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The Attorney General of New York state and Mayor of New York City issued this announcement yesterday, of a lawsuit against Merck (NYSE:MRK):

Attorney General Andrew M. Cuomo and New York City Mayor Michael Bloomberg today filed a joint lawsuit against the maker of Vioxx for misrepresenting the dangers the drug posed to its users. The lawsuit seeks damages and civil penalties in addition to restitution for tens of millions of taxpayer dollars wrongfully spent on Vioxx prescriptions, and marks the first time the State and City have brought a joint action to fight Medicaid fraud.

One question concerns what New York is seeking restitution for:

As a result, Merck is accused of having caused New York doctors to prescribe Vioxx to patients whose cardiovascular conditions made them especially susceptible to the drug’s negative effects. Had the doctors been adequately informed, the suit alleges, they would not have prescribed Vioxx and thus Medicaid and EPIC would not have paid for its dispensation.

The group of “patients whose cardiovascular conditions made them especially susceptible to the drug’s negative effects” is but a small subset of the patients for whom Vioxx was improperly prescribed. With Vioxx, Merck’s deception caused the entire health care system to pay for prescriptions not only for people who were at risk of heart attacks and thus shouldn’t have taken Vioxx, but also for people who wouldn’t have taken it had they known the risks (regardless of whether they were individually at higher risk) and also for people who simply didn’t need it — that is, the vast majority, for whom over-the-counter Ibuprofen or Naproxen Sodium would have worked just as well.

The press release makes it seem that NY is only seeking to recoup the payments it made for patients who were “especially susceptible” to the side effects. How will New York determine which patients those are? And why are they not seeking to recoup the payments made for the much larger groups of patients who were prescribed Vioxx unnecessarily? The deception allegedly undertaken by Merck was not just about the side effects — but also about the efficacy: Merck made Vioxx seem like a vast improvement over other drugs, when for pain relief it was no better than ibuprofen.

The main question that springs to mind is “What took them so long?” Vioxx was withdrawn from the market at the end of 2004. Here it is, nearly three years later. The filing of this lawsuit comes on the heels of the recent decision of the New Jersey Supreme Court, refusing to allow a class action on behalf of “third party payors” (TPPs) to go forward. Third Party Payors are those entities that pay for drugs and medical care on behalf of individuals — i.e. health plans, union benefit funds, self-insured employers. Government programs like state Medicaid programs are also third party payors, but are almost always excluded from these class actions because only state Attorneys General can bring lawsuits on behalf of their states.

In all likelihood, the timing of this new lawsuit, so soon after the New Jersey Supreme Court Vioxx decision, is coincidental. But it does make one consider the patchwork system in which the different players in the health care system try to get restitution when a drug company rips them off.

When a consumer goes to the pharmacy counter, numerous different entities may pick up part or all of the tab:

  • The consumer him or herself (either out of pocket entirely, or a fixed copayment or a percentage co-insurance)

  • A private health plan, perhaps through an employer or union, or purchased individually, or a Medicare supplemental plan, or a Medicare drug plan
  • A state government program, such as Medicaid, an AIDS Drug Assistance Program, a state program for seniors, or a state employee health plan
  • A federal government program, suchs as the VA, Tri-Care (the military health plan), a federal employees health plan, or Medicare Part D

When a drug company (or any health care company, for that matter) deceives the public about the safety or efficacy of its products, each of these “payors” is harmed when it unnecessarily pays or overpays for the drug in question.

Let’s focus for a moment just on the payments that all of these different people and payors made unnecessarily for Vioxx (and not on the untold suffering and medical cost imposed on those who actually had heart attacks, and their families). How do each of the types of payors described above get reimbursed for their payments? Through a fragmentary and overlapping and somewhat illogical system of separate lawsuits, in which the same facts have to be demonstrated again and again (unless, as hopefully will happen, Judges apply the doctrine of “collateral estoppel,” in which Merck would not be able to argue again and again in each suit that they didn’t know about the risks until they withdrew the drug). So, in a situation such as this you have:

  • Class action lawsuits on behalf of third party payors and consumers — sometimes in the same lawsuits (as in the consolidated proceedings currently before the U.S. District Court in New Orleans), and sometimes in separate lawsuits (as in New Jersey state court, where a consumer class action was filed separately from the TPP class action which the NJ Supreme Court just ruled on recently).
  • Lawsuits brought by state Attorneys General on behalf of their state Medicaid programs, state employee health programs, state prisons, programs for the elderly and disabled, and others. At times, these Attorneys General participate in the class actions described above.
  • Lawsuits on behalf of cities and counties, to recoup funds spent on Vioxx for city and county employees
  • False Claims Act lawsuits on behalf of federal programs such as Medicare (however, Medicare Part D didn’t go into effect until 2006, long after Vioxx was off the market

In this mix you have private attorneys, state Attorneys General and federal prosecutors. It makes for a rather complicated situation. It also makes for strange bedfellows – in a single class action lawsuit, you can have state Attorney Generals, large for-profit commercial insurers that cover millions of people (e.g. Aetna, Humana, United Healthcare, and some Blue Cross plans), small non-profit health plans, union health and welfare funds, self-insured employers, and millions of individual consumers. A class action is really the only way to seek restitution in these situations, in which virtually none of the people and entities who were harmed would be able to bring a lawsuit on their own. But it does make things tangled.

New York is not the first state to sue Merck over Vioxx payments (Texas, for instance, sued Merck back in June 2005). But New York in the past few years has been a leader among states in prosecuting pharmaceutical fraud, under former-New York AG Eliot Spitzer, now Governor of New York). So other states may jump on this bandwagon, in New York’s wake (to mix metaphors).

It will be interesting to see whether Merck’s promise to try every case will hold true for state Attorney Generals, whom corporate defendants are often loath to try to intimidate.

Stay tuned!