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May 23, 2013

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Health cost hikes may follow $500M jury award in hepatitis C case

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Jury Awards $500 Million

Attorney Robert Cottle stands with Henry and Lorraine Chanin after the jury's verdict is read May 7, 2011. Jurors awarded $500 million in punitive damage to the couple. Launch slideshow »

Chanins Hold News Conference

Henry Chanin answers questions from the news media regarding his physical health during a press conference following an award of $500 million in punitive damages Friday, May 7, 2010. Seated from left, attorney Robert Eglet, Henry Chanin, Lorraine Chanin and attorney Will Kemp. Launch slideshow »

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Consumers, businesses and physicians can expect a financial hit if a state-record jury verdict of $500 million in punitive damages holds up in the Las Vegas case involving hepatitis C victim Henry Chanin, insurance and health care professionals say.

They say such a large award could result in higher insurance and drug prices as the companies that have been ordered to pay the judgment — Teva Parenteral Medicines and Baxter Healthcare — as well as their insurers, would pass that cost to their customers.

But an attorney who represents other former patients of shuttered valley clinics tied to the hepatitis C outbreak said the companies make such large profits they should be able to absorb sizable damages without passing those costs to consumers.

A Clark County jury reached the punitive verdict May 7, on top of an earlier decision to award Chanin and his wife $5.1 million in compensatory damages, in the first courtroom decision involving the hepatitis outbreak that was announced in February 2008. The jury found Teva and Baxter liable for 50-milliliter vials of the sedative propofol that plaintiffs’ attorneys say encouraged reuse by health care professionals on multiple patients, making them vulnerable to the potentially fatal hepatitis virus.

One such victim was Chanin, who contracted the virus at the now-closed Desert Shadow Endoscopy Center.

Teva and Baxter plan to appeal the verdict but if they lose, the economic ramifications could be widespread. Hundreds of other lawsuits are yet to be decided in related cases tied to Dr. Dipak Desai and his former endoscopy clinics, where the staff reused syringes, which contaminated the vials of propofol and spread the virus. Plaintiffs’ lawyers also have indicated they could go after other “deep pockets,” including health maintenance organizations.

Physicians are likely to see higher drug costs if such a large punitive verdict is allowed to stand, said Dr. Annette Teijeiro, an anesthesiologist who is president of the Clark County Medical Society.

“When a company has suffered a loss, they have to make up that deficit somewhere else,” she said. “Since these companies serve medical clinics and doctors’ offices, that’s whose costs will go up.”

But Teijeiro said doctors likely won’t succeed in passing those costs on to patients because they’re typically locked into multiyear contracts with HMOs and other insurers that supply patients in exchange for physicians agreeing to provide medical care at certain prices.

“To pass on the costs, doctors would have to renegotiate their contracts,” Teijeiro said. “Why would an insurance company agree to renegotiate a contract for a higher amount?”

In the case of insurance, Larry Harrison, spokesman for the Clark County Association of Health Underwriters, said consumers could pay higher premiums within 12 to 18 months after a company is ordered to satisfy a large punitive damages award. After the insurer — or in the case of many companies, the reinsurer that serves as a backstop for the insurer — pays off the claim, Harrison said the insurer generally will spread hikes in premiums three ways.

Roughly one-third would be absorbed by the company that lost the lawsuit, one-third would be spread among similar companies in the same industry, and the remaining third would be passed on to all of the insurer’s customers, Harrison said.

“Everyone becomes a first cousin,” Harrison said. “When there is a fire or a flood or an earthquake, we all become first cousins because it is our reinsurer who will pay most of the claims. And the money just doesn’t fall from the sky. Reinsurers are in business to make a profit.”

Association President Dan Heffley said consumers can also expect the cost of certain drugs to increase, especially if manufacturers want to avoid getting sued as Teva and Baxter did.

“They would have no choice but to increase the cost of their drugs,” Heffley said. “I don’t believe it will be limited to propofol either. What this will force pharmaceutical companies to do is to individually package each dose or make single-dose vials. It costs more to produce smaller packages.”

The national Safe Injection Practices Coalition that includes the Nevada State Medical Association, the federal Centers for Disease Control and Prevention and patient advocacy groups is pushing for more single-dose and single-vial packaging, as well as multi-dose vials that are clearly marked for single patients. The coalition — formed in 2008 in response to the valley’s hepatitis outbreak and roughly 100 smaller ones throughout the country over the past 10 years — is also advocating that the U.S. Food and Drug Administration adopt standards that address packaging issues and make warning labels clearer for health care professionals.

Even if the Chanin verdict is reversed or substantially lowered by an appellate court, state association Executive Director Larry Matheis said he expects drug companies’ costs to increase if and when those standards are adopted.

“It will lead to increased costs because those people will be spending money on things they didn’t spend as much money on before,” Matheis said. “But the end result is that we should have a safer system.”

If the verdict stands, though, Matheis said drug companies could be forced into more out-of-court settlements that would drive up their insurance costs and create greater impetus to practice defensive medicine, “which would also push up costs.”

Victor Schwartz, general counsel for the American Tort Reform Association, said that he doubts the Chanin jury verdict would have much effect on the cost of seeing a doctor. But Schwartz, whose organization believes that punitive damage awards have gotten out of hand, said the verdict could drive up the costs of medical supplies sold in Nevada.

(Schwartz said he has no involvement in the Las Vegas hepatitis litigation. But Portfolio Media, a news service for business lawyers, has reported that Shook, Hardy & Bacon, where he serves as a law partner, has represented Baxter International, parent of Baxter Healthcare.)

Schwartz said a medical supplier might think twice about selling a product to “rogue” clinics or doctors who may misuse the product and wind up getting sued. If that happens, health care providers might have to go out of state to obtain certain medical supplies, he said.

“I would be cautious about what health care product I sold in the state,” he said.

But Las Vegas attorney Gerald Gillock, who reached out-of-court medical malpractice settlements on behalf of 18 clients tied to the hepatitis case, said Teva and Baxter easily can afford the respective $356 million and $144 million punitive damage awards the jury ordered them to pay. That is based on the fact that Teva’s parent, an Israeli company with a market value of more than $50 billion, reported net income of $2 billion last year, while Baxter International is valued at more than $26 billion and netted $2.2 billion in 2009.

“It won’t have any impact on consumer costs because their profits are in the billions,” Gillock said. “If they have eight or nine more cases arguing the same thing as they did here, their profits will suffer. The fix is so simple. All they have to do is make single-dose vials.”

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