PAYORS, PLAYERS, AND PROXIMATE CAUSE.

AuthorCrusey, Elisabeth F.

INTRODUCTION

The price of one vial increased by 1000%. Acthar Gel rose from $40 per vial in 2001 to over $40,000 per vial in 2015. (1) Acthar is a prescription gel injection used to treat multiple sclerosis. (2) Law Enforcement Health Benefits (LEHB), a healthcare payor that insures over eight thousand police officers and their families, pays for it. (3) In May 2021, a class including LEHB sued Acthar's owners, manufacturers, and others under the Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiffs alleged that Acthar's manufacturer increased its price to "unconscionable levels" and unlawfully marketed Acthar for unapproved uses and doses. (4) These activities, they alleged, financially harmed payors like LEHB. (5) Now, the district court must determine whether these plaintiffs have successfully fulfilled the requirements of standing for a civil RICO claim to proceed. (6) If so, they could recover three times the damages they would in a regular class action. (7) This is not the first court to encounter this issue.

This Note discusses a two-sided, five-circuit split on the matter. At issue is whether pharmaceutical companies' allegedly misleading drug labels that providers rely upon when prescribing drugs to patients, which plaintiffs classify as mail and wire fraud, are the proximate causes of third-party payors (TPPs) overpaying for medication, or enduring a financial injury, such that the TPPs fulfill RICO standing under 18 U.S.C. [section] 1964(c). Included in this issue are questions about whether the alleged RICO violations directly caused the TPPs' financial injuries such that plaintiffs meet the proximate cause requirements under [section] 1964 (c) to state a valid claim. Presently, the First, Third, and Ninth Circuits agree that allegations of misleading drug labels fulfill the proximate cause requirement of a civil RICO claim. (8) The Second and Seventh Circuits disagree, explaining that it is too difficult to distinguish between doctors' independent prescribing practices and the degree to which they were influenced by a drug label to consider an allegedly misleading label a proximate cause. (9) In other words, the Seventh and Second Circuits hold that an allegedly misleading label is too attenuated from the plaintiff's injury to form a direct relationship required for standing under [section] 1964(c). This Note illustrates the main tensions and opportunities for factual variations in these cases, and those to come, that could influence a court's proximate cause analysis. If civil RICO plaintiffs satisfy proximate cause and meet the remaining elements of standing under [section] 1964(c), they can move to the next stage of their lawsuits. And these lawsuits have billions of dollars--treble billions--at stake. (10)

This Note argues that future courts should determine whether plaintiffs properly allege proximate cause in similar cases with the following two-step inquiry. First, courts should determine whether the pharmaceutical company's actions and the TPP's injury meet the directness "separation" requirement as set forth in Hemi Group, LLC v. City of New York (Hemi). (11) Second, if the allegations fail the Hemi separation test, the inquiry ends. If they meet it, courts should then ensure that imposing liability aligns with the policy reasons that Holmes v. Securities Investor Protection Corp. (Holmes) (12) gives for establishing a directness requirement in a proximate cause inquiry. When a court ensures that liability aligns with Holmes's policy reasons, it confirms that the liability aligns with the goals or civil RICO claims. It also uncovers any sources of intervening cause or attenuation not recognized in the Hemi separation test. If plaintiffs properly allege directness and a court determines that imposing liability is proper under Holmes, they satisfy proximate cause. So far, the Second Circuit's reasoning most relies on Hemi's separation test in the way this Note suggests courts should. But that court's outcome also relies on various elements of proximate cause that this Note argues should not weigh into the analysis until first establishing directness.

Part I of this Note discusses the background of civil RICO claims and the requirements of statutory standing under [section] 1964(c). Part II then examines the origin of the Supreme Court's "directness" perspective of proximate cause and the Court's application of directness in recent cases. It will also propose the following process for courts to evaluate proximate cause in the current split, based on the Supreme Court's precedent. First, courts should conduct a Hemi separation test to satisfy directness. Second, they should check that outcome against the Holmes policy reasons for instituting a directness requirement. Part III surveys the relationships between payors and players--pharmaceutical companies, TPPs, insurers, physicians, and patients--in the instant split, analyzes the circuits' reasonings and outcomes, and explains why the Second Circuit's reasoning most closely follows this Note's proposed inquiry. Finally, Part IV applies the proposed inquiry framework to hypothetical examples of proximate cause analyses that future courts might encounter.

  1. BACKGROUND OF CIVIL RICO CLAIMS

    1. Legislative Motives and Text

      Prosecutors and citizens alike turn to the Racketeer Influenced and Corrupt Organizations title of the Organized Crime Control Act of 1970 (13) for a solution to a timeless problem: organized crime." In the late 1960s, the Senate determined that existing civil remedies for organized crime were "inadequate to remove criminal influences from legitimate endeavor organizations." (15) Existing remedies were actually not civil at all, (16) In fact, they included arresting, convicting, and imprisoning criminal enterprise leaders. (17) Those temporary solutions, although they prevented harmful individuals from further hurting the public, did not reach the root of the problem. (18) Their effectiveness also relied only on the government's enforcement ability. (19) Rather than remain hopeful that arresting organized crime leaders would control increasing crime and harm to the public, the Senate recognized a need to direct solutions toward the root of criminal operations. (20) Those solutions included giving courts the power to "impose intrusive, structural reforms" on criminal enterprises, such as dissolving them completely. (21) The Senate envisioned courts issuing equitable remedies between the public and criminal enterprises. (22) These remedies would, the Senate hoped, better deter criminal behavior than merely removing a sole leader from the enterprise. (23) Allowing members of the public to seek civil remedies for harms from organized crime also mirrored the remedies available in antitrust law at the time. (24) The threat of civilian enforcement, in addition to government enforcement, fulfills RICO's purposes of controlling organized crime through economic consequences. (25)

      The meaning of "organized crime" varies with context. (20) Rather than adhering to a solely "Mafia"-like perception of organized crime while drafting RICO, congressional committees recognized that organized crime also exists in the world of legitimate businesses. (27) The executive branch, too, urged Congress to develop solutions for organized crime in legitimate business ventures. (28) According to President Lyndon B. Johnson's Commission on Law Enforcement and Administration of Justice (Commission), "[o]rganized crime is a society that seeks to operate outside the control of the American people and their governments.... [It] is also extensively and deeply involved in legitimate business... [and] employs illegitimate methods--monopolization, terrorism, extortion, tax evasion--to... exact illegal profits from the public." (29) A 1969 Senate bill, based on some of the Commission's recommendations for combatting organized crime, eventually developed into RICO's predecessor. (30) Legislators' concept of organized crime--uncontrollable businesses focused on exacting illegal profits from innocent citizens--underlies RICO's remedies.

      RICO is not just a tool for government control over organized crime. It is also a remedial statute for civil matters. (31) It "authorize[s]... criminal or civil remedies on conduct already criminal, when performed in a specified fashion" as delineated by the statute. (32) Section 1962 provides civil remedies for four types of conduct:

      (1) using income derived from a pattern of racketeering activity (33) to acquire an interest in an enterprise;

      (2) acquiring or maintaining an interest in an enterprise through a pattern of racketeering activity;

      (3) conducting the affairs of an enterprise through a pattern of racketeering activity; and

      (4) conspiring to commit any of these offenses. (34)

      Today, Congress urges courts to construe RICO liberally from the "perspective of the victim, not the perpetrator." (35) A private civil right of action in [section] 1964 provides that "[a]ny person injured in his business or property by reason of a violation of section 1962... may sue." (36) Notably, a successful plaintiff under [section] 1964 is entitled to treble damages and the cost of the suit, including attorney fees. (37) The threat of treble damages encourages plaintiffs to bring claims and discourages entities from engaging in illegal activities.

      Although encouraging plaintiffs to bring claims under [section] 1964 supplements law enforcement's prosecutorial efforts, (38) it also offers a potential for abuse. (39) Among the potential types of abuse are stigma resulting from meritless claims, reputational damage, and an inappropriately broad application of RICO. (40) Courts must navigate the tension between Congress's mandate to construe RICO liberally and ensuring they do not create precedents that open doors to abuse. Judicial interpretations of standing requirements under [section] 1964 are one tool for this...

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