14-4624
IN THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

PEOPLE OF THE STATE OF NEW YORK, by and through ERIC T.
SCHNEIDERMAN, Attorney General of the State of New York,
Plaintiff-Appellee,
v.
ACTAVIS PLC, FOREST LABORATORIES, LLC,
Defendants-Appellants.

On Appeal From The United States District Court
for the Southern District of New York, Case No. 14-CV-7473 (RWS)
AMENDED BRIEF FOR AMICI CURIAE AMERICA’S HEALTH
INSURANCE PLANS AND ALLIANCE OF COMMUNITY HEALTH
PLANS IN SUPPORT OF PLAINTIFFS-APPELLEES
Joseph M. Miller
Michael S. Spector
AMERICA'S HEALTH INSURANCE PLANS
601 Pennsylvania Ave., NW
South Building, Suite 500
Washington, D.C. 20004
Telephone: 202-778-3200
Counsel for America’s Health Insurance Plans
and Alliance of Community Health Plans

 CORPORATE DISCLOSURE STATEMENTS
In conformance with Fed. R. App. P. 26.1 and Second Circuit Local Rule
26.1, amicus curiae America’s Health Insurance Plans states that it is a non-profit
corporation, has no parent corporation, does not issue shares of stock and,
therefore, no publicly held corporation owns 10% or more of its stock.
In conformance with Fed. R. App. P. 26.1 and Second Circuit Local Rule
26.1, amicus curiae Alliance of Community Health Plans states that it is a nonprofit corporation, has no parent corporation, does not issue shares of stock and,
therefore, no publicly held corporation owns 10% or more of its stock.

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 TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT..........................................................i
TABLE OF CONTENTS ..........................................................................................ii
TABLE OF AUTHORITIES....................................................................................iii
INTEREST OF AMICI CURIAE............................................................................... 1
SUMMARY OF ARGUMENT................................................................................. 4
ARGUMENT............................................................................................................. 6
I.

Health Plans Play A Key Role In Restraining The Accelerating
Growth Rate In Prescription Drug Spending By Encouraging
Members To Use Generic Drugs ......................................................... 6

II.

Anticompetitive Product Extension Strategies Lead To
Decreased Competition From Generic Drugs And Higher Costs
For Health Plans And Consumers...................................................... 10

III.

Prohibiting Brand Manufacturers From Engaging In The
Product Extension Strategies Alleged Here Will Not Dampen
Their Incentives To Innovate ............................................................. 14

CONCLUSION........................................................................................................ 16
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE

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 TABLE OF AUTHORITIES
Cases
Abbot Labs. v. Teva Pharm. USA, Inc.,
432 F. Supp. 2d 408 (D. Del. 2006) .......................................................

11, 15

Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP,
540 U.S. 398 (2004) ...............................................................................

13

Statutes
Biologics Price Competition and Innovation Act .......................................

15

Hatch-Waxman Act..................................................................................... 6, 13, 14
Other Authorities
Altarum Institute, Initial estimates suggest health spending grew by
5.0% in 2014 (Feb. 12, 2015), at: http://altarum.org/sites/default/files/
uploaded-related-files/CSHS-Price-Brief_February_2015.pdf.

2, 7

Altarum Institute, Health care price growth ticks up despite 16-year
hospital growth low (Feb. 12, 2015), at: http://altarum.org/sites
/default/files/uploaded-related-files/CSHS-Spending-Brief_February_
2015.pdf.......................................................................................................

2

Drug Product Selection, Staff Report to the FTC, Bureau of
Consumer Protection (Jan. 1979)................................................................

6-7, 13

H.R. Rep. No. 98-857 (1984)......................................................................

6, 14

S&P Down Jones Indices, Healthcare Expenditures for Commercial
Plans up 3.2% in the Year to February 2014: S&P Healthcare Claims
Indices (June 30, 2014), available at: http://bit.ly/1m2hpDP.

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2, 7

 INTEREST OF AMICI CURIAE1
America’s Health Insurance Plans (“AHIP”) is a national trade association
representing the health insurance industry. AHIP’s members provide health
insurance benefits, including health, pharmaceutical, long-term care, disability,
dental and supplemental coverage to more than 200 million Americans. AHIP
advocates for public policies that expand access to affordable healthcare coverage
for all Americans through a competitive marketplace that fosters choice, quality
and innovation.
The Alliance of Community Health Plans (“ACHP”) is a national leadership
organization bringing together innovative health plans and provider groups driven by
a mission to deliver affordable, high-quality health coverage and care. Members are
not-for-profit, community-based

and regional

health

plans

and

provider

organizations. ACHP’s member health plans provide coverage and care for more
than 18 million Americans in 27 states. These 23 organizations focus on improving
the health of the communities they serve and are role models for other health plans
in innovating to achieve the industry’s “Triple Aim” – better health, better care, at a

Pursuant to Fed. R. App. P. 29(c), amici curiae state that no counsel for a party
authored this brief in whole or in part, and no counsel or party made a monetary
contribution intended to fund the preparation or submission of this brief. No person
other than amici curiae, their members, or their counsel made a monetary
contribution intended to fund its preparation or submission. All parties have
consented to the filing of this brief.
1

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 lower cost. Member plans provide prescription drug coverage in commercial,
Medicare, Medicaid, state and local government, and other lines of business.
AHIP’s and ACHP's members, who include primary payers for prescription
drugs in the United States, have a strong interest in a competitive market for those
drugs. As amici and their members are uniquely aware, increases in prescription
drug costs are a leading driver of rising healthcare costs. Moreover, those increases
have been accelerating at an alarming rate. In 2014, year-over-year national health
spending grew by 5 percent compared to 2013, while prescription drug spending
grew by 13 percent, to $319 billion—by far, the fastest growth rate of all major
categories of health spending.2 Prescription drug prices increased by 6.4 percent,
the highest growth rate since 1992 and, by far, the most rapid growth rate of all
major categories of price growth in the health sector.3 Faster price growth in 2014
resulted from price increases for brand-name drugs, the unit cost of which grew by
15.4 percent compared to 0.2 percent for generic unit cost.4

See Altarum Institute, Initial estimates suggest health spending grew by 5.0% in
2014 (Feb. 12, 2015), at: http://altarum.org/sites/default/files/uploaded-relatedfiles/CSHS-Price-Brief_February_2015.pdf.
3
See Altarum Institute, Health care price growth ticks up despite 16-year hospital
growth low (Feb. 12, 2015), at: http://altarum.org/sites/default/files/uploadedrelated-files/CSHS-Spending-Brief_February_2015.pdf.
4
See S&P Dow Jones Indices, Healthcare Expenditures for Commercial Plans up
3.2% in the Year to February 2014: S&P Healthcare Claims Indices (June 30,
2014), available at: http://bit.ly/1m2hpDP.
2

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 A key component of any strategy to slow this growth in prescription drug
spending is ensuring the availability of generic versions of brand-name drugs.
AHIP, ACHP, and their members therefore have a strong interest in preventing
brand name drug manufacturers from engaging in conduct that artificially prolongs
their drug market power past the time intended by Congress. Specifically, AHIP,
ACHP, and their members have an interest in opposing the practice of “product
hopping,” in which brand manufacturers make minor non-therapeutic changes to
their product in order to foreclose competition from generic substitutes (also
referred to herein as “product extension” strategies). As explained below, this
conduct deprives health plans and the consumers who are their members of the
benefit of competitive market choices and imposes a significant cost on plans and
consumers without any corresponding therapeutic benefit.

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 SUMMARY OF ARGUMENT
Soaring prescription drug costs have resulted in significant increased costs
for health plans and their customers, resulting in higher premiums and out-ofpocket costs for consumers. Health plans play a unique and important role in
managing these rising costs by providing consumers information and helping
consumers utilize the most clinically appropriate, safe and cost-effective
medications available. Critical to these efforts has been the increasing importance
of generic drugs as a competitive alternative in the marketplace. The widespread
availability of generics has allowed consumers, along with their plans, to evaluate
the relative merits of various product offerings and make choices among
efficacious treatments informed by the relative costs of such treatments.
Competition from generic drugs, which has been facilitated by both federal and
state law, has resulted in significant cost savings for consumers without
sacrificing quality of treatment.
Defendants candidly admit that the purpose of their decision to drastically
curtail availability of Namenda IR was to avoid the effect of state drug substitution
laws, which were enacted in large part to combat skyrocketing prescription drug
costs. Indeed, there is no purpose to this kind of product withdrawal other than to
eliminate or significantly diminish competition from generics. Such tactics— which
here involved the effective removal of Namenda IR from the market prior to

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 release of its generic equivalent in order to coerce patients into switching to a
reformulated drug, thereby circumventing the regulatory framework established by
federal and state policymakers to facilitate price competition from generics—
eliminate consumer choice, unreasonably restrain competition, and raise the cost of
pharmaceuticals to health plans and consumers.
If, as we understand the district court's finding, the court had not stepped in
to prevent Defendants from carrying out this strategy, it would have been too late to
reverse the damage to consumers and their health plans. Physicians and caregivers
are understandably reluctant to disrupt patients’ medical routines without a medical
reason to do so. This is particularly true with regard to vulnerable patient
populations sensitive to changes in regime, like those battling Alzheimer’s. Thus,
had Defendants been permitted to convert more than 97% of their Namenda IR
customers to Namenda XR, amici and their members would not be in a position to
effectively reverse that change even after the lower-cost generic equivalent of
Namenda IR becomes available later this year. Plans would be stuck paying
substantially higher cost for this drug, and their members will face higher co-pays
and premiums, without receiving any therapeutic benefit in return. The preliminary
injunction should be upheld.

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 ARGUMENT
I.

Health Plans Play A Key Role In Restraining The Accelerating Growth
Rate In Prescription Drug Spending By Encouraging Members To Use
Generic Drugs.
Because they provide consumers therapeutically equivalent alternatives to

brand drugs at significantly reduced prices, generic drugs play an important role in
combating escalating prescription drug prices. It is for this reason that Congress and
many state legislatures (including New York’s) have enacted numerous statutes
designed to make generic drugs more quickly and widely available in the
marketplace.
Congress, for its part, enacted the Hatch-Waxman Act. That statute was
intended to mitigate the “serious anti-competitive effects” of then-existing FDA
rules on generic drug approval and—of particular relevance here—to prevent the
“practical extension of the monopoly position of the patent holder beyond the
expiration of the patent.” H.R. Rep. No. 98-857(II), Pt. 2, p. 4 (1984).
Many states have gone a step further by allowing—in New York’s case,
requiring—pharmacists to substitute an AB-rated drug when presented with a
prescription for its brand equivalent. These state laws are intended to foster price
competition between branded and generic drugs “by allowing the only principals
who have financial incentives to make price comparisons—the pharmacist and the
patient—to select drug products on the basis of price.” Drug Product Selection,

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 Staff Report to the FTC, Bureau of Consumer Protection (Jan. 1979). As the district
court noted, price competition at the pharmacy is the principal means by which
generics are able to compete in the United States. (SA26).
These legislative efforts to promote price competition in pharmaceutical
markets have resulted in significant tangible benefits for consumers. Over the 10year period from 2003 through 2012, generic drug use generated more than $1.2
trillion in savings to the U.S. health care system. (SA27). These cost savings are
critically important to assuring a sustainable health care system and achieving
affordability for consumers in an environment where prescription drugs represent a
significant and ever-increasing share of total health care costs. In 2014, year-overyear national prescription drug spending grew by 13 percent, to $319 billion, with
the unit cost of brand-name drugs growing by 15.4 percent.5
Commercial health insurance plans play a critical role in combating this
unsustainable cost growth by utilizing several tools and techniques that encourage
the use of generic equivalents of prescription drugs. One way that plans encourage
the use of generics is through their contracts with pharmacies for the provision of
prescription drugs. Under these contracts, pharmacies typically charge the insurer

See Altarum Institute, Initial estimates suggest health spending grew by 5.0% in
2014 (Feb. 12, 2015), at: http://altarum.org/sites/default/files/uploaded-relatedfiles/CSHS-Price-Brief_February_2015.pdf; S&P Dow Jones Indices, Healthcare
Expenditures for Commercial Plans up 3.2% in the Year to February 2014: S&P
Healthcare Claims Indices (June 30, 2014), available at: http://bit.ly/1m2hpDP.
5

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 a retail price based on a percentage of pricing benchmark, plus a dispensing fee of a
few dollars per prescription. The pharmacies generally collect a co-payment (or
deductible) from the insured patient and charge the balance to the insurer.
After a generic bioequivalent of a branded drug is approved by the FDA and
made available by its manufacturer, the health plans’ contracts with pharmacies
typically reduce the amount paid to pharmacies for either version (brand or generic)
of the drug using a pricing benchmark based upon the lower price of the generic
drug. Thus, after generic versions of a prescription drug are available, a typical
insured patient has a choice: he or she can either accept the lower-priced generic
(for which the patient generally pays a lower co-payment) or choose to pay a higher
co-payment for the brand version of the same drug. Consumers usually accept the
lower priced generic, resulting in cost savings for both the patient and the health
plan, which in turn reduces the growth in health insurance premiums making
coverage more affordable. Moreover, lower priced generic drugs increase patient
adherence to prescribed medicines, which improves their health and wellbeing. As
the district court noted, when generic drugs enter the market, a branded drug often
loses more than 80-90% of its market share within six months. (SA28).
Health plans also help facilitate the use of generic drugs through prescription
drug formularies that ensure patients have access to medications that are safe,
effective and affordable. A “formulary” is a preferred drug list developed by a

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 health plan and continually updated to include both brand name and generic drugs.
These formularies can broaden consumer access to medications and often place on
the lowest cost-sharing tier, generic alternatives to brand name drugs. These
formularies work in conjunction with state substitution laws, with pharmacies
dispensing such low-cost generics at the point of sale. The consumer receives the
resulting savings directly (through lower cost-sharing via the formulary) and
indirectly (through lower premiums).
Finally, health plans have various other tools and techniques to encourage
utilization of generic drugs, including the use of step therapy and prior
authorization requirements. These practices generally require an insured person to
first use a preferred—usually less costly—therapeutically-appropriate alternative to
the branded drug before the health plan will cover the cost of that branded drug.
The alternatives all must be therapeutically-appropriate and can include another
brand-name drug that has provided greater discounts, a generic drug version of the
original brand-name drug, or a generic alternative of the brand-name drug. When
there is no therapeutically appropriate brand-name alternative to the name-brand
drugs, generic alternatives to that drug provide the only avenue for consumers to
receive therapeutically appropriate alternative medications. Even when such an
alternative exists, generic alternatives provide consumers with much lower prices
(and therefore greater access) to therapeutically appropriate medication.

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 Taken together, these contract provisions, formularies, and other tools and
techniques have proved effective at encouraging the use of generic equivalents and
thereby reducing costs to consumers. As explained below, however, these important
cost-containment tools will be rendered largely ineffective if Defendants are
permitted to force virtually all of their customers to switch to a new version of the
same drug before the generic equivalent for the old version is released, thus
allowing the new version to be shielded from generic competition for nearly fifteen
more years. The potential harm to health plans and consumers would be
compounded if other brand manufacturers were to use Defendants’ conduct as
precedent to engage in similar behavior.
II.

Anticompetitive Product Extension Strategies Lead To Decreased
Competition From Generic Drugs And Higher Costs For Health Plans
And Consumers.
Health plans and consumers face increased costs when brand manufacturers

manipulate the regulatory process in order to stifle competition from generic drugs.
Such is the case with the product extension strategies challenged here, where the
brand manufacturer makes minor non-therapeutic changes to the brand product
(e.g., dosage), followed by the removal of the original product from the
marketplace prior to generic entry. This results in patients and physicians being
forced to abandon the original product and begin using the reformulated product,

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 not because they prefer or receive additional benefit from using the new product,
but rather as a consequence of the brand manufacturer’s coercive conduct.
While manufacturers’ formulation changes that broaden the selection of
prescription drugs on the market are not, in themselves, problematic, the use of
restrictions on product access as a mechanism to coercively switch patients to the
reformulated product in order to circumvent state generic substitution laws are of
great harm to consumers. “[W]hen the introduction of a new product by a
monopolist prevents consumer choice, greater scrutiny is appropriate” and the
“basis for judicial deference [to the monopolist’s conduct] is removed.” Abbot
Labs. v. Teva Pharm. USA, Inc., 432 F. Supp. 2d 408, 421 (D. Del. 2006).
Consumers benefit when the choice of which drug to use (branded or
generic) is the product of an understanding of the efficacy, quality, and relative cost
of the various alternatives available, not the dictates of a monopolist brand
manufacturer. Where the introduction of a new product is coupled with conduct that
has the effect of preventing consumer choice, restraining competition and reducing
the market’s ambit, the antitrust laws are an appropriate vehicle for assessing that
behavior to determine whether the anticompetitive effects of that conduct outweigh
its procompetitive justification. Id. at 421-22.
The district court’s opinion makes clear that consumer choice would be
severely restricted as a result of Defendants’ conduct. Prior to generic entry,

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 distribution of Namenda IR would be curtailed to a single, mail-order pharmacy
and subject to a medical necessity requirement that, by Defendants’ own admission,
was adopted to limit usage to less than 3% of patients taking the drug. (SA67-68).
The vast majority of patients would be forcibly switched to Namenda XR, thereby
depriving those consumers and their health plans of the cost savings that otherwise
would result from the application of state drug substitution laws and competition on
the merits between Namenda IR and its generic substitutes. Absent the switch,
however, a large number of the patients would have gone on to use generics.
(SA85).
The tools available to health plans to manage pharmaceutical costs and drive
utilization to generic drugs are not positioned to respond to this type of
anticompetitive conduct, particularly given the patient population impacted here.
These mechanisms require the existence of a clinically equivalent drug to which
patients can be directed in lieu of the branded drug, yet no such equivalent will
exist at the time defendants withdraw Namenda IR from the market. The 97% of
patients who cannot obtain Namenda IR because of Defendants' practices will be
forced to switch to Namenda XR. Once switched to Namenda XR, it is unlikely that
health plans could persuade physicians, the patients or their caregivers to switch
again to a generic substitute for Namenda IR when released later this year. As
Defendants recognize, once patients are converted to Namenda XR, “it’s very

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 difficult for the generics then to reverse-commute back.” (SA51). As the district
court found, health plans are reluctant to encourage patients to switch from a drug
that they are already taking, a rule that is of particular importance when dealing
with vulnerable patients such as those with Alzheimer’s who are extremely
sensitive to changes in routine. (SA87, SA89). In short, health plans will have
limited ability to protect themselves and consumers from the competition-excluding
impact of Defendants’ conduct.
Applying antitrust principles to condemn the type of conduct alleged here is
warranted given the regulatory context in which that conduct arises. As the
Supreme Court has explained, “antitrust analysis must always be attuned to the
particular structure and circumstances of the industry at issue,” looking not only
to the industry’s market structure, but also to its coexisting regulatory regime.
Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398,
411 (2004). Here, both the Hatch-Waxman Act and the state generic substitution
laws evince clear legislative intent to contain prescription drug costs through
generic substitution. These laws implicitly recognize that “the forces of
competition do not work well in [the prescription drug] market where the
consumer who pays does not choose, and the physician who chooses does not
pay.” Drug Product Selection at 2-3.

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 Indeed, the failure to apply antitrust principles to Defendants’ behavior
could pose an existential threat to the entire purpose of the Hatch-Waxman Act and
state generic substitution laws. As the facts of this case show, it is often relatively
simple for a brand name drug manufacturer to redesign a groundbreaking drug in a
way that allows a new version to be patentable even though it does not
fundamentally change the drug’s therapeutic effect. Those minor changes present
an opportunity for the brand-name manufacturer to extend its monopoly potentially
decades into the future. If this Court were to hold that the right to engage in
coercive product switching is part and parcel of the right to exclude competition
during the initial term of a patent, it will make such conduct even more common
than it already is, with devastating effect on plans’ ability to rein in accelerating
prescription drug spending and provide consumer choice.
III. Prohibiting Brand Manufacturers From Engaging In The Product
Extension Strategies Alleged Here Will Not Dampen Their Incentives
To Innovate.
Even if prohibited from engaging in coercive product switching strategies,
brand manufacturers still have a significant incentive to develop new and
innovative drugs that benefit consumers. The other aim of the Hatch-Waxman Act
(in addition to fostering the growth of generic drug competition) was to create new
incentives for brand name drug manufacturers to innovate by extending patent
protection for new drugs. H.R. Rep. No. 98-857(I), p. 14-15 (1984). These

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 incentives remain and serve as an impetus for continued innovation, as does
competition from generics, which stand to gain significant sales from the brand
manufacturer once patent exclusivity expires. See Abbott Labs, 432 F. Supp. 2d at
420 (new and improved products are one of the benefits brought about by healthy
competition).
Through Hatch-Waxman and, more recently, the Biologics Price
Competition and Innovation Act, Congress has encouraged the development of
pharmaceuticals that provide true quality and efficiency enhancements for
consumers via set patent protection and exclusivity periods. These reward
innovation that has occurred and, by their finite nature, encourage the innovation
that follows. Brand manufacturers that bring truly innovative new drugs to the
marketplace can often successfully market their products to patients, health care
providers, health plans and pharmacies to attract business away from existing
alternatives. Such activities represent the usual competitive response of brand
manufacturers to generic entry, one that enhances consumer choice and allows for
competition on the merits between branded and generic products alike.
Anticompetitive coercive product switching, such as the conduct here, undermines
Congressional intent, chills the most beneficial innovations, and further burdens
consumers with unsustainable, and unnecessary, costs.

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 CONCLUSION
Rapidly escalating prescription drug costs are placing an increasingly
significant financial burden on health plans and consumers. Critical to managing
these cost increases is ensuring the availability of generic versions of brand-name
drugs. Product extension strategies such as those employed by Defendants that
operate by eliminating consumer choice to foreclose competition from generic
alternatives, impose a substantial cost on health plans and consumers while
providing no therapeutic benefit, violate the antitrust laws and should be
condemned. Prohibiting such conduct will not only ensure continued robust
competition from generic drugs, but it also will maintain the incentives for brand
manufacturers to develop new drugs with enhanced quality and efficacy that
provide true therapeutic benefits for consumers.
The injunction below should be affirmed.
Respectfully submitted,

s/ Michael S. Spector
Joseph M. Miller
Michael S. Spector
AMERICA'S HEALTH INSURANCE PLANS
601 Pennsylvania Ave., NW
South Building, Suite 500
Washington, D.C. 20004
Telephone: 202-778-3200
Counsel for America’s Health Insurance Plans and
Alliance of Community Health Plans
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 CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 32(a)(7)(C), undersigned counsel certifies that
this brief:
(i) complies with the type-volume limitation of Fed. R. App. P.
32(a)(7)(B)(i) because it contains 3,431 words, including footnotes; and
(ii)complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and
the type style requirements of Fed. R. App. P. 32(a)(6) because it has been
prepared in a proportionally spaced typeface using Microsoft Word 2010 in Times
New Roman 14-point font.

s/ Michael S. Spector
Joseph M. Miller
Michael S. Spector
AMERICA'S HEALTH INSURANCE PLANS
601 Pennsylvania Ave., NW
South Building, Suite 500
Washington, D.C. 20004
Telephone: 202-778-3200
Counsel for America’s Health Insurance Plans and
Alliance of Community Health Plans

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 CERTIFICATE OF SERVICE

I hereby certify that on February 20, 2015, a true and correct copy of the
foregoing was filed with the Clerk of the United States Court of Appeals for the
Second Circuit via the Court’s CM/ECF system, which will send notice of such
filing to all counsel who are registered CM/ECF users.

s/ Michael S. Spector
Joseph M. Miller
Michael S. Spector
AMERICA'S HEALTH INSURANCE PLANS
601 Pennsylvania Ave., NW
South Building, Suite 500
Washington, D.C. 20004
Telephone: 202-778-3200
Counsel for America’s Health Insurance Plans and
Alliance of Community Health Plans

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