Health Law Daily Breach of contract issues center on manufacturer’s Medicaid drug rebate liability
Thursday, October 5, 2017

Breach of contract issues center on manufacturer’s Medicaid drug rebate liability

By Susan Smith, J.D., M.A.

In an action related to the sale’s agreement for the marketing rights to the drug Daraprim and addressing the resolution of liability under the Medicaid drug rebate program, Impax Laboratories, Inc. (Impax) requested summary judgment on its breach of contract claims against Turing Phramceuticals, AG (Turing), which the court granted in part and denied in part. Turing, in return, requested summary judgment on its counterclaims against Impax, which the court also granted in part and denied in part. Impax sought a declaratory judgment that Turing breached the agreement by failing to provide timely and accurate pricing data, an order compelling specific performance of Turing reporting obligations under the agreement, and damages for Turing’s failure to reimburse Impax for its share of the Medicaid rebate liability. Turing entered counterclaims against Impax for breaching the agreement by refusing to restate pricing data and breaching the duty of good faith and fair dealing (Impax Laboratories, Inc. v. Turing Pharmaceuticals AG, September 29, 2017, Ramos, E.).

Medicaid Drug Rebate Program. To be eligible for Medicaid coverage, the drug manufacturer must participate in the Medicaid Drug Rebate Program and enter into a Medicaid agreement with HHS. State Medicaid agencies cover the cost of the drug and collect a rebate from the manufacturer. Each drug is linked to its manufacturer through its unique National Drug Code (NDC), which in part represents the manufacturer’s unique labeler code. CMS uses a statutory formula and pricing data submitted by the manufacturer to calculate a unit rebate amount (URA) for the drug to determine the quarterly rebate due from the manufacturer. The pricing data submitted by the manufacturer includes the average manufacturer price paid to the manufacturer by wholesalers and retail community pharmacies. Manufacturers must pay the entire URA on each unit of the prescription drug bearing their labeler code that is paid for by a state Medicaid program in that quarter regardless of the price at which each unit is sold by the manufacture and the amount paid to cover utilization of that unit.

Acquisitions and sales. Amedra Pharmaceuticals LLC, the original manufacturer of Daraprim, had entered into a rebate agreement with HHS, which required it to submit pricing data to the CMS and obtain a unique labeler code and entered into an exclusive agreement with Walgreen Co. (Walgreens). Impax’s acquisition of Ameda included the U.S. marketing rights to Daraprim as well as certain inventory of Daraprim, which was labeled with Amedra’s labeler codes. Under the acquisition, Impax assumed Amedra’s obligations under Amedra’s Medicaid rebate program agreement with HHS.

Impax later entered into an Asset Purchase Agreement (agreement) with Turing for sale of the rights to Daraprim and provided inventory of the drug. Rather than requiring Turing to repackage the inventory with Turing’s own labeler code immediately, the agreement allowed Turing to sell the inventory labeled with Amedra’s NDCs during a specific length of time. Under the agreement, Impax remained responsible for paying all Medicaid Rebate Liability for Daraprim and obligated to certify pricing data to CMS for Turing’s sale of Amedra-labeled Daraprim, while Turing agreed to provide Impax with monthly and quarterly Pricing Data for Daraprim so that Impax could report it to CMS and reimburse Impax for certain Medicaid liabilities.

Medicaid rebate liability. Shortly after acquiring Daraprim’s marketing rights, Turing raised the price from $17.63 per pill to $750 per pill, which (1) caused Walgreens, which had a distribution agreement that Turing assumed in the contract, to owe Turing an additional $73,000 per 100-count bottle for stock that was on the shelves and had been purchased from Impax, and (2) affected Impax’s rebate liability.

Since the close of the sales agreement, the state Medicaid agencies have invoiced Impax over $45,400,000 in Medicaid rebate liability for Daraprin, while Impax has invoiced Turing a total of over $43,434,000 in reimbursements. Turing discovered that it may have miscalculated the AMP that it submitted to Impax, potentially resulting in an overstatement of the total Medicaid Rebate Liability invoiced to Impax by the states and demanded that Impax submit restatement of the pricing data that it had submitted to CMS at $14, an amount significantly lower than the AMPs of $750 and $719.40 that Impax had submitted previously. Impax refused to restate the pricing data and Turing has not reimbursed Impax for its Medicaid liability.

The court’s findings. The court concluded that Impax was unable to prevail on any of its breach of contract claims because it had failed to perform its own obligations under the agreement by refusing to submit the proposed restatement. The court found that Turing breached its reimbursement obligations concluding that under the agreement, Turning is obligated to pay all of the Medicaid Rebate Liability triggered by utilization after the closing and is responsible for the incremental rebate liability assessed on pre-close utilization if the liability was generated solely by Turing’s marketing or sale of Daraprim. The court granted Turing’s counterclaim motion for summary judgement find concluding that Impax failed to perform its own contractual obligations by refusing to restate the pricing data revisions which it was obligated to do when the pricing data is objectively accurate and complies with applicable rules and regulations. The court denied Impax’s motion for summary judgment on its breach of contract claims against Turing, including specific performance and granted Turing’s counterclaims. Turing’s motion for breach of duty of good faith and fair dealing was denied.

Unjust enrichment. In an earlier opinion in this case, the New York federal district court ruled that a selling manufacturer has no right to pursue a claim for unjust enrichment against the purchasing manufacturer where the sales contract between the two parties covered all aspects of Medicaid rebate liability (see Unjust enrichment claim unavailable where valid contract exists, November 17, 2016).

The case is No. 16 Civ. 3241 (ER).

Attorneys: Benjamin Naftalis (Latham & Watkins LLP) for Impax Laboratories, Inc. Daniel Haym Weiner (Hughes Hubbard & Reed LLP) for Turing Pharmaceuticals AG.

Companies: Impax Laboratories, Inc.; Turing Pharmaceuticals AG; Tower Holdings, Inc.; Amedra Pharmaceuticals LLC

MainStory: TopStory CaseDecisions BillingNews MedicaidNews MedicaidPaymentNews PrescriptionDrugNews NewYorkNews

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