November 23, 2020

A Pennsylvania federal judge on Friday refused for a second time to force doctors' practices into arbitration on proposed class action claims that Merck Sharp & Dohme Corp. unlawfully overpriced vaccines, finding that discovery mandated by the Third Circuit shows they're too far removed from the arbitration provisions.

The arbitration language was in contracts between Merck and the physician buying groups, or PBGs, that the doctors' practices used to purchase vaccines in bulk, not the practices themselves, according to U.S. District Judge J. Curtis Joyner. Discovery, which was mandated after the Third Circuit found a previous rejection of arbitration to be premature, shows the importance of that distinction, according to the ruling.

"We simply cannot find that Merck has sustained its burden of proving that the member practices had either the requisite control over their PBGs' negotiation and entry into their agreements with Merck or that the PBGs had the authority of their member practices to enter into the arbitration clauses/agreements to arbitrate this dispute," Judge Joyner said. "To be sure, it remains far from clear whether the arbitration provisions were even intended to apply to the member practices. What is clear, however, is that the practices were given no notice of the existence of the arbitration provisions in the PBG-Merck contracts."

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Judge Joyner had refused to force the lawsuit into arbitration once before, only for the Third Circuit in October 2019 to overturn his determination that the arbitration clause did not apply to the practices — which claimed they paid inflated prices for bundled pediatric vaccines targeting ailments such as hepatitis. The membership agreements delegate authority to the PBGs to negotiate pricing, but the contracts don't address the scope of control the doctors exercise over the PBGs or the performance of that authority, the Third Circuit reasoned.

That ruling required Judge Joyner to consider "limited discovery" on the arbitrability question. This time around, the judge also held that Merck cannot argue that the arbitration provision applies based on who benefits from the agreement.

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In their consolidated suits, the practices allege that when GlaxoSmithKline PLC released its Rotarix vaccine, the price of Merck's RotaTeq should have dropped, as is typical when a competitor enters a monopoly market. Instead, the price remained artificially high no matter what brand the doctors chose, the complaints say.

When GSK's vaccine threatened Merck's monopoly, Merck started persuading its customers to sign an exclusionary contract to bundle RotaTeq with other vaccines, many of which are only sold by Merck, according to the suits.

Customers who refused to do so faced higher prices for RotaTeq and vaccines targeting hepatitis A, hepatitis B, Haemophilus influenzae type b, chickenpox, human papillomavirus, and combined measles, mumps and rubella, the practices claim. In some cases, those prices were 58% higher than when the drugs were bundled, according to the practices.

The practices are represented by Eric L. Cramer, David A. Langer and Daniel J. Walker of Berger Montague PC, Daniel A. Small, Daniel H. Silverman and Leonardo Chingcuanco of Cohen Milstein Sellers & Toll PLLC, Linda P. Nussbaum and Bart D. Cohen of Nussbaum Law Group PC, Michael Gavin of Gavin Law LLC and Marc H. Edelson of Edelson & Associates LLC.

The complete article can be viewed here.