Kang Haggerty News
The opioid epidemic was a perfect storm, caused by years of over-promotion, over-prescription and dangerous marketing campaigns. Integral to this “perfect storm” was not just the drug manufacturers’ conduct, but also third parties, such as private equity and consulting companies, who all played critical roles.
In the April 15, 2021 edition of The Legal Intelligencer Edward T. Kang, managing member of Kang Haggerty wrote “Holding Third Parties Liable for Their Role in Perpetuating the Opioid Crisis.“
While the country has been focused on the tragic losses and economic fallout from the coronavirus pandemic, another plague, a man-made one 20 years in the making, continues to quietly rage in the background: the opioid crisis. The opioid epidemic was a perfect storm, caused by years of over-promotion, over-prescription and dangerous marketing campaigns. Integral to this “perfect storm” was not just the drug manufacturers’ conduct, but also third parties, such as private equity and consulting companies, who all played critical roles. Unfortunately, this crisis has taken a turn for the worse. Authorities nationwide have reported upticks in opioid overdose deaths, which sadly have been exacerbated by social distancing measures and the reduction in critical government funds as attention is turned to fighting COVID-19. As multiple waves of opioid litigation have come and gone, from personal injury actions to class actions, to more recently, suits brought by state, city and local governments, the question remains, who does the responsibility of the opioid crisis rest with? Does it remain solely with the pharmaceutical manufacturers, or does justice also require holding other third parties, such as pharmacies, distributors, private equity firms, and consultants liable for their critical role in the crisis?
Learning from past public health tort litigation, the current wave of opioid litigation brought by government plaintiffs, who are armed with more robust resources, have had the most success. Typically, these actions are brought asserting state-based public nuisance, fraud, unjust enrichment, and other state law claims. See, City of Philadelphia v. Allergan, Philadelphia Court of Common Pleas, No. 180102718; City of San Francisco v. Purdue Pharma, Case No. 3:18-cv-07591-CRB (N.D. Cal. Sep. 30, 2020); State v. Purdue Pharma, C.A. No. N18C-01-223 MMJ CCLD (Del. Super. Ct. Feb. 4, 2019); and State v. Purdue Pharma, C.A. No. PC-2018-4555 (R.I. Super. Aug. 16, 2019). There have also been several ongoing lawsuits brought under the False Claims Act against drug manufacturers as well as specialty pharmacies for their role in the crisis (see, United States v. McKesson, No. 19-cv-02233-DMR, 2020 WL 4805034, (N.D. Cal. Aug. 18, 2020) and United States v. Insys Therapeutics, Case No. 1:19-cr-10191-RWZ (D. Mass)).
In addition to targeting drug manufacturers, governments have been looking to hold responsible others who played critical roles in the opioid crisis. Specifically, consulting firms played a major role in the overpromotion of certain drugs, often encouraging false and deceptive marketing and commercial activities, and, consequently, should not be allowed to walk away scot free. Unlike drug manufacturers, who should (in theory) have some incentive to self-regulate against selling harmful products, since if dangerous, consumer confidence, demand and profits will decrease, a consulting firm has none of the same incentives. Although litigation is not a substitute for regulatory action, to truly abate the opioid crisis and deter future illegal conduct, policy considerations dictate that all players be held accountable for their wrongdoing. A recent settlement with McKinsey highlights some of the bad tactics of consulting firms and reveals how third parties may be held accountable for their actions. In this column, I explore this settlement and under what legal theories a case can be made against other consulting firms.
The McKinsey Case and Settlement
By way of background, several states brought claims of civil aiding and abetting, civil conspiracy, and violations of state consumer protection acts against McKinsey & Co. for its involvement with drug manufacturer Purdue Pharma in perpetuating the opioid crisis. The states alleged McKinsey encouraged Purdue Pharma to focus its marketing efforts on doctors who already prescribed high levels of Oxycontin and encourage larger doses for preexisting patients to “turbocharge” drug sales. McKinsey’s aggressive marketing recommendations led to increased overdoses across the nation. McKinsey settled for nearly $600 million with 47 states, five territories, and the District of Columbia. Documents produced in the bankruptcy case for Purdue Pharma revealed McKinsey’s involvement, leading the states to pursue this action against the consulting firm and ultimately, settle. More documents will be made public as part of McKinsey’s settlement, which may reveal additional third-party players involved in this scheme.
Common Law Claims to Use Against Consulting Firms or Other Entities
When these other players come to light, it is likely new investigations will begin, leading to new litigation. But which legal theory should be used against these third parties to hold them accountable? There are numerous causes of action possible against, say, consulting firms, as evidenced by the recent McKinsey cases and settlement. A separate class action in West Virginia against McKinsey lists common law causes of action including negligence, fraud, civil conspiracy, and public nuisance. See, The County Commission of Mingo County v. McKinsey & Co., No. 2:21-cv-00079 (S.D.W. Va. Jan. 31, 2021). Out of these causes of action, the most promising theory against consulting firms are civil conspiracy and aiding and abetting claims. To prove civil conspiracy, there must be: two of more people who; make an agreement to act together; with the intention to accomplish an unlawful goal with the purpose of harming another; that results in damages.
Three out of four of these elements are easiest to prove. Consulting firms work with their clients to better their business or reach some goal, which satisfies the first two elements. In the case of McKinsey and other consulting firms who worked in the opioid business, there were damages that resulted from their scheme—the loss of hundreds of thousands of lives caused by overdoses. However, the challenge lies in the third element, particularly whether there was a purpose to harm another. It is likely that the consulting firm would argue that their intent was only to help their client’s business. But, they reasonably should have known that their actions were unlawful or would have led to unlawful behavior that would harm others.
The other legal theory I suggest pursuing is a civil aiding and abetting claim. A plaintiff should be able to prove the three elements required for this theory: that one entity (like the manufacturer or pharmacy) breached a duty to plaintiff, which injured plaintiff; that defendant (the consulting firm) knowingly and substantially assisted the entity in breaching its duty; and that defendant was aware of its role in promoting the beach of duty. It can be alleged that opioid manufacturers, pharmacies, and all those involved in the opioid business owe a duty of care to the public, especially due to the dangerous nature of the business. Opioid manufacturers, including Purdue Pharma, have already pled or been found guilty of their role in perpetuating the crisis, thereby proving they breached their duty of care. In the case of McKinsey, the documentation Purdue Pharma provided showed McKinsey helped Purdue Pharma breach that duty by advising the company to falsely and deceptively market drugs, leading to over-prescription and overdoses. As noted above, McKinsey reasonably should have known that its tactics, with a goal of over prescription in mind, would lead to just that. And, with a substance as dangerous as opioids, they reasonably should have known of the negative consequences that would follow, which would breach the duty of care.
It is also possible to hold consulting firms responsible for their role via other state law. The suits of multiple states against McKinsey demonstrate that the best claim under state law would be the various consumer protection acts. In Pennsylvania’s case against McKinsey, for example, which settled as part of the $600 million settlement referenced earlier, the complaint alleges that McKinsey, through its aggressive marketing tactics and spread of misinformation in pursuit of those tactics, violated Sections 201-3 of the Consumer Protection Law, prohibiting fraudulent or deceptive conduct which creates a likelihood of misunderstanding as to the source, approval, benefits, quantities, etc. of goods and services.
Potential Claims Under Federal Law
Lawsuits against drug manufacturers and pharmacies involved in the opioid epidemic have stated claims under federal law as well, specifically, the False Claims Act (FCA). Consulting firms may also be liable under the FCA since this statute applies not only to those who submit a false claim, but also cause another to submit a false claim or knowingly make a false statement to get a false claim paid by the government. One could argue that McKinsey, for example, did cause Purdue Pharma to submit false claims by suggesting they aggressively market to certain target groups, leading to an increase in the number of prescriptions and off-label uses. McKinsey and Purdue Pharma also strategized to move patients to more potent doses of the drug, potentially in violation of the FDA-approved label and relevant regulations.
A claim is often made false if the claimant certifies that they have complied with the regulations which are a condition for payment, under express or implied false certification theories of FCA liability. McKinsey’s tactics led to the prescription and distribution of the drug, which could be argued to have caused the submission of false claims in violation of the relevant regulations and FDA-approved label. If another consulting firm suggested similar tactics, and false claims were submitted as a result, they too could be held liable under this theory. It is notable that Purdue Pharma, in a global resolution of civil FCA and criminal liability in 2020, admitted to its guilt in conspiracies to defraud the United States, violate the Food, Drug, and Cosmetic Act, and violate the Federal Anti-Kickback Statute. It may be more fruitful to bring an FCA claim in this circumstance where the manufacturer or pharmacy partnered with the consulting firm has already been proven or admitted to violations of the FCA.
Conclusion
The McKinsey case opens the door and demonstrates how players that are one step further removed than drug manufacturers in the scheme can still be held accountable. Outside of consulting firms like McKinsey, practitioners should look to hold the wholesaler, pharmacies, private equity funds and other shareholders, as well as PBMS or accounting firms responsible for their involvement with the drug manufacturer. Once the names of these other entities are exposed, it will be their turn, like it was McKinsey’s, to face the music.
Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.
Reprinted with permission from the April 15, 2021 edition of “The Legal Intelligencer” © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.