Civil RICO claims have become an increasingly common feature of large-scale healthcare and pharmaceutical litigation. Plaintiffs, including insurers, union health funds, and government entities, have begun invoking the RICO Act to challenge alleged industry-wide schemes involving fraudulent drug marketing, concealment of safety risks, and manipulation of reimbursement systems. Recent decisions illustrate both the expanding use of RICO in this sector and the doctrinal hurdles plaintiffs must overcome to sustain such claims.
One surprising example is Painters & Allied Trades District Council 82 Health Care Fund v. Takeda Pharmaceutical Co., 674 F.Supp.3d 799 2023 WL 4191651 (C.D. Cal. 2023), a long-running case involving the diabetes drug Actos. The plaintiffs in the case allege that pharmaceutical manufacturers concealed evidence linking the drug to bladder cancer, thereby inducing physicians and insurers to continue prescribing and reimbursing the medication. But the strange (to us) aspect of this case is that the plaintiffs were not the drugs’ users–the plaintiffs were the insurance companies and other third party payors. The defendants filed a petition for writ of certiorari to the the U.S. Supreme Court, but the high court denied the petition, leaving the District Court’s ruling intact. In most seemingly analogous RICO cases in recent years (raising issue of proximate cause and standing), federal courts have been careful to limit RICO’s availability only to direct victims of the scheme; i.e. the intended target of the Defendant. The Painters & Allied Trades case seems an aberration.
The Painters & Allied Trades ruling is significant because it allowed insurers and health benefit funds (entities that reimbursed for the drug rather than purchasing it directly) to pursue treble-damage claims based on alleged mail and wire fraud used to conceal safety risks. The Central District concluded that common questions predominated regarding whether the defendants engaged in a coordinated scheme to misrepresent or omit material safety information. By permitting a nationwide RICO class to proceed, the decision underscores how RICO can still serve as a powerful vehicle for challenging pharmaceutical marketing practices that allegedly distort prescription decisions.
At the same time, courts still remain cautious about expanding RICO liability too far. Other healthcare-related RICO suits continue to be dismissed where plaintiffs fail to demonstrate direct injury. See, Humana Inc. v. Teva Pharmaceuticals USA, Inc., 787 F.Supp.3d 1298 (M.D. Fla., April 28, 2025). That court, addressing similar claims by insurers applied principles analogous to the indirect purchaser rule, concluding that payors cannot establish RICO standing when their injuries depend on independent prescribing decisions by physicians or purchasing decisions by patients. Id. The Humana court, and other courts addressing similar claims by insurers, have applied principles analogous to the indirect purchaser rule, concluded that payors cannot establish RICO standing when their injuries depend on independent prescribing decisions by physicians or purchasing decisions by patients.
Taken together, these cases highlight a continuing fault line in healthcare RICO litigation: while the some District Courts have allowed sophisticated payor-based RICO theories to proceed when plaintiffs plausibly allege a coordinated fraud directed at the healthcare marketplace in general, others have scrutinize whether the alleged racketeering conduct directly caused the plaintiff’s economic loss.
For RICO practitioners, these rulings offer several practical lessons for drafting stronger pleadings. First, complaints should clearly articulate the plaintiff was a direct victim of the defendant, and how the defendant’s communications (if alleging mail/wire fraud) were directed at actors within the reimbursement chain. Second, plaintiffs should plead a direct causal pathway linking the fraudulent scheme to the payor’s economic injury—often by explaining how misrepresentations distorted prescribing behavior or formularies. Third, complaints should frame the alleged misconduct as a coordinated enterprise operating over time, rather than as isolated misrepresentations.
By focusing on enterprise structure, direct causation, and the mechanics of the healthcare reimbursement system, the plaintiff’s bar can craft pleadings that better align with emerging appellate guidance. The defense bar should obviously attack these vulnerable areas. As pharmaceutical and healthcare litigation continues to evolve, civil RICO will likely remain a prominent—and heavily contested—tool for addressing large-scale alleged fraud in the healthcare marketplace.
Brodie Smith and Anthony Lanza, litigation and trial attorneys licensed in California, have developed a focused practice area in federal business litigation and civil RICO. They can be contacted at (949) 221-0490.
The information in this blog post does not constitute legal advice, nor create and attorney-client relationship. Laws constantly change, and this information may become outdated; moreover, the information here is only a general overview and may omit some aspects of the law. It is provided for discussion purposes only; not to be relied upon by the reader in making any real-world decisions.
