CHAPTER § 10.03 Standing and Remoteness

JurisdictionUnited States

§ 10.03 Standing and Remoteness

As noted above, TPPs reimburse for medical costs and do not directly purchase or use pharmaceuticals or devices. In many cases, they defer to their PBMs concerning the placement of particular drugs on their formularies and have little or no contact with pharmaceutical and medical-device makers. As a result, TPPs are often forced to rely on very indirect and attenuated theories of liability. They may, for example, claim that they were injured as a result of alleged misstatements made by the company to doctors or other third parties not before the court. As the TPPs learned in the cases they pursued against the tobacco industry in the late 1990s, however, such claims are vulnerable to standing and remoteness challenges.45 Unlike many of the other defenses,46 standing and remoteness, when properly raised and supported, can defeat an entire TPP complaint as early as the motion-to-dismiss stage.

This section gives an overview of the standing and remoteness doctrines, then briefly explains how they apply to TPPs. Finally, it offers some practical advice in assessing the strength of a TPP complaint and offers pointers on how to bolster an attack on standing.

[1] Standing and Remoteness: The Law

The standing doctrine is rooted in Article III of the Constitution and ensures that federal courts hear only "cases" or "controversies."47 To demonstrate standing a plaintiff must show an injury, causation, and redressability.

As to injury, the Supreme Court has explained that, "at an irreducible minimum," a plaintiff must show the following: (1) "a concrete and particularized" injury; and (2) that is "actual or imminent, not conjectural or hypothetical."48 In addition, "there must be a causal connection between the injury and the conduct complained of-[that is] the injury has to be 'fairly . . . trace[able] to the challenged action of the defendant, and not . . . the result of the independent action of some third party not before the court.'"49 Finally, "it must be 'likely,' as opposed to merely 'speculative,' that the injury will be 'redressed by a favorable decision.'"50

The doctrine of remoteness is closely linked to the standing inquiry and grounded in principles of proximate cause.51 Practically speaking, if a claim is too remote, then a plaintiff likely cannot show the causal connection needed to establish standing. "[A] plaintiff who complain[s] of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts [is] generally said to stand at too remote a distance to recover."52 Thus, to state a claim, a plaintiff must plead a direct, as opposed to indirect, injury.53 "[W]here a plaintiff complains of injuries that are wholly derivative of harm to a third party, plaintiff's injuries are generally deemed indirect and as a consequence too remote, as a matter of law, to support recovery."54

The remoteness doctrine supports important policies. Claims for indirect injuries make it difficult for a court to determine whether the defendant's conduct, as opposed to any number of independent factors, caused the harm, and thus complicates the apportioning of damages.55 If indirect claims proceed, courts are forced to "adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, in order to avoid the risk of multiple recoveries."56 Addressing these issues is "unnecessary where there are directly injured parties who can remedy the harm without these attendant problems."57

[2] Attacking TPP Theories of Injury Based on Standing

[a] No Injury in Fact

Against this background, the indirect nature of TPPs' relationships with pharmaceutical and device manufacturers gives rise to standing problems. Although TPPs may attempt to characterize their injury as direct,58 they typically do not purchase anything directly, but only reimburse their insureds for health care costs. In many cases, they have no contact with drug and device makers and no involvement in doctors' decisions to prescribe drugs or devices to their insureds. Any theoretical injury suffered by such TPPs is necessarily derivative of a series of transactions between others that are not before the court and about which often nothing is known. Allegations of injury under these circumstances are just "too speculative to constitute an injury-in-fact under Article III."59

[b] No Causation or Redressability/Too Remote

Even where TPPs themselves purchase or contract for the purchase of pharmaceuticals at a particular price, it is still someone else—either the physician or the patient— who makes the ultimate decision to take a particular drug (or install a particular device). A manufacturer can argue that the independent choices of these third parties actually caused the injuries (i.e., causation is absent). It logically follows that there is no guarantee that a TPP lawsuit will change patient or physician behavior. In this sense, the injuries are not redressable.

These considerations also go directly to the policies underlying the remoteness doctrine. Apportionment of damages is complex when patient and physician choice interrupts the chain of causation. This is especially true when the patients themselves may simultaneously pursue claims based on the same conduct that forms the basis of a TPP complaint (the risk of double recovery arises).

Moreover, if a patient cannot prove that his physician would have changed his behavi or (absent misrepresentations), then neither can a TPP that reimbursed for the product. Manufacturers should emphasize these complications in order to bolster their standing and remoteness arguments.60

[3] Indirect vs. Direct Injury

Despite their strength, not all courts have accepted these standing arguments. Whether an attack succeeds will often depend on the precise theory of injury the TPP pursues, including whether a TPP alleges indirect or direct injury.

[a] Indirect Injury

In indirect-injury cases, TPPs typically allege they were injured by representations about a product's safety and efficacy. In such cases, it is the patient who suffers a direct injury. Because the TPPs' economic injuries are derivative of these more direct injuries, manufacturers can argue that Article III standing is not present.61

Indirect-injury claims can be susceptible to standing challenges for lack of injury.62 For example, if a TPP incurs costs for a drug that has injured some—but not all—patients who ingested it, the TPP has to explain how it was allegedly "injured" to the extent it paid for drugs that benefitted its insureds. In rejecting such an argument brought by a TPP who specifically disclaimed damages for physical injuries, the Fifth Circuit concluded that the TPP received exactly what it bargained for: an effective medication.63 Thus, the court found the TPP had not suffered an "injury in fact" and reasoned that "[i]t is not enough that [the manufacturer] may have violated a legal duty owed to some other patients; the [TPP] plaintiffs must show that [the manufacturer] violated a legal duty owed to them."64 Injury may also be lacking if a TPP makes no allegations that it agreed to pay for the drug or device at issue based on its relationship with the manufacturer or representations made by the manufacturer to the TPP.65

Indirect-injury claims can also be susceptible to standing challenges for an inability to prove causation, since the decision to use prescriptions drugs or devices is necessarily made by physicians and patients, not TPPs.66

[b] Direct Injury

As noted in the introduction, a TPP's most straightforward approach is to assert that the defendant manufacturer made misrepresentations that directly induced the TPPs to cover and pay for drugs and devices they would not have otherwise covered. Such claims have been able to survive a motion to dismiss for lack of standing.67 But because most TPPs are large and sophisticated (often many times larger than the companies they sue), TPPs typically find it impossible to produce evidence that they heard and reasonably relied to their detriment on alleged mis-statements made by the defendants.68 In addition to inherent problems of proof, the direct-injury theory presents another problem for TPPs: it is incompatible with class certification because each member of the putative class must prove individual reliance.69

Direct-injury claims have also been recognized where TPPs allege they suffered injury because they paid higher prices, regardless of the injuries sustained by their insureds.70

[c] Can Direct Injury Be Shown Through Statistical Analysis?

One of the fundamental problems facing TPPs in this kind of litigation is the lack of any direct connection between the marketing and promotion of prescriptions drugs and medical devices, on the one hand, and the decisions made by TPPs to carry those drugs and devices on their formularies. In an attempt to overcome this hurdle, and because indirect injury claims have largely failed, TPPs have tried to meet the direct-injury requirement through the use of statistics and econometric data.

A limited number of courts have allowed TPPs to show direct injury through statistical analysis.71 When permitted, the use of statistics allows TPPs to prove harm simply by showing that they purchased a drug or device during a time when the drug or device was artificially overpriced even if they never heard, saw, or relied upon any statement attributable to the manufacturer. The use of such aggregate statistical proof, which is akin to the "fraud on the market" theory used in securities litigation (the theory that misinformation inflates the price of a stock, which means the buyer implicitly relies on the misinformation when purchasing the stock), precludes the need for individualized proof of reliance.

The use of statistics to establish that an alleged fraud on doctors and other third parties "caused" an increase in the price of a prescription drug or medical device is...

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