CHAPTER § 10.01 Introduction

• Jurisdiction: United States

§ 10.01 Introduction

Although tort claims against pharmaceutical and medical-device manufacturers based on injuries to individuals are now common,¹ there is another class of claimants known as "Third-Party Payors" ("TPPs"). Generally speaking, a TPP is a private or public insurer or other entity that reimburses individual patients for health care costs (including: union health and welfare funds; cities; and states).² Obviously, TPPs are business entities that cannot sustain "personal injuries" in tort. Thus, their claims are exclusively based on "economic injuries."

The first TPP lawsuits were filed against the tobacco industry in the late 1990s. As the theory went, TPPs were entitled to recoup the medical expenses associated with their insureds' smoking-related illnesses caused by the defendants' alleged misconduct. These cases received a cool reception initially from courts because the injuries allegedly suffered by the TPPs were too far removed from the alleged misconduct.³

Undaunted by these early setbacks, TPPs refined their theories and turned their sights on the pharmaceutical industry. TPPs have initiated a spate of lawsuits over a wide variety of pharmaceuticals and medical devices;⁴ indeed, such claims have become a fixture of mass-tort litigation. In this second wave of litigation, TPPs introduced new theories that they hoped would solve the probiems encountered in the tobacco litigation.

As will be discussed in more detail, TPPs base their claims on a variety of theories. Although they sometimes bring claims on behalf of their insureds (seeking recovery for increased medical expenses that result from putative product defects), such claims present difficult standing problems. As a result, TPPs often disclaim recovery for injuries based on, or linked directly to, their insureds.⁵ Perhaps more common are TPP claims based on inflated or super-competitive pricing. These claims can proceed either on antitrust theories or on putative misrepresentations of product safety or efficacy. Were it not for the misrepresentations, TPPs claim, they would not have paid a premium price, or would not have purchased the product at all.

The most straightforward approach advanced by TPPs consists of allegations that the pharmaceutical or device defendant(s) made misrepresentations that directly induced the insurers to cover and pay for drugs and devices they would not have otherwise covered.⁶ The problem with this approach is that most TPPs are large and sophisticated, and find it impossible to produce evidence that they heard and reasonably relied to their detriment on alleged misstatements by the defendants.⁷

Given these nuances, and the fairly recent vintage of such lawsuits, manufacturer defendants should understand how traditional legal defenses apply particularly to TPPs. Understanding how to defend against TPP claimants is also critical in light of the potential damages at stake. To begin with, TPPs typically cover large numbers of people. Kaiser Permanente covers 12.2 million people, while Aetna covers just over 22.1 million.⁸ Given those coverage numbers, TPPs can assert mass claims without meeting class-action requirements. And when TPPs win, the damages can be significant: in 2013, for example...