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Benefit Providers' Consumer Claims Over Diabetes Drug Dismissed

A federal judge in New York has dismissed consumer claims against the maker of the diabetes drug Rezulin by two health benefit providers that said the company made misrepresentations about Rezulin's safety, leading them to choose the drug over cheaper, more effective competitors.

Finding that Eastern States Health & Welfare Fund and Bluecross & Blueshield of Louisiana were not "consumers" of the drug, U.S. District Judge Lewis A. Kaplan ruled they lacked standing to sue drug maker Warner-Lambert Co. for breach of warranty.

Rezulin was removed from the market in 2000 after it was linked to liver failure.

According to documents from the U.S. District Court for the Southern District of New York, both health benefit providers process medical benefits for past and present members of a textile workers trade union. In this case, they processed the benefits under contract with New Jersey-based pharmacy benefit manager Medco Health Solutions Inc., which administers drug benefits.

Because pharmacy benefit managers are responsible for deciding which drugs a benefit plan will cover, pharmaceutical companies often lobby them to add certain drugs to corporate health benefit plans.

Eastern States and Bluecross claim they significantly overpaid for the pricey Rezulin based on misrepresentations made by Warner-Lambert to Medco to secure the diabetes drug a slot on their approved medications list in 1997. Both sought recovery of the difference between the price they paid for Rezulin and the price they would have paid for its cheaper competitors between the time of Rezulin's March 1997 introduction and its withdrawal from the market three years later.

Applying the state consumer laws of Louisiana, New York and New Jersey, Judge Kaplan said neither plaintiff could recover for breach of warranty under the relevant consumer protection statutes.

The claims fail, he said, since the plaintiffs do not have an ownership interest in the drugs they acquire for client use and because the alleged misconduct by Warner-Lambert was directed not toward them but toward Medco, their contracted pharmacy benefit manager.

Judge Kaplan also rejected the claim that Medco was acting as the providers' agent, since they retained the ultimate authority over whether to add Rezulin to their benefits formularies. He said such a claim was true only in a "theoretical and ultimately immaterial respect" because neither provider specified in the contract with Medco that Rezulin should or should not be included.

"Thus, the fact that the [health benefit providers] might have insisted on contracts giving them control over the drugs included in Medco formularies is quite immaterial to the agency question for the simple reason that they never did so," Judge Kaplan said. "Indeed, the fact that Medco was not an agent of either of the HBPs is confirmed by their contracts, which specifically disclaimed agency relationship between them."

The judge applied the same reasoning to the breach-of-warranty claims. Since neither provider was a consumer of the drugs and did not "take title to or possess them," he said, the provider "gained no rights" in them.

"The HBPs had no relationship to the drugs at all other than indirectly funding their purchase," the judge said. "If a pharmacy's or warehouse's supply of medications were destroyed, the HBPs would have sustained no loss."

The judge said "paying for part of the cost of something is not the same as buying it."

Multidistrict litigation is a special procedure established for the consolidated resolution of hundreds, sometimes thousands, of similar federal court suits against the same defendant. Such proceedings are common in cases involving pharmaceuticals, medical devices and consumer products.