsidizing prescriptions for 38,000 employees, retirees, and their dependents, as well as county jail inmates, “and each insulin transaction involving the at-issue drugs is a separate DTPA violation”; thus, none equal more than $500,000, the court recounted, also arguing that, regardless, the burden is on the defendants to prove that the $500,000 statutory limit even applies.

The plaintiff additionally sought to show it was a beneficiary and subsequently a consumer because “the health and well-being of its employees is essential to Harris County’s ability to fulfill its mission.” On the defendants’ argument that the plaintiff did not allege an underlying conspiracy claim, Harris County found no merit.

The court sided with the plaintiff on the question of whether it derives benefit from purchasing the drug products for its employees and county inmates.

“While the County obviously did not use the drugs,” the court said, “it is plausible that the employees purchased the drugs, in part, so they would be able to continue working as healthy employees of the County and that, in a way, the medications were partially purchased for the County’s benefit.”

However, on the statutory limit question, the court postulated that it would be difficult before discovery to resolve the question of whether the “purchases” Harris County purported to make could be broken down into separate transactions or identified broadly as “relating to the same project,” as the defendants would favor. The court’s uncertainty still warranted denial of the defendants’ motion, as did the court’s affirmation of a lack of merit in the defendants’ opposition to the plaintiff’s underlying DTPA conspiracy claim.

Harris County is represented by the Harris County Attorney’s Office, the Law Office of Richard Schechter P.C., the Cicala Law Firm PLLC, and Baker Wotring LLP.

Covington & Burling LLP, Yetter Coleman LLP, Davis Polk & Wardwell LLP, Bowman and Brooke LLP, Jones Day, Morgan, Lewis & Bockius LLP, Williams & Connolly LLP, Smyser Kaplan & Veselka LLP, Alston & Bird LLP, and Chamberlain, Hrdlicka, White, Williams & Aughtry comprise the defendants’ counsel.