Contact: M E M O R A N D U M

Communications Director
(541) 257-8878
media@t1df.org Review of Hagens Berman’s Draft Consolidated
www.t1df.org
Complaint; Decision to Remain a Named Plaintiff

October 25, 2017

As discussed, T1DF has decided to remain a named plaintiff. Absent of any other viable options, it
is our belief that we will better serve the putative class by remaining directly involved. Although
we are very critical of the current draft consolidated complaints, we are hoping our continuous
involvement will help steer this matter back on its PBM track and passed summary judgement.

We drafted this memorandum to fulfill our duty to the putative class and meet the requirements of
Federal Rule of Civil Procedure 23. In summary:

• The pattern of racketeering activity the Manufacturers are allegedly masterminding

(p100-101) is one that allows them to voluntarily give away a substantial amount of their
sales revenues (up to 70% or more) back to Payers/PBMs and then to conspire with PBMs
to fool Payers into unknowingly overcharging their own customers (either via some form of
inducement/reliance or, in the alternative, via unspecified direct control over Payers’
actions) while not being overcharged themselves, with Payers thus incidentally enriching
themselves as a result of the scheme. The complaint, however, does not seek
disgorgement from the Payers of the unlawful monies they overcharged Plaintiffs, but
instead would require manufacturers to make further additional payments (from the
remaining 30% of their gross sale revenues) directly to patients in the form of an additional
rebate.

• The complaint, as drafted, seems to fail to state a valid claim. While the complaint provide
lengthy circumstantial verbatim, its does not provide any specific information regarding

Page 1 of 38
 the direct causal links between Manufacturers and the injury to Plaintiffs (overcharging by
Payers).

• The definition of the class may be ineffective. On its face, it excludes all uninsured
consumers and consumers with private insurance (except the few plans that are still using
legacy PBMs contracts, i.e. contracts that still rely on index/benchmarks for the purpose of
calculating reimbursements and other transactions).

The list attached below summarizes T1DF preliminary findings and comments regarding the draft
consolidated complaint.

Kind regards, 

Charles Fournier, J.D.

Vice-President
Type 1 Diabetes Defense Foundation
Charles.Fournier@t1df.org 
(206) 643-1479
www.t1df.org

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 D E T A I L E D R E V I E W

Page Sentence / Issues

1 Bottom sentence: “the publicly-reported benchmark”

Manufacturers to not raise the publicly-reported benchmark. There is no such thing as ‘a

publicly reported benchmark.’ They raise their list prices. List prices are then aggregated by
health care consultancies such as IBM Truven and QuitilesIMS. These organizations generate
synthetic benchmark indexes based on their proprietary algorithm and the scope of their
data collection capabilities. These benchmark indexes are not publicly reported.

The only publicly reported prices at the point-of-sale are the ‘cash price’ (price to the
uninsured) and the list price reported to insured consumers whose plans require them to pay
coinsurance based on list price. PBM/payers thereafter continue to report the transaction to
the insured customer (e.g. via EOBs or online summaries of prescription transactions) using
the list price as “cost to plan” or “plan paid.” A consumer who pays a small co-pay will
typically see “plan paid” reported as the list price minus her small co-payment; a consumer
who pays 50% coinsurance based on list price will see the amount she paid, with a matching
amount reported as “cost to plan” or “plan paid.”

HB’s ‘publicly-reported benchmark prices’ has no connection with the actual transaction.

2 Top sentence: “unjustifiable manner”

Contradicted by quote on page 50. The arbitrage mechanism described in this quote is
consistent with our PBM complaints (very good article)—not with HB’s former and current
consolidated complaints.

2 3rd paragraph: “… to unlawfully inflate the benchmark prices…”

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Page Sentence / Issues

Inaccurate description — loyalty discount programs, i.e. rebating, have been found to be
lawful in case after case, e.g. Eisai v Sanofi-Aventis (3rd Circuit, 2016), Concord Boat, Allied
Orthopedic, Southeast Missouri Hospital and others. As a workaround, HB thus attempts to
rebrand rebating as something that does not sound like rebating and could still be blamed
on the manufacturers. HB changed the nomenclature (spread instead of rebate, benchmark
price instead of list price, true price instead of net price) to make the fact pattern ’sound’
different. This crude operation does not change the nature of the B2B transaction between
manufacturer and PBMs.

The unlawful scheme is the payers’ overcharging customers (facilitated by reporting list price
as cost-to-plan, or calculating “plan paid” representations to customers on the basis of list
price). PBMs actively participate in (POS transaction management) and directly profit from
this scheme (administrative fee, share on overpayment).

(follows)

Page 4 of 38
Page Sentence / Issues

Manufacturers, on the other hand, participate in the lawful rebating scheme (upon which the
unlawful overcharging is predicated) but they do so knowing that it is now used to defraud
insured customers (which was not true in 2003). Until recently, they colluded to keep the
unlawful overcharging confidential. The manufacturers’ collusion with the Payers/PBMs’
overcharging may have ended, or been mitigated, when PhRMA initiated the ‘Share the
Savings’ campaign on April 6, 2017. Insurers and PBMs, however, continue to maintain that
they are forced by Manufacturers to pay ‘list price.’ See, e.g. AHIP’s campaign (Attachment A)
and http://blog.bcbsnc.com/2016/11/why-insulin-cost-so-high/ (remarkable article because
BCBS owns Prime Therapeutics—the largest privately held PBM. HB’s fact pattern mirrors AHIP
/ payers’ ongoing public campaign against PhRMA/Manufacturers’ disclosure.

The benefits Manufacturers derive from rebating, i.e. the benefit received in exchange for
transferring over 70% of their sales revenues back to PBMs/Payers, are mostly unrelated to
the fraudulent scheme (they would derive the same benefits if coinsurance were based on
net prices).

The manufacturers’ collusion with payers/PBMs allows them to derive other indirect benefits
— i.e. uninsured inflated payments (marked-up list price at POS, or somewhat reduced list
price via PAP), better commercial position in anticipation of the industry’s transition to value
pricing (anchored at list prices instead of net prices). These benefits are however becoming
illusory. While Payers/PBMs keep requesting ever-increasing rebates/concessions, public
pressure prevents Manufacturers from increasing list prices to absorb rebate increases. As a
result, Manufacturers have had to decrease net prices.

This is shown on page 75: In 2015, net prices started to drop. The difference between the
dark green line and dotted green line represents the % of rebate increase over list price
increase (e.g. in 3Q15, list price increased by 20% but net price dropped by 12%, thus
rebates/concessions increased by more than 20%).

2 Last sentence: “This scheme directly and foreseeably causes consumers to overpay for these
life-saving medications.”

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Page Sentence / Issues

The rebating scheme does not directly cause uninsured consumers to overpay.

Uninsured customers do not overpay — they pay a cash price based on the pharmacy’s
actual acquisition cost. The cash price paid by uninsured customers hence reflects the actual
cost of the insulin to the Pharmacy. The consolidated claim does not establish a basis of
entitlement for the rebate received by the PBMs. Public payers, under the FAR, are entitled to
receive the most advantageous commercial offer provided by a bidder to its private B2B
customers. But this transaction isn’t a public procurement. And no commercial law require a
commercial entity to provide the same deal to all its private customers absent of some form
of contractual or fiduciary duty. Second, uninsured customers can chose to buy any available
insulin from any retailer. Insured customers, on the other hand, are forced by their insurer to
procure one preferred brand through the payer’s PBM—or they risk either (1) coverage with
much higher consumer payment, typically in the form of coinsurance calculated with
reference to list price or (2) refusal of coverage, in which case their out of pocket payments
for the excluded insulin will not count toward their deductibles. The uninsured customers are
indirectly injured by the Payers/PBMs-controlled rebate arbitrage that fuels rebate—and thus
list price—inflation. The Payers/PBMs (and by association manufacturers’) collusion to keep the
coinsurance overcharge secret deprives uninsured customers from a price information; but
this price information is unrelated to the POS transactions performed by uninsured
customers. They would have to pay the same case price, irrespective of the rebated price
offered to the insured customers.

Insured customer do not overpay because of the rebating scheme. The lawful rebating
scheme is necessary (‘but for’) but it is not sufficient. Payers/PBMs also use internet service
providers, pharmacy networks, PMOs and wholesalers to overcharge their customers—the
coinsurance overcharges could not occur but for the involvement of all these intermediaries
and related lawful transactions. A single, independent decision control the coinsurance
overcharge: insurance plan benefit design, which is under the direct and sole control of
Payers. The injury to the insured customers is not caused by Manufacturers’ lawful rebating
but by Payers/PBMs’ failure to base customer payment obligations on net prices and to
disclose true cost-to-plan information to insured customers.

As drafted, the complaint does not provide any information regarding the alleged direct
causation between rebating to PBMs and overcharge by PBMs/Payers. The complaint does
state that payers/PBMs pay the pharmacy for the insulin on the behalf of insured customers
and that payers are not overcharged by manufacturers. The only remaining transaction that
could give rise to an overcharge is therefore, based on the complaint, the ‘copay/
coinsurance’ reimbursement transaction between insured customers and PBMs/Payers. The
complaint does not, though, represent that the Manufacturers are a party to that transaction.
The complaint only vaguely alleges that the Manufacturers, through an unspecified scheme,
are forcing PBMs/Payers to overcharge their customers (but without payers being themselves
overcharged by Manufacturers).

Page 6 of 38
Page Sentence / Issues

3 “the price of insulin”

Undefined. List price. Benchmark index?

3 First paragraph: “supra-competitive, high drug price”

This statement is not consistent with the quote on page 50 (documenting price protection
rebate arbitrage between competing manufacturers). Similarly, the lockstep graphs on page
68 to 71 document conscious parallelism between competitors in an oligopolistic market —
not supra-competitive pricing.

Footnote 6, 7 and 41 claim that net prices (called ‘actual prices’) are also supra-competitive
without providing any actual fact supporting this claim. The complaint does not include any
information regarding net pricing except for NVO graphs on page 73 and 74 showing a
compound annual growth rate (CAGR) for insulin net prices of 2.1% when compared to 2001
prices. (In 2001, Eli Lilly controlled about 85% of the insulin market and NVO had already
attempted several unsuccessful launches. Rebating was minimal (less than 20%). One would
expect NVO's 2001 insulin to be competitively priced. A CAGR of 2.1% over a 2001 price
base would not qualify as supra-competitive price increases.) Furthermore, the graph
included on page 75 shows net prices of insulin decreasing by 12% for each quarter after
1Q15. This graph is consistent with the two NVO graphs mentioned above showing net price
of NVO insulins decreasing from 2014 on.

3 1st para: description of rebating.

Vocabulary does not apply to the transaction: Benchmark, spread, reported and actual real
price. Spread is used to describe the difference between fluctuating prices of generic drugs
and the MAC reimbursement prices agreed by pharmacy. Benchmark index prices are no
longer used to calculate rebates. The terms used by the industry are rebates/price
concessions, list prices (or invoice prices) and net prices.

3 End of 1st para: “… and some institutional payers.”

Institutional Payer is a generic term that generally includes: private insurers, governments and
corporations/unions—i.e. an entity other than an Individual Payer. This statement is consistent
with the statement on page 136, first para: payers are not overcharged. But it conflicts with
the allegations on page 108: Health care payers do not know about the ‘secret’ scheme. The
term ‘institutional' payers would also exclude ‘private’ payers.

All payers receive some form of rebate. This sentence should read: “and institutional payers.”
Only grossly negligent payers would not receive any rebate—the exception, not the rule.

Page 7 of 38
Page Sentence / Issues

3 3rd para — incomplete description of the PBM role as agent to payers.

The description of the PBMs’ role excludes their actions as agent to the institutional payers—
i.e. managing point-of-sale financial transactions, communicating reimbursement information
to insured customer in accordance with their client’s plan benefit design (and the specific
plan of the customer), and then reconciling pharmacy accounts per drug class and
forwarding any excess payment by insured customers back to payers (e.g. applying excess
payments against payer’s liabilities to pharmacies when settling the account).

3 Footnote 6: “lower real prices are still supra-competitive”

Unsubstantiated allegation repeated in fn 7 and 41. While possible, the allegation must be
supported. E.g., Mylan’s rebates for EpiPen were so large as to allow Mylan to also raise
EpiPen’s net prices without financially injuring PBMs and Payers nor losing any market share.
In the present case, HB provided no data supporting the allegation of supra-competitive net
pricing. In fact, the only net price graphs on page 73, 74, and 75 would support the opposite
conclusion.

4 Second para from top: “.. the more expensive of the two.”

Inaccurate statement. Only applies to non-rebated generic drugs. In the specialty segment,
PBMs generally exclude the drug with the lower rebate (often, the cheaper drug). As
demonstrated by EpiPen, a rebate could be large enough to render net price irrelevant —
then the drug with the largest list and net prices may be chosen as preferred — and the drug,
like Auvi-Q, with the lower net and list prices, may be excluded.

This behavior is rational: the larger the rebate, the larger the PBM fee — but also the larger an
insured customer’s over-reimbursement to the payer, in plans where the insured pays
coinsurance based on unrebated list price. Opportunity to receive consumer overpayment
may trump any cost-saving that would result from a lower net price. Payers may therefore
chose the drug with the higher list price (offering the larger rebate) despite the fact that this
drug also has a higher net price than its competitors. See also page 50 for a description of
the rebate arbitrage leading to higher list prices. Such a drug would be cheaper to the
insurer but more expensive to its customer. Basing consumer payments on net price is the
only guarantee against this type of manipulation.

4 Second para, last sentence: “…arbitrage between what is paid to the retail pharmacy and
what is charged to the PBM’s plan …”

Page 8 of 38
Page Sentence / Issues

This is a description of the spread between generic drugs’ spot market price offered by
wholesalers (fluctuating daily) and the agreed-upon MAC price schedule between pharmacy
networks and PBMs. When the MAC price is below a generic drug spot price, a PBM will
reimburse the pharmacy at the lower MAC price, invoice payer clients the higher spot price
(if spot pricing is the basis of reimbursement ) and keep the spread between the spot and
MAC prices. This is not relevant to the specialty class.

In the specialty class, the acquisition cost of insulin is not driven by competing generic
manufacturers and wholesalers. This price is directly controlled by manufacturers — and
wholesalers are acting as distributors.

4 Second para, last sentence: “…the higher the benchmark price, the higher the PBM’s
revenue.”

Third para: “… yet assured the PBMs that the real prices their clients (the institutional payers)
would eventually pay would be markedly lower.”

Several critical issues:

HB is trying the repackage the rebate scheme as a benchmark price manipulation scheme
(e.g. McKesson and AWP cases). Benchmark price manipulation cases succeeded (payers
were injured); rebate cases have failed. In order to re-brand the rebate claim as a price
manipulation claim, HB is thus arguing that payers ‘eventually’ pay a lower price via an
unrelated but ‘true’ transaction while consumers are charged based on a fake inflated
benchmark price. This approach seems to be an attempt to obfuscate the fact that (1) the
POS transaction is actually a lawful arm’s-length transaction and (2) payers do not pay a true
price in a separate ‘real’ transaction.

Manufacturers sell insulin to pharmacies via distributors. When a consumer is insured, the
payer pays for the drug then claims a copay or coinsurance contribution from the consumer.
This copay or coinsurance depends on the consumer’s plan. These transactions can
simultaneously proceed at the point of sale via an integrated information management
systems between payers, PBMs and pharmacies. They are, however, distinct transactions.
Insured customers do not pay the copay/coinsurance amount to the Pharmacy at the point of
sale. They pay it to their insurer via the pharmacy and the pharmacy keeps the money in
escrow until reconciliation of their account with the Payer’s PBM. Similarly, the insurer does
not ‘pay’ the pharmacy during the POS transaction. Payment by the PBM, on the behalf of
payers, occurs during the next account reconciliation.

(follows)

Page 9 of 38
Page Sentence / Issues

While the acquisition cost of insulin (by pharmacists from manufacturers via distributors) can
be precisely defined at the time of the transaction (it is a ‘true’ price), the price construct HB
call ‘actual true price’ or ‘real price’ does not actually exist. Similarly, the cost-to-plan upon
which coinsurance is supposedly predicated can’t be assessed. Not all price concessions and
rebates are simple transaction-based rebates (e.g. $10 discount on each vial of insulin). Some
price concessions can be conditional on achieving agreed-upon sale metrics or other
outcomes during specified periods of time. Price concessions can be extremely complex and
payers, at the time of the POS transaction, might not actually know the final value of these
conditional rebates related to the transaction. PBMs/payers and manufacturers thus reconcile
their accounts at regular intervals—but never adjust the cost charged to insured
customers.

The insured customers are thus the only parties required to settle their account at the point-
of-sale, before any reimbursements, rebates, or other payments from manufacturer to payer
have been made. This practice may come from the time when insured customers only paid a
very small flat copay (or nothing at all) for all drugs. Plan benefit design has changed,
exposing insured customers to a set of complex transactions that may vest after the POS
transaction—but the way PBMs/Payers settle a customer’s liability has not changed. This
discrepancy has enabled PBMs/Payers to overcharge insured customers: PBMs/payers never
reconcile their insured customers’ account — they keep individual overpayments the same way
PBMs used to keep rebates until HB (and Payers) sued them in 2003. But HB is not suing
PBMs/Payers to force account reconciliation for consumers.

4 fn 7

Alternate (unsupported) explanation to the supra-competitive claim included in fn 3. There is

no ‘generic’ competition — but biosimilars. In the present case, there are several competing
products. The absence of ‘generic’ competition is not equivalent to the absence of
competition.

5 1st para: “… undisclosed real price they secure.”

PBMs do not secure a ‘real price’ but fees, transactional rebates and conditional sale/
outcome-based price concessions. The result is a net price that is as real as the acquisition
cost of the drug. HB is oversimplifying the fact pattern in order to re-brand this complaint as a
benchmark price manipulation (by manufacturers) rather than overcharge (by PBMs/Payers).

5 1st para: “… known as the spread.”

Page 10 of 38
Page Sentence / Issues

Price concessions and rebates. Spread is generally understood as the difference between
generic drugs’ MAC price schedule and fluctuating spot prices.

5 1st para: “PBMs do not disclose this spread because….”

Irrelevant, this is not a legally actionable breach. PBMs do not owe a specific duty to disclose
commercial information and drugs net pricing to the general public.

As agent of Payers, PBMs do not disclose to the public or to insured members the value of
rebates because Payers do not want their customers to know that they are being
overcharged. Insured customers have, however, the right to know whether they are being
assessed a ‘true’ cost-to-plan. PBMs obviously know that Payers are overcharging their
customers and that, if they were to disclose the rebates and thus the overcharge, they would
no longer derive the many benefits rebating conveys to them (profits from hidden fees and
opaque cash flows, leverage over manufacturers). PBMs thus collude with Payers to hide the
true net price/cost-to-plan of insulin from Payers’ customers.

5 1st para: “The Defendants do not disclose….”

Irrelevant. This is not a legally actionable breach of a duty to disclose. Manufacturers do not
owe a specific duty to disclose drugs’ net pricing to the general public.

Defendants, however, know that PBMs/Payers are overcharging their customers, and they
know that if they were to disclose the rebates they would no longer derive any of the benefits
rebating conveys to them (preferred formulary placement). Manufacturers thus collude with
PBMs/Payers to hide the true net price/cost-to-plan of insulin.

5 General note

Payers also collude between each other and Payers/Manufacturers collude with each other to
keep the Payers’ non-transparent inflated coinsurance payment scheme hidden from insured
customers. A payer may use rebate amounts to artificially reduce premium payments on non-
ACA plans (and thus de facto transfer ACA subsidies to other plans) without disclosing to
prospective ACA customers the inflated nature of the ‘cost-to-plan’ upon which the additional
coinsurance payments are predicated — i.e. drip pricing additional premium charges to
some patients, disguised as drug costs. See below.

5 Second para (bottom)

This is our PBM claim.

6 Top 1st para: “… of this competition…”

Page 11 of 38
Page Sentence / Issues

See fn 6, 7, 41 (supra-competitive pricing) v. graphs on page 73, 74, 75. Either the market is
competitive or it is not. Competition within an environment where list prices are somewhat
constrained (since 1Q15) has led to lower net prices.

The terms of this competition are controlled by Payers/PBMs.

6 Top 1st para: “… that patients, including Plaintiffs, must ultimately pay.”

Not ‘must’ — only some patients ‘are required to pay.’ Some patients are not exposed to
copay and co-insurance payments at all. Some payers may pass all or a portion of their
rebates to their customers. There is no direct causation between the size of the rebates and
the fact that patients are required to pay list prices.

Note regarding the technical term for imposing hidden additional premium payments in the
form of inflated ‘cost-to-plan’ coinsurance payments: drip pricing (and in the case of Payers’
failure to disclose net cost: reverse drip pricing — i.e. failure to disclose incremental savings).

Page 12 of 38
Page Sentence / Issues

The PBM marketplace is a unique example of a dual market: one side is competitive, the
other side isn’t and as a result certain individual actors are paying a much higher price. From
the consumer side, reimbursement pricing is a form of reverse drip pricing—i.e. non-
transparent pricing. One motivation for using drip pricing is to deceive consumers about a
product’s price by advertising only part of the price. In the present case, the Payers/PBMs
only advertise part of the the cost-to-plan (the initial cost, i.e. list price, not the reimbursement
that ultimately results in a much lower net cost) by timing their disclosure to one party before
the other parties fully reconcile their accounts (and by not using historical or partial rebate
data to estimate a temporary net cost-to-plan until such time as the final net cost-to-plan can
be trued-up).

Reimbursement pricing, like drip pricing, bridges consumer protection and antitrust
economics. Since the practice can be deceptive, it falls under consumer protection laws (in
relation to individual consumers). However, an understanding of its effect on consumer
behavior (including uninsured individual consumers but also corporate actors—
manufacturers) requires models of competition and markets, which are in the domain of
antitrust economics.

In a classic drip-pricing scenario, some consumers are initially surprised by the add-on fees,
but for products that are frequently purchased, consumers learn when firms use drip pricing
and check the fee schedules before deciding what to buy. This is not possible here: Insured
consumers do not have any choice about “what [insurance plan] to buy” when it comes to a
life-saving drug like insulin, and there is no “rebate schedule” to check expected savings (i.e.
the value of the conditional rebates the drug may earn in the future) in order to decide
whether Payers/PBMs are stating to consumers a reasonable ‘cost-to-plan’ or ‘plan paid’
amount, i.e. are accurately reporting net price to plan. A drip pricing scheme is most effective
when consumers have limited access to information — it relies on deception to make
consumers believe that the total price is lower than it is. In the case of ‘reverse’ drip pricing,
as we see here, the purpose of limiting access to information is to deceive consumers into
believing the ‘cost-to-plan’ is higher than it is.

https://www.ftc.gov/sites/default/files/documents/reports/economics-ftc-drug-and-pbm-
mergers-and-drip-pricing/shelanskietal_rio2012.pdf

The anti-trust effects of this reverse drip pricing scheme managed by PBMs/Payers may
encompass individual consumers’ choice of insurance plan in addition to manufacturers’
competition on rebate sizes instead of price. An insured consumer can’t assess whether a
plan with a smaller premium might in fact be more expensive — based on ‘hidden’ non-
transparent coinsurance payments that greatly exceed net cost to plan. The collusion aspect
may thus also involve Payers.

Page 13 of 38
Page Sentence / Issues

6 3rd para, bottom: “… an arms race in the escalation of reported benchmark prices…Each has
raised its benchmark price just a bit more than its competitors…. ”

Competition. Consistent with the description of rebating included in HB’s Mylan complaint
(withdrawn) and description of rebate arbitrage on page 50. Inconsistent with repeated
references to collusion and supra-competitive in fn 6, 7, 41 and page 68 “seemingly collusive
behavior”.
REDACTION

This is our PBM claim.

8 Quote: “… we need to … demand great transparency.”

Add back to prayer of relief T1DF’s injunctive relief for net price disclosure, i.e. net ‘cost-to-
plan’ disclosure and reconciliation.

8 1st para: “Consumers pay at the point of purchase… As a result, patient’s out-of-pocket
payments for their medication are typically based on their drugs’ reported benchmark
prices…

See above comment (regarding statement in Complaint page 4): While the acquisition cost
of insulin (by pharmacists from manufacturers via distributors) can be precisely defined at the
time of the transaction (it is a ‘true’ price), the price constructs HB call ‘actual true price’ or
‘real price’ does not actually exist.

This is the ‘result’ of the way drug purchases have historically been processed by insurance
companies and pharmacies, prior to the emergence of coinsurance payments based on ‘cost-
to-plan.’ Consumer do not ‘have’ to pay their share of drug costs at the point of sale.

To state more accurately: “Consumers are required by their Insurers/PBMs to pay their
insurance copay or coinsurance at the point of purchase into the Pharmacy’s escrow account
without any assessment of net ‘cost-to-plan’, i.e. net/rebated price determined during
reconciliation of the PBMs/Payers’ accounts. As a result of the PBMs/Payers’ decision to
request copay/coinsurance payment prior to the determination of its net cost-to-plan, the
consumer copay/coinsurance payment is solely based on the unrebated list price. Payers/
PBMs never perform a reconciliation with the actual net cost-to-plan to true-up consumer
accounts and correct the overcharge.”

8 “As a result, Defendants’ benchmark-price arms race… “

Several ‘as a result’ interconnected statements that link the overcharge to payment “at the
point of purchase” without reference to the party that is is actually requesting immediate
settlement of consumer payment without reference to actual net ‘cost-to-plan’, i.e. Third-party
Payers.

Page 14 of 38
Page Sentence / Issues

8 “Defendants’ benchmark-price arms race… “

Competition. Consistent with the description of rebating included in HB’s Mylan complaint
(withdrawn) and description of rebate arbitrage on page 50. Inconsistent with repeated
reference to collusion and supra-competitive in fn 6, 7, 41 and page 68 “seemingly collusive
behavior”.
REDACTION

This is our PBM claim.

8 “Defendants’ benchmark-price arms race has saddled individuals… “

More accurately: “PBM/Payer-driven benchmark-price competition has saddled….”

8 Last para

PBM complaint.

32 “Upon entry of a protective order in this case….”

This case should not be sealed to protect the identity of two plaintiffs. If the plaintiffs’ claims
REDACTION
are duplicative, these plaintiffs should be dropped.

35 Top para: “then sell their products to wholesalers…”

Inaccurate: in the specialty market, wholesalers act as distributors with service contracts.

35 Second para: “Wholesalers purchase….”

Inaccurate: in the specialty market, wholesalers act as distributors with service contracts.

35 “Health benefit providers….”

Inaccurate: Health benefit providers are service providers to corporations. They work with HR
to manage a corporation’s health benefits/plans. Insurance benefit managers manage benefit
design and plans for insurer clients.

Replace with: Institutional third-party payers/insurers

35 “… also cover a portion of their members’ drug costs….”

Inaccurate: When members pay list price, they pay more than the drug’s net cost to PBM/
Payer. In that case, the excess payment made by the member, over cost-to-plan (i.e. net
price), is kept in escrow by the pharmacy and returned to payers (in fact applied against
payer’s liability during the monthly account reconciliation process).

Replace with “may cover a portion.”

Page 15 of 38
Page Sentence / Issues

35 [missing from description of Payers: benefit design & PBM contracting]

On page 36, the complaint described PBMs as managing prescription billing. The section
about third-party institutional payers should also state that payers manage benefit design of
the insurance plans and contract with PBMs to manage prescription billing at the point of
purchase (on the behalf of payers).

36 Top para, PBM: “…. act as middlemen… In this role… management of prescription billing…”

Misleading/confusing: The list mixes functions that the PBMs fulfill in their independent
capacity and other functions they solely fulfill as agents of institutional third-party payers
(prescription billing).

36 Top para: “in most instances, they do not take….”

Irrelevant. Physical possession is not a relevant test/factor. Financial transactions and

information flow, not physical possession, are the key elements the complaint needs to
document. This section should describe the agency role of the PBMs in relation to the plan
benefit information relayed to members/consumers and related cash flows—i.e. when
members take physical possession of the drug, the pharmacy enters the list price of the drug
as a liability in the Payer’s account. The PBM then informs the pharmacy, on the behalf of
payers, the copay or coinsurance amount the member must reimburse payers. This amount
paid by member is then kept by pharmacy in an escrow account until the PBM and pharmacy
true-up / reconcile the account (in most cases, the PBM has to pay the pharmacy for the
difference between drug acquisition costs and pooled copay/coinsurance payments, but it is
theoretically possible that the pharmacy could have to pay back to the PBM the excess
payment of members if those payments, in aggregate, exceed the cost of the disbursed
drugs.

36 Distribution

Inaccurate/confusing: this section should describe the financial transaction between

manufacturers and pharmacies, via distributors — wholesalers, acting as distributors, provide
distribution and related services but do not take ownership of the drug. Pharmacies directly
buy the drug from the manufacturers—which allows manufacturers, PBMs and Payers to
control the financial flows and thus the integrity of the rebating scheme.

36 Downstream charges

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This section should describe the agency role of the PBMs in relation to the plan benefit
information relayed to members/consumers and related cash flows—i.e. when members take
physical possession of the drug, the pharmacy enters the list price of the drug as a liability in
the Payer’s account. The PBM then informs the pharmacy, on the behalf of payers, the copay
or coinsurance amount the member must reimburse payers. This amount is then kept by
pharmacy in an escrow account until the PBM and pharmacy true-up / reconcile the account
(in most cases, the PBM has to pay the pharmacy for the difference between drug acquisition
costs and pooled copay/coinsurance payments, but it is theoretically possible that the
pharmacy could have to pay back to the PBM the excess payment of members if those
payments, in aggregate, exceed the cost of the disbursed drugs.

36 Last para: “… payment into deductible..”

Coinsurance is a variable form of copayment. Copayment generally refers to a fixed amount.

Copay and coinsurance are the only two forms of payment made by insured consumers for
covered services. Some customers are required by plan design to pay 100% coinsurance—
100% of the cost of their prescription as stated by the PBM/Payer—until a deductible has been
met. “Payment into deductible” is not a separate customer payment obligation.

Delete: “Payment into deductible” and “cash” do not mean anything from a transactional
perspective. A cash price is not a payment made in cash, but a payment made directly to the
pharmacy instead of a payment made to the payer and held by the pharmacy in trust until
account true-up. Cash payment for insulin means “transaction that occurs outside the
insurance framework”; the customer directly pays the pharmacy for its acquisition and
dispensing of the drug.

36 Last para: “…as mediated by PBMs…”

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Delete/correct: not all transactions are mediated by PBMs. Transactions between uninsured
and pharmacies are not. The complaint is manipulating the fact pattern to make it fit the
alleged “scheme,” i.e. pretend that the list price is not a true price. Uninsured consumers are
however involved in a separate set of arm’s-length transactions that do not involve PBMs.
These transactions are based on the actual acquisition cost of the drug by the pharmacy, not
a theoretical benchmark index.

Add: Uninsured consumers pay a “cash price” (i.e. a marked up list price based on the
pharmacy’s acquisition cost of the drug), directly to the pharmacy. The pharmacy then directly
reimburses the manufacturer via its distributor. This transaction is not mediated by PBM
(acting as agent of payer) — unless the PBM also acts as pharmacy service provider, directly
contracted by the pharmacy (independently from the PBM role as agent to payer) to manage
it physical supply chain and cash flows with its manufacturers/suppliers. This is an exception
to the general statement made in the PBM para above.

37 Top para: “are from health benefit providers and/or PBM directly back…”

Counterfactual: payments are from manufacturers to payers via their PBM agents.

Replace “health benefit providers” with “institutional third-party payers.”

37 Top para: “typically are well after the point of sale transaction.”

Confusing: Does ‘after’ mean ‘later’?

Rebates / price concessions are reconcilled/assessed on a regular basis. It is important to

note that both rebate payments (from manufacturers to payers) and drug payments (from
payers to pharmacies) are reconciled at fixed intervals—after the purchase transaction. The
only transaction that payers require to happen at the point of purchase is the calculation of its
member’s coinsurance or copay liability, even though this payment is not immediately
applied to the sale transaction.

37 Second para: “The figure below…” and figure on page 38.

Inaccurate figures. Replace with Credit Suisse figure included in the April 2017 report on
drug pricing.

38 First para: “… In addition to her insurer’s payment, the patient usually pays…”

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Inaccurate:

• Insured consumers can pay more than a ‘portion’ of her medication’s cost, may indeed pay
several times the net cost of her medication.

• Only applies to insured consumers. Uninsured consumers pay the pharmacy for the entirety
of its acquisition cost plus markup and dispensing fees.

38 Last para: “The health insurer relies… “

Partial: This only applies when the drug’s net price is not entirely covered by a members’
copay or coinsurance payments. In some cases, the insurer relies on one consumer’s excess
payments to pay for the prescription needs of other members.

39 Second para: “In this system, only a drug’s benchmark price—also known as its Average…
reported.”

Inaccurate: Benchmark prices are not publicly reported to consumers — they are synthetic
indexes based on proprietary algorithm maintained by a handful of consulting companies
such as IBM Truven and QuitilesIMS. These indexes are not public. Public drug prices include:

• Some states publish the actual acquisition costs of drugs—i.e. the cost paid by pharmacies
to distributors and manufacturers.

• The Federal Government used to maintain a database of average acquisition costs based
on actual prices.

• Pharmacies generally disclose to consumers their ‘cash price’ i.e. drug’s price offered to
uninsured, and the list price (provided by PBM/Payer) to a patient who pays coinsurance
based on list price.

• CMS, following the trend in the private sector, has also transitioned to using/reporting
actual prices.

Whether PBMs use benchmark indexes in their negotiation with manufacturers is totally
irrelevant. PBMs negotiate a rebate value (and other reimbursement and fee values), not a
list/benchmark price.

39 Last para: “Health insurers cover all or a portion of their members’ drug costs…”

Inaccurate: In some cases (coinsurance payment indexed on un-rebated list price), insurers
do not cover any portion of the drug costs — the net cost of the drug to the PBM/Payer is
lower than the copay/coinsurance payment made by consumers.

39 “… will then only reimburse their plan members…”

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Third-party payers do not reimburse members. They pay pharmacies on the behalf of their
members and receive rebates/discount back from manufacturers as a result of this
transaction. Members then reimburse payers for a portion or more of the “cost-to-plan” (via
pharmacies).

When the consumer’s coinsurance payment is based on un-rebated list price (instead of net
cost-to-plan), this payment may be larger than the net cost of the drug to the PBMs/Payers.
These reimbursement payments are kept by pharmacies in escrow and applied against the
payers’ liabilities. Members’ reimbursement (the copay/coinsurance payment) is thus
processed before the payer actually advances payment to the pharmacies.

40 Second para: “In the end, the only actors….”

Inaccurate: Pharmacies pay the full acquisition cost, i.e. list price of the drugs to
manufacturers and are then reimbursed by payers/insurers. Three parties thus pay prices
approximating the drug list prices:

• Pharmacies: they pay list price to the distributors/manufacturers. They are also reimbursed
the full list price, plus dispensing fees, by PBMs/Payers and uninsured customers.

• Payers: they pay list price and dispensing fees to the pharmacies. They also receive, in
separate transactions, price concessions and fees from manufacturers and copay/
coinsurance reimbursement payments from insured members/consumers. When an
insured customer pays full list price back to payers, payers are actually deriving a net profit
from the transaction (the amount of price concession received from manufacturers, minus
PBMs and pharmacies’ fees).

• Uninsured customers: they pay the pharmacies’ full acquisition costs and dispensing fees,
directly to the pharmacies.

• Insured customers, on plans that require them to pay 100% of list price until they hit their
deductibles — but only because payers index coinsurance payments on list prices instead of
net cost-to-plan.

Note: insured customers do not pay “for drugs out-of-pocket.” They reimburse their insurers
(who advance payment to the pharmacies and receive rebates) for what is characterized as
their share of the drug’s cost-to-plan.

40 Last para: “Out-pocket-costs for insured consumers… “

Inaccurate: There are only two forms of out-of-pocket payments: reimbursements based on
coinsurance and reimbursements based on fixed copay. “Deductibles” are not a third form of
out-of-pocket cost. Some plans require members to pay 100% coinsurance (i.e. the full cost
as represented by the Insurer) until the member’s deductible has been met.

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41 End of first para: “Insured individuals in high-deductible plans must…”

Insured consumers only ‘must’ reimburse payers for a portion or all of the ‘cost-to-plan.’ They
are ‘required’ to pay full list prices by payers, when payers use list prices, rather than net cost-
to-plan, as the basis for reimbursement.

Change: use passive form or clarify that Payers require insured customers to pay full list
price.

44 Top para: “but they hit their deductibles over a shorter period of time…”

Add: because Payers/PBMs inflate the coinsurance reimbursement amounts.

44 Second para: “ drugs in disfavored formulary positions require large copays.”

Payers require larger copay or coinsurance reimbursements. These payments, though

characterized as cost-sharing, may, in some instances, be as large as or larger than the Payer’s
actual net cost for the drug.

44 Third para: “… must pay a fixed percentage of the cost of the healthcare service provided. For
drugs, this means a percentage of the drug’s benchmark price.”

HB is trying to engineer a direct causation where there is none:

Insured consumers may be required by plan design to reimburse a fixed percentage of the
“cost-to-plan.” Payers instead seem to calculate coinsurance payments as a percentage of the
benchmark price. The complaint does not explain how Payers’ decision to overcharge
consumers relate to Manufacturers’ actions.

At a minimum, replace with passive form: “insured customers are required [by payers] to pay
a percentage of the drugs benchmark’s price…”

44 Fourth para: “For those who must pay …”

Replace with passive form: “For those who are required [by payers] to pay….”

46 Top para: “This means a patient in a Medicare Pard D plan must pay for …. she pays 25% of
the benchmark price…. In the Donut Hole, she must pay… “

Replace with passive form: “Is required to pay.. “ instead of ‘must’ and ‘pays’.

47 Top para: “… by the Defendants, forcing patient consumers to pay drastically higher prices
for insulin than their insurers (if they have insurance).”

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Misleading: payers are also exploiting this system. Payers are now the primary
beneficiaries (manufacturers also indirectly derive ancillary benefits such as access to
market, lower competitive pressures on net prices, inflated list prices — in anticipation of
transition to value pricing).

Insurers are forcing patients to pay drastically higher coinsurance reimbursement amounts by
using list prices instead of the much lower actual net cost to plan as basis for calculation.

47 Top para: “If a patient is responsible for all of her drugs costs… she must pay on the basis“

Inaccurate: under her policy, the insured patient is only responsible for the reimbursement of
her share of the cost-to-plan, not the drug costs.

Use passive voice: She is required [by payers] to pay instead on the basis of the list prices.

47 Last para: “But it is not. “

Inaccurate: $450 is the cash price paid by uninsured customers (drug’s acquisition cost or
invoice price paid by the pharmacy, plus pharmacy’s mark up and dispensing fee). $382 is
the lower negotiated price between pharmacy and PBM (lower mark up over the drug
acquisition cost). The drug manufacturer did actually charge the pharmacy a list price that is
slightly lower than $382. So, the $382.50 is in fact related to the manufacturer’s charge for the
drug in an arm’s-length B2B transaction between manufacturer and pharmacy. In a separate
transaction, the manufacturer reimburses the payers a portion of this price.

48 Top para: “…; the price of this insulin box is likely much lower…”

Inaccurate: the net realized price (received by the manufacturer) and the corresponding net
‘cost-to-plan’ to the payers are much lower.

48 Top para: “because the drug manufacturer is paying a sizable amount of money back [to] the
institutions, but not the consumer.”

Inaccurate: Coinsurance reimbursement payments are inflated because institutional payers

are not passing the sizable rebates along to their customers in the form of a reduced net
‘cost-to-plan’ basis, either at the point of sale or in a later true-up transaction.

HB settlement strategy: require that Manufacturers also pay a coupon / rebate direct to
customers. This approach would further inflate the rebate paid and thus list price — without
challenging the rebating system managed by payers and requesting net price disclosure as
we do in our PBM complaint. This settlement approach would be a catastrophe for the class if
the PBM claims were to be extinguished/dismissed with prejudice.

48 Top para: “…less a 40% rebate.”

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Misleading: Rebates on analog insulin are all above 60%.

HB settlement strategy: 40% is the rebate publicly disclosed by Eli Lilly’s Patient Assistance
Program — the resulting net price is about 100% larger than the current net realized price.
Such an amount would be truly supra-competitive. This, again, would be disastrous for the
class.

48 Top para: “…the real price might be.. she paid 166% of the real price.”

Misleading: Use “cost-to-plan” instead of real price. Benefit design does not refer to “real
price” but “cost-to-plan.”

49 Bottom para: “Of course, manufacturers… confidential by drug manufacturers.”

Litigation strategy: Why is HB arguing that net prices are proprietary and confidential on the
behalf of manufacturers? This is against the interest of the class — DELETE. Customers are
entitled to know the true net cost-to-plan.

Fn 30 is in fact very relevant: why is HB undermining the Class’s argument in favor of

disclosure?

HB settlement strategy: Quid pro quo for settlement negotiation: no disclosure of net
prices / true cost-to-plan (by removing PBMs) in exchange for small additional rebate
payment direct to patients. The resulting amounts would generate to legal counsel a
substantial profit while delivering almost no solution to the class. In fact, such an approach
would add insult to injury.

By avoiding any reference to ‘cost-to-plan’—which is functionally similar to net prices—and

dismissing manufacturer’s net prices as proprietary, HB seems to aim at structuring the
settlement the same way reimbursement used to be calculated: by reference to an index/
benchmark value rather than actual transaction prices/costs. This approach prevents
disclosure of net pricing (and thus protects the manufacturers’ commercial interest in
anchoring net pricing as high as possible in anticipation of the transition to value pricing)
while maintaining the integrity of the rebating scheme. HB isn’t in fact challenging the
reimbursement regime; they are only arguing that customers should be entitled to their own,
much smaller, rebate.

50 Top para: “…(and consequent overpayments by consumers)… “

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DELETE: This statement is only true if Payers use list prices as the basis for coinsurance
reimbursement payment. There is no direct relationship between larger benchmark prices
and overpayment.

ALTERNATIVE: add after ‘consumers’: “… when Payers/PBMs index coinsurance calculations

on list prices instead of net cost-to-plan”.

51 Second para: Missing reference to Payers

The reference to the McKesson case does not serve any purpose but to start transitioning
from Payers as co-conspirators to Payers as co-victims and PBMs as free agents
independently acting in the pursuit of their own interest.

The third actors involved in the transaction are obviously the Payers: the payers also benefit
by charging inflated co-insurance payments to insured costumers. This is the true injury. The
‘benefits’ derived by the PBMs and Manufacturers do not seem to translate into an actionable
injury to the class.

51 Last para: “They also hurt insured consumers… who must pay the…”

Passive voice: who are required to pay [by payers]

52 Top para: “because their coinsurance payments rise with…”

Inaccurate: Because coinsurance payments are not based on true net cost-to-plan but
inflated prices.

54 Top para: “highly treatable… are entirely avoidable…”

“Highly treatable” implies “curable.” Insulin-dependent diabetes can be managed with

insulin, which mitigates diabetes’ symptoms (higher blood glucose). Using insulin does not
result in a resumption of one’s own insulin production and other blood glucose regulation
mechanisms.

Second, the statement “entirely avoidable” is medically inaccurate. While an insulin-

intensive treatment plan may reduce the probability of early early onset of complications and
the severity of the complications, it does not ‘entirely’ eliminate complications. Furthermore,
life-threatening insulin-induced severe hypoglycemia isn’t ‘entirely avoidable’ when patients
follow a prescribed treatment plan consistently. In fact, an insulin-intensive plan that
aggressively controls blood glucose puts patients at a higher risk of suffering a severe
hypoglycemia event, and this risk increases with the age of patients.

56 Second para: “When the animal-based…”

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This is a partial explanation. Animal-based insulin production (cadaveric insulin extracted

from the pancreas of deceased animals) was constrained by the supply of pancreas.
Furthermore, aging production facilities and increased quality compliance monitoring led to
several FDA notices of non-compliance. An FDA quality check of Lilly’s glucagon production
resulted in the death of all the mice used in the experiment. The FDA strongly recommended
that Lilly immediately improved production quality control.

56 “converting bovine insulin into human insulin”

Bizarre reference to a human insulin Novo derived from enzymatic modification of bovine
insulin—also called semi-synthetic insulin. Three other methods were used worldwide:
cadaveric insulin (Eli Lilly, etc.), synthetic insulin (insulin produced from chemical reactions)
and recombinant insulin (insulin produced by biosynthesis).

The reference to Novo’s human insulin as converted from bovine insulin encourages the
inference, among untrained readers, that Novo Nordisk’s analog insulin is also derived from
bovine insulin. This type of misrepresentation can be found in articles written by part-time
journalists/bloggers, e.g., “Novo Nordisk’s chemical conversion of bovine into human insulin
to create its own recombinant insulin reached the United States by 1988“ (Medscape, https://
www.medscape.com/viewarticle/841669#vp_2). Recombinant ‘human’ insulin is derived
from biosynthesis (rDNA expression from yeast or e. coli), not enzymatic processing of
bovine/porcine insulin.

58 “As a result, it can be used in more flexible ways.”

The more predictable, shorter duration allows for the safe implementation of intensive insulin
treatment.

61 Title: “D…. Rise in Production Costs”

Misleading: This section does not include any reference to production costs.

61 “familiar reason: cost.” + fn 41

Fn 41 is inaccurate. Analog insulins are biosimilar and the competition between

manufacturers is intense. Supra-competitive prices are not defined in relation to a cheaper
‘generic’ drug. Fn 41 simply attempts to establish that net prices are high based on
speculations (absence of biosimilar competitors), rather than actual production costs.

This complaint provides not actual data — actual net price, actual acquisition costs, actual list
price, actual rebates, and actual production costs.

67 “As one healthcare analyst…”

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The engine fueling list price inflation is described on page 50. Reference here to a ‘clear
signal’ is misleading. The lockstep increases are in fact a clear signal that manufacturers
intended to price-compete with each other on rebates. The allusion to parallel pricing is
contradicted by the many references to competition. See, e.g., page 71. The graph on page
75 shows the outcome of this competition — net price reduction.

DELETE text from “As one healthcare…” on page 67 to “…as well” on page 68.

72 Second para: “While this practice benefits both ….”

The primary beneficiaries, Payers, must be mentioned. See, e.g., the Novo quote: “… we
negotiate with the companies that actually pay for the medicines, which we call payers…”

Second, “this practice”, i.e. rebating, does not harm insured customers — unless Payers fail to
pass the full benefit of the rebates in the form of lower net cost-to-plan basis. This failure to
disclose by Payers also indirectly harms uninsured customers.

73 Second para: “But these explanations omit a crucial detail:…. “

INACCURATE:

• First, they have been lowering their net prices since 1Q15 (see page 75).

• Second, Manufacturers cannot offer the same “high rebates” with substantially lower list
prices. This is mathematically impossible. Net prices of analog insulins are currently likely
within a $50-$70 range (per 10ml vial) — which is not far off the present value ($43.62) of
Lilly’s $25 price for that same vial in 1992. Even when you consider that Lilly’s 1992 market
position was near-monopolistic, assuming continuing rebate/reimbursement levels
comparable to those currently existing, list prices can’t be reduced by more than 10%. If a
manufacturer were in fact to decrease its net price to payers below what would be deemed
a commercially viable price in order to lower its list/benchmark price as suggested by HB,
that could constitute a breach of anti-trust law.

• Finally, they are not required to do so: Payers benefit from high drug prices and high
rebates (coinsurance overpayments by clients). Payers’ profits are also dependent on
increasing premiums.

76 Graph 21 and 22

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The graphs are outdated and misleading.

Note that these figures are ‘averaged’ across all therapeutic classes. A manufacturer with a
drug portfolio dominated by insulin (Novo in the US) would have a higher average than
another manufacturer that markets a larger portfolio of drugs (e.g. Lilly). At a minimum, HB
should be using the latest rebate figures from Credit Suisse (CS):

Credit Suisse also publishes rebates per insulin brand, e.g.:

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You may notice that Humalog and Novolog 2016 rebates are above 70%.

Another source is QuitilesIMS (on average IMS reports lower rebates than CS):

79 “Sanofi and Novo Nordisk have stretched… become the second and third…”

The source of this information is not footnoted: HB used the Credit Suisse report but did not
include in the footnote, possibly in order to maintain the illusion of low rebates — 25% to 40%
instead of 60% to 75%.

HB’s settlement strategy seems to involve under-estimating rebate levels to match Eli Lilly’s
discount offered through its Patient Assistance Program (40%). See page 84. Offering to
anchor the lower rebate levels (avoiding disclosure of net pricing) would seem to be the
primary inducement offered to Manufacturers in exchange for presenting them as
responsible for Payers’ deriving excess profit from consumers.

79 “so untethered from the reality as to be fraudulent.”

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Basis of HB complaint? (The same could be said of Seattle real estate prices, NYSE
valuations, most CEO compensation packages and Steve Berman’s bonus.)

DELETE: there is no basis in the complaint for such a statement. The opposite might be true:
the complaint describes the system and mechanism that controls list price inflation (price
arbitrage, page 50) and how actors (except Payers) derive lawful benefits.

HB’s settlement strategy: camouflage Payers’ failure to pass rebates as a ‘fraudulent’ price
manipulation controlled by Manufacturers.

84 Second para: "The insidious practice of competing…”

Failure to address the actual cause of the harm: Payers’ insidious practice of using list price,
instead of cost-to-plan, as basis to calculate members’ reimbursement.

85 “unless Sanofi, Novo Nordisk, and Eli Lilly make … affordable.”

Analog insulin is already affordable to Payers/PBMs.

CHANGE: “unless Payers make analog insulin affordable to their members by passing on the
full benefit of rebates and price concessions.

86 “continuous duty to disclose”

The complaint doesn’t support such a representation. Manufacturers do not have any direct
contractual or commercial relationship with Plaintiffs—and there is no duty to disclose
commercial information to the general public.

PBMs/Payers do have a duty to disclose to insurance plan members.

86 Class definition — undefined

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The class definition fails to define a class:

This definition in fact eliminates all privately insured customers and uninsured customers.
Uninsured customers pay based on the pharmacy’s marked up actual acquisition cost — not a
synthetic benchmark price. Uninsured customers wouldn’t be included in the class as
defined. Privately insured customers’ copay or coinsurance is not based on a benchmark
price. Privately insured customers’ coinsurance payments are supposedly based on ‘cost-to-
plan’ —- not benchmark pricing.

Page 87 accurately refers to the “terms of her plan” as the test for inclusion of insured
customers in the class. The terms of insurance plans/policies do not, however, establish any
benchmark price as the basis for benefit calculations. The statement at the bottom of page 87
and top of page 88 is therefore inaccurate. An insured person’s out-of-pocket expenses for
analog insulin can be expressed “as a percentage of the cost of the medication” (p 87) or
‘cost to plan’ — but nothing in the plan/policies states that these costs are calculated based on
benchmark prices of these drugs (p 88). In fact, our complaint should prove the opposite, i.e.
that insurance policies require that these payments be based on the net cost to plan. The
definition of the class would thus exclude any privately insured customers with a valid claim
for disclosure of net cost-to-plan, i.e. net pricing of analog insulin.

Only certain public plans and small institutional payers with legacy PBM contracts may satisfy
this definition. It is otherwise impossible to know, based on public records and insurance
policy documents that are provided to customers, whether a Payer/PBM actually defined/
defines the portion of the price paid by the individual “by reference to a benchmark price.”
This information is not publicly available to Customers. Only PBMs/Payers know whether
they used actual prices, benchmark prices or any other basis for calculating copay or
coinsurance payments. In order to define the class, one would have to proceed with
discovery of PBMs/Payers — which isn’t possible since PBMs are not defendants.

The class can be defined as: All individual persons in the US… who were required to pay at
the Pharmacy point of sale any out-of-pocket amount other than a fixed copay as a condition
to receive analog insulin for purposes other than resale.

88 4th para: Plaintiffs will fairly and adequately protect and represent the interest of the class.

No. All plaintiffs who substantially agree with this complaint as currently drafted—and have
failed to bring its defects to the attention of counsel—fail to meet the requirements of Federal
Rule of Civil Procedure 23. They have limited understanding and no ability to adequately
assess the complex fact pattern of this case.

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88 “Lead counsel…. $500 million.

No.

Both class representatives and class counsel have responsibilities to absent members of the
class. Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1077 (2d Cir. 1995). And even
before a class has been certified, counsel for the putative class owes a fiduciary duty to the
class. In re Avon Sec. Litig., No. 91 CIV. 2287 (LMM), 1998 WL 834366, at *10 n. 5 (S.D.N.Y.
Nov. 30, 1998).

Class counsel’s failure to disclose the extent of their involvement with Payers, their role in
prior PBM litigation for rebate transparency, their failure to remedy the patent flaws of their
original complaint, and now their failure to state a claim and join the PBMs are required
under Rule 19 together suggest that lead counsel has breached its fiduciary duty to the class
and should not be allowed to proceed with the consolidation. It is also our belief that Judge
Martinotti committed did not adequately use his discretion when he gave complete control
over this complex matter to Steve Berman and James Cecchi.

89 Questions

(i), (x) and (xii) require PBM/Payers (mandatory joinder, Rule 19)

89 Questions

Missing questions:

• whether plan design / policy requires insured consumers to pay coinsurance based on
list prices or net cost to plan?

• whether PBM/Payers required consumers to pay coinsurance amounts based on list

prices instead of net cost to plan?

92 3rd para: “health care payers, …”

Undefined. This complaint used multiple names — health benefit manager, payers, insurers,
etc.

Inaccurate: Payers/PBMs are fully aware that the the rebating scheme exists and Payers have
detailed knowledge of its workings. As of April 2017, Credit Suisse estimated that payers now
capture 90% of the price concessions paid by manufacturers.

92 “that Levemir and Novolog’s benchmark prices fairly and accurately reflected the actual cost
of this drug…”

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This sentence does not make any sense.

Benchmark prices are no longer used. Second, “actual cost” to whom? For example, for
uninsured, the list price is in fact approximately the actual price of the drug at the point of
sale. It is also close to the actual price of the drug paid by payers to pharmacies. But it is not
the cost to plan since payers receive large transaction-based rebates and potentially other
rebates and price concessions from manufacturers. So, from a manufacturer perspective,
insulin is sold at list price and then part of the gross revenues are spend on access to market,
i.e. marketing. From a manufacturer perspective, the price concessions are the cost of
accessing insurers’ market. Net prices are generally sales prices minus SG&A and rebates.

92 3rd para: “concealed from … health care payer..”

Counter-factual: HB is attempting to mischaracterize a drip pricing claim as some sort of

conspiracy to give away rebate amounts.

The allegation that the fraudulent RICO conspiracy is a conspiracy to conceal the true prices
of insulin (p 93, 94) is contradicted by HB’s own complaint on page 49: HB acknowledges
that net sale prices “are not typically published or made public.” The only exception to that
rule mentioned by HB is CMS transition to ASP under the Medicare Modernization Act of
2003.

HB further states, without raising any challenge or objection, that net prices are deemed
proprietary and confidential by Manufacturers. The Complaint thus seems to message to the
Manufacturers that HB would not oppose a motion to seal the case (as Tom Sobol did in the
2003 case in CA). In fact, HB seems to be enticing Manufacturers to file such a motion in
order to preclude/preempt any attempt to disclose net prices and thus challenge HB’s use of
index prices as basis.

Payers are the key co-conspirators. They have a duty to disclose accurate information to
members and to use cost-to-plan, not list price or drug purchase price at the pharmacy point
of sale, to calculate coinsurance. Without Payers’ misrepresentations and drip pricing
scheme, there is no claim.

Even the general public is aware of the existence of rebates, their mechanism and purpose.
This has been a matter of public discussion in serious newspapers (WSJ, Forbes) and
specialized media since the early 2000s.

92 3rd para: “rebates were worth at least 25% of the benchmark price”

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Rebates on analog insulin are not less 50% and possibly up to 76% or more. 25% is a lowball
settlement offer, not a bona fide complaint.

Rebates are not calculated based on benchmark price but gross sales revenues. See
QuintilesIMS and Credit Suisse reports.

93 Top 2 para: our PBM Claim.

93 Bottom para: “But it knew… was falsely inflated.”

Inflated by Payers/PBMs. This is our PBM claim: Payers are responsible for the overpayment
but both PBMs and Manufacturers are aware of the fraudulent scheme and agreed (until April
6, 2017), to remain silent in order to protect the ancillary benefits they derive from it.

Note that HB uses the passive voice each time it needs to avoid identifying that the PBMs/
Payers are the direct cause of the scheme.

94 Top para: “By failing to disclose… profits.”

This is our PBM collusion complaint but wrongly applied to ‘rebating’ (a lawful commercial
practice) instead of the Payers’ overcharging / drip pricing scheme.

94 Second para: “But it knew that the rebates did not actually … falsely inflated.”

NO - COUNTER FACTUAL. ATTEMPT TO DERAIL THE PBM CLAIM INTO A PRICE INFLATION
CLAIM AND ENGINEER A DIRECT CAUSATION WHERE THERE IS NONE.

PBMs knew that the rebates did not actually decrease the cost of insulin for insured
customers, because they knew, as agent to payers, that payers were not passing rebates to
customers.

95 Second para: “Furthermore, as public scrutiny,… actually paid for the drugs.”

Basically, HB is suing the only co-conspirator that has taken a public step against the
conspiracy—the manufacturers. In the meantime AHIP, PCMA, PBMs and insurers continue to
state in public media that manufacturers are responsible for all increases in coinsurance
payments.

95 Bottom para: “The PBMs knowingly made material misstatements to health care payers…”

First this is impossible to prove without joining the PBMs under Rule 19.
Second, Payers are intimately aware of (a) and (h) — since both PBMs and Payers are intimately
involved with the overcharging or drip pricing scheme that raises the list price of insulin and
then uses that list price to overcharge individual insureds.

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95 Bottom para: “The PBMs knowingly made material misstatements to … [customers and] the
general public…”

YES, this is ongoing. PBMs and Payers are still representing that manufacturers control the
cost to plan and cause plan members to incur additional expenses — this is a misstatement
because PBMs cause the overpayment when they act as agent to Payers and direct
consumers to make advance payments based on list prices rather than net cost to plan.

97 2nd para: “Under this system, a higher spread…. pharmacies.”

Wholesalers are also benefiting from higher list prices, as well as Payers. Payers are the
primary beneficiaries and now sponsors of the rebating system in the form of inflated costs
(they need higher costs to increase profits, because profits are limited to a % of costs),
possible transfer of ACA subsidies to non-ACA plans, additional payments from people on
plans with high deductibles, etc.

97 Last para: “the PBMs’ misstatements to the drug-purchasing public that those rebates
benefitted health care payer…”

CONTRADICTORY TO FACT AND TO THE COMPLAINT ITSELF

This sounds like a claim from the 2003 lawsuit filed by Tom Sobol against PBMs on the behalf
of payers.

Rebates do benefit payers. This is not a misstatement. This is the core allegation of our PBM
claims — and a fact that is widely accepted in the industry and financial sectors (e.g. Credit
Suisse April 2017 report, stating that payers receive 90% of rebates).

99 Complete page

The scheme in question is rebating.

100- 2nd para: “In designing… and establishing rebates”

101

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HB here attempts to create a direct causation. This time, HB alleges that some ‘others’ rely on
some form of unspecified guarantee from PBMs/manufacturers regarding the integrity of
benchmark prices and rebates.

This sentence does not make any sense. HB seems to be building the following narrative:

Payers were entitled to rely upon the representation that the ‘benchmark price of
insulin’ (whatever that is) truly represented the ‘real price’ but somehow they were duped by
the “price inflating” scheme and thus the Payers inadvertently overcharged their customers
even though they were not themselves overcharged by the scheme.

In summary, the pattern of racketeering activity Novo Nordisk is allegedly masterminding

(p100-101) is one that allows NVO to give away vast amount of their sales revenues back to
Payers/PBMs and then to conspire with PBMs to fool Payers into unknowingly overcharging
their own customers (either via some form of inducement/reliance or, in the alternative, by
being somehow controlled by Manufacturers) while not being overcharged themselves, with
Payers thus accidentally enriching themselves as a result. The complaint, however, does not
seek disgorgement from the Payers of the unlawful profit they derived from the scheme, and
instead would require manufacturers to make additional payments to patients who were
directly injured by the Payers.

102 Top para: “to mislead health care payers… regarding the existence, amount and purpose of
the rebates.”

Counterfactual and unsupported.

104 Top para: “forestall changes to healthcare payers’ reimbursement of …. based on something
other than … benchmark prices..”

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CRITICAL CLAIM: THIS IS HB’s ATTEMPT TO ADDRESS THE FACT THAT THE INJURY TO
PLANTIFFS IS CAUSED BY PLAN/BENEFIT DESIGN CONTROLLED BY PAYERS.

The validity of the whole complaint (direct causation stated on p. 104 under E) relies on this
unsupported statement. (Note: HB complaint uses yet another term for payers — healthcare
payers.)

The alleged scheme controlled by Manufacturers fails to state a claim unless direct causation
between the rebating scheme and the overcharge can be established.

Uninsured are not overcharged per se — they are just on the wrong side of a lawful but
completely dysfunctional market. Addressing the market would indirectly solve the uninsured
issues. The dysfunctional market is the PBM-managed formulary/insurance market. But in this
marketplace, manufacturers have no direct contact with consumers. PBMs and Payers do, but
they are not defendants. In this market, the financial transactions that give rise to the
overpayment are controlled by PBMs and Payers. Manufacturers have thus to control them —
somehow, for HB’s logic to work, the Payers’ decision to use list prices instead of net cost-to-
plan as basis for coinsurance calculation has to be controlled by manufacturers.

The above sentence aims at achieving that purpose. HB states that but for the manufacturers
the Payers would be basing their coinsurance calculations on “something other than…
benchmark prices.” This allegation is as vague and unsubstantiated as the allegation of
collusive parallel pricing upon which the first HB complaint was predicated.

Plans are managed by insurance benefit managers and PBMs on the behalf of Payers. For this
claim to be valid, HB must prove that Manufacturers had the actual capacity to control benefit
design. It is however almost impossible to prove without discovery of PBMs, Payers and
insurance benefit managers.

This claim is however contradictory with other statements. If Payers were not overcharged,
see p. 105 (“the health care payers did not suffer the overcharges that are the harms alleged
in this suit.”) how can they also be forced to overcharge their customers — and thus derive a
profit? That means that although the PBMs passed the rebates to Payers, Payers were
somehow prevented by Manufacturers from using the proceeds to reduce their own
customers’ coinsurance payments to Payer. Nowhere in the complaint is this alleged coercive
scheme described and documented with any specificity.

104- Last 2 para: “directly.. caused Plaintiffs… (2nd para).. pay for 100% of her drugs until satisfies
105 her deductible… drug’s cost…(105, 2nd para)… based on the drug’s benchmark price.
Therefore, when NVO… artificially… benchmark prices, it also artificially inflated the
consumer’s out-of-pocket expenses.”

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The statement on the top of page 104 is necessary to equate the cost-to-plan and drug’s
benchmark price. This is akin to stating that when the Payers design the plan benefit structure
and enforce its coinsurance requirements, they do so as agent to the Manufacturers. There is
however no support in this complaint regarding such agency relationship.

105 Third para: “Plaintiff’s injuries were directly caused by [Manufacturers]…. health care
providers and others [ e.g. PBMs] … are not responsible for cash payments (by those who
have no insurance)….

Inaccurate: Pharmacies are responsible for payment made by uninsured customers. They do
not receive any rebate. The payment they receive from uninsured consumers reflects their
costs plus.

105 Third para: “Plaintiff’s injuries were directly caused by [Manufacturers]…. health care
providers and others [ e.g. PBMs] … are not responsible for… coinsurance or deductible
payments…

See above. PBMs and Payers who control coinsurance and deductible reimbursement
payments receive the rebates. The above statement is therefore flawed unless these PBMs/
Payers also acted as agent of the Manufacturers or were somehow controlled by the
Manufacturers. This claim is indefensible.

105 Last para: “So, although the misstatement made by…. Thefore the health care payers did not
suffer the overcharges that are the harms alleged in this suit.”

This is a restatement of the 2003 claim against PBMs. This claim is moot. It only serves as a
way to exonerate Payers.

108 Middle para: “These rebates were worth at least 25% of the benchmark price.”

Grossly understated.

Legal counsel is supposed to act as a fiduciary to the class. HB must present the facts in the
most advantageous manner to the class. HB must state that rebates can be as high as 70% or
higher.

120 Repeats issues outlined on page 105

140 Top para: “Had plaintiffs…. “

Plaintiffs have no relationship whatsoever with Manufacturers. Plaintiffs may, however, have
demanded lower coinsurance payments from Payers if they had been aware of the scheme.

147 Top para: “Defendants owe the Plaintiffs a duty to disclose….”

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Defendants do not possess exclusive knowledge. PBMs know more than any single
manufacturer. PBMs and Payers withhold information from Plaintiffs and have therefore
deprived them of the benefit of their bargain — hence Plaintiffs overpaid Payers.

147 Third para: “Had the Plaintiffs… on benchmark price.”

Plaintiffs do not have any opportunity to demand a lower price from Defendants when they
pay at the Pharmacy point of sale. Knowledge of the actual rebates paid to their Payers
would, however, have allowed Plaintiffs to demand lower coinsurance payments from Payers.

About T1DF. The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-

based nonprofit 501(c)(3) dedicated to advancing equal rights and opportunities for all
people with type 1 and other forms of insulin-dependent diabetes. We focus on the
significant social impact of living with a condition that requires patients to make constant
dosing decisions with a drug that, without careful management and constant monitoring,
can kill them. T1DF strives to improve the regulatory, legal and social ecosystem essential
to development and adoption of new technologies and therapies, with an explicit
commitment to inclusive policies that will deliver for all Americans with diabetes, insured
and uninsured, equal access to standard-of-care pharmaceuticals and equipment. T1DF
accepts no funding from the pharmaceutical, pharmacy benefit management, or
insurance industries.

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