Wholesale Alliance, LLC v. Express Scripts, Inc.
Wholesale Alliance, LLC v. Express Scripts, Inc.
Opinion of the Court
This antitrust action is before the Court on Defendant Express Scripts, Inc.'s ("Express *1073Scripts") motion (ECF No. 15 ) to dismiss all five claims filed by Plaintiff Wholesale Alliance, LLC, d/b/a Pharmacy First ("Pharmacy First"). Express Scripts contends that Pharmacy First fails to state a claim under Section 1 of the Sherman Act in Counts I and II. If Counts I and II are dismissed, Express Scripts argues that the Court should decline to exercise supplemental jurisdiction over the state law claims asserted in Counts III and IV. Express Scripts also maintains that Counts III and IV should be dismissed for failure to state a claim. Finally, Express Scripts argues that Count V, asking for injunctive relief, should be dismissed as it is not an independent cause of action. For the reasons set forth below, the motion will be granted.
BACKGROUND
Pharmacy First is a pharmacy services administrative organization ("PSAO"). PSAOs provide administrative services to pharmacies, including processing claims, providing operational support, and negotiating contracts with insurance companies and pharmacy benefit managers ("PBMs"). There are 22 PSAOs nationwide.
Express Scripts is a PBM. As such, Express Scripts administers prescription drug programs for its clients, which include commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and various state government employee plans. PBMs such as Express Scripts create pharmacy networks through which their clients' members may obtain prescription drugs at covered, discounted rates. Express Scripts' pharmacy network includes large chain pharmacies and smaller, independent pharmacies. According to the complaint, PBMs manage the prescription drug benefits of approximately 90-95% of Americans with insurance covering prescription drugs, and to be successful, independent pharmacies must participate in the largest PBM networks. Express Scripts controls 30-50% of the nationwide PBM market.
Pharmacies enter into contracts with Express Scripts to obtain access to its network of 83 million insured patients. These contracts between the pharmacies and Express Scripts detail, among other things, the rates that Express Scripts pays the pharmacies for prescription drugs and the credentialing and other requirements that Express Scripts, in turn, imposes on the pharmacies. Rather than negotiate these contracts with the PBMs themselves, many pharmacies-including roughly 80% of the 22,000 independent pharmacies in the United States-outsource this negotiation and other administrative tasks to PSAOs like Pharmacy First. Pharmacy First manages approximately 2,300 independent pharmacies nationwide.
On October 4, 2013, Pharmacy First and Express Scripts entered into the Amended and Restated PSAO Services Agreement. Pursuant to this Agreement, Express Scripts recognized Pharmacy First as a PSAO authorized to act on behalf of its affiliated pharmacies to negotiate network participation terms and conditions on the pharmacies' behalf. The PSAO Services Agreement required Express Scripts and the pharmacies affiliated with Pharmacy First to enter into a Pharmacy Provider Agreement, under which the pharmacies would participate in and provide prescription drugs and pharmacy services to Express Scripts' network of individuals with prescription drug benefits. The PSAO Services Agreement could "be terminated by [Express Scripts] without cause upon at least thirty (30) days written notice." ECF No. 9, Ex. A to Compl., § 4.2.a.
On March 11, 2018, Express Scripts sent a letter to Pharmacy First, *1074terminating the PSAO Services Agreement without cause, effective June 29, 2018. Pharmacy First attached to its complaint correspondence from Express Scripts in which Express Scripts referenced the competitive Request for Proposal ("RFP") process that Express Scripts conducted prior to terminating Pharmacy First as an authorized PSAO. In the correspondence, Express Scripts noted that Pharmacy First submitted an unsuccessful bid but invited Pharmacy First to bid for its business in the future. See ECF No. 10, Ex. C to Compl., letter dated Mar. 22, 2018 (stating that Express Scripts "foresee[s] engaging in the RFP process again" and that it "look[s] forward to the possibility of partnering together in the future."); id. , letter dated Apr. 23, 2018, at 1-2 (describing the RFP process and Pharmacy First's bid).
Pharmacy First contends that its termination by Express Scripts "was the result of an agreement and other agreements reached between Express Scripts and four PSAOs that Express Scripts determined 'best align[ed]' with its 'organizational objectives' and 'm[et]' Express Scripts' 'terms and conditions.' " ECF No. 1 at ¶ 39. Pharmacy First maintains that prior to its termination, Express Scripts communicated its decision to use the four chosen PSAOs, to pharmacies affiliated with Pharmacy First. Pursuant to Pharmacy First's termination as an authorized PSAO, independent pharmacies wishing to access Express Scripts' network of insured members had to either work directly through Express Scripts or use the PSAO services of one of the four authorized PSAOs. Pharmacy First alleges that the four chosen PSAOs controlled approximately 70% or more of the market for PSAO services.
According to Pharmacy First, Express Scripts imposed the following burdens on independent pharmacies who attempted to access Express Scripts' network directly rather than through one of the four authorized PSAOs: (i) punitively low and non-negotiable reimbursement rates; (ii) fees; (iii) network restrictions; (iv) administrative burdens; and (v) a narrowed list of Express Scripts' selected reconciliation vendors who could be used to process electronic remittance advice from Express Scripts.
Pharmacy First alleges that Express Scripts' actions caused Pharmacy First to lose existing and prospective pharmacy associations due to its exclusion from Express Scripts' network. Pharmacy First claims that access to Express Scripts' network is essential to PSAOs and pharmacies in order to compete in the pharmacy market.
On June 21, 2018, Pharmacy First filed suit against Express Scripts, seeking damages and injunctive relief. Pharmacy First alleges Express Scripts' actions were unlawful and anti-competitive, as independent pharmacies are essentially forced to use the four chosen PSAOs in order to access Express Scripts' network. Pharmacy First asserts that Express Scripts' actions constitute an exclusive dealing agreement (Count I) and a tying agreement (Count II), in violation of Section 1 the Sherman Act. In Count III, Pharmacy First brings a state law claim asserting that Express Scripts has tortiously interfered with Pharmacy First's contracts with its affiliated pharmacies. In Count IV, Pharmacy First alleges that Express Scripts' conduct constitutes a breach of the covenant of good faith and fair dealing implied by law into the parties' PSAO Services *1075Agreement. In Count V, Pharmacy First seeks injunctive relief.
ARGUMENTS OF THE PARTIES
In its motion to dismiss, Express Scripts argues that Pharmacy First fails to state a claim under Section 1 of the Sherman Act based on an exclusive dealing agreement between Express Scripts and the four authorized PSAOs (Count I) because Pharmacy First fails to plead facts in support of the elements of such a claim. Specifically, Express Scripts argues that Pharmacy First fails to plausibly plead that Express Scripts and the four PSAOs came to any agreement to deal exclusively with each other, that Express Scripts has market power in the putative market for PSAO services, or that Express Scripts' actions have harmed competition in that market or have resulted in anticompetitive effects.
Express Scripts further argues that Pharmacy First fails to state a "tying" claim under Section 1 of the Sherman Act (Count II) because Pharmacy First does not plausibly allege that Express Scripts sells the purported "tying" product-access to Express Scripts' network; that Express Scripts has a direct economic interest in the purported "tied" product-PSAO services from one of the four authorized PSAOs; or that Express Scripts conditions access to its network on using a PSAO.
Next, Express Scripts argues that the Court should decline to exercise supplemental jurisdiction over the state law claims (Counts III and IV), or, alternatively, that these claims should be dismissed for failure to state a claim. Finally, Express Scripts argues that Pharmacy First's claim for injunctive relief (Count V) should be dismissed because injunctive relief is a remedy rather than an independent cause of action.
In response, Pharmacy First argues that it has adequately pled both "per se" violations and so-called "rule-of-reason" claims under Section 1 of the Sherman Act in Counts I and II. As to Count I, Pharmacy First argues that it has pled facts in support of an express or implied exclusive dealing agreement between Express Scripts and the four PSAOs to "cut off" access to Express Script's network by Pharmacy First and the other 17 PSAOs that were terminated by Express Scripts. Pharmacy First further argues that it has adequately pled injury by pleading that Express Scripts' actions foreclose competition in the PSAO-services market and, in turn, harm independent pharmacies by increasing their costs and denying them free choice in PSAO services. Pharmacy First also argues that Express Scripts has significant power in the PSAO services market because PSAOs need access to Express Scripts' network in order to compete.
As to Count II, Pharmacy First argues that it states a plausible tying claim because it alleges that Express Scripts charges pharmacies a service fee in exchange for access to Express Scripts' network, thus alleging that Express Scripts "sells" such access (the alleged tying product). Pharmacy First likewise argues that it adequately alleges that Express Scripts explicitly, or at least implicitly, conditions access to its network on the purchase of PSAO services from one of the four authorized PSAOs (the alleged tied product). Specifically, Pharmacy First points to its allegation that Express Scripts imposes substantial burdens on independent pharmacies attempting to access its network directly, making such direct access economically unviable and, in effect, forcing pharmacies to use one of the four PSAOs. Finally, Pharmacy First argues that the Eighth Circuit does not require a defendant to have an economic interest in the *1076tied product in order to state a tying claim but that, in any event, Express Scripts has an economic interest in the tied PSAO services because consolidating the PSAOs it works with allows Express Scripts to reduce "administrative costs" and secure a "centralized reimbursement structure." ECF No. 23 at 21.
Next, Pharmacy First argues that it states plausible claims in Counts III and IV, for tortious interference and breach of the implied covenant of good faith and fair dealing under Missouri law. Lastly, Pharmacy First argues that its request for injunctive relief in Count V is supported by the other alleged claims in the complaint.
In Express Scripts' reply brief and in a surreply filed by Pharmacy First with leave of the Court, the parties essentially reiterate their arguments for and against dismissal.
DISCUSSION
To survive a motion to dismiss, a plaintiff's claims must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly ,
There is no heightened pleading requirement for antitrust claims. Foam Supplies, Inc. v. Dow Chem. Co. , No. 4:05CV1772 CDP,
Antitrust Claims (Counts I and II)
Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade."
To establish a claim under Section 1 of the Sherman Act, a plaintiff must demonstrate (1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade; and (3) that the restraint affected interstate commerce. HM Compounding Servs., Inc. v. Express Scripts, Inc ., No. 4:14-CV-1858 JAR,
Exclusive Dealing Claim (Count I)
Pharmacy First argues that it has pled an exclusive dealing claim in Count I under both the per se and rule of reason approaches. The Court will first address Pharmacy First's argument that it has adequately pled a per se violation. Per se liability is reserved for those agreements that are so obviously anti-competitive that unreasonableness is presumed and the agreements are deemed unlawful. Craftsmen Limousine, Inc. ,
Pharmacy First fails to plausibly plead concerted action among horizontal competitors. The complaint contains no facts plausibly demonstrating that the four PSAOs conspired or colluded amongst themselves to enter into an agreement with Express Scripts requiring Express Scripts to refuse to deal with Pharmacy First or other PSAOs. Instead, the complaint alleges that Express Scripts "determined [the four chosen PSAOs] 'best align[ed]' with its 'organizational objectives' and 'm[et]' Express Scripts' 'terms and conditions.' " ECF No. 1 at ¶ 39. The complaint also attaches correspondence from Express Scripts indicating that Pharmacy First was terminated as an authorized PSAO pursuant to a competitive RFP process. In this letter, Express Scripts notes that the RFP process involved a review of Pharmacy First's historical performance, including its compliance with the PSAO Services Agreements' terms and obligations.
While the Court agrees with Pharmacy First that the mere existence of an RFP process does not necessarily warrant dismissal of an exclusive-dealing claim, the presence of a competitive bidding process "is a factor to be considered in determining the applicability of the antitrust laws." See Coal. For ICANN Transparency, Inc. v. VeriSign, Inc .,
The Court finds that the allegations contained in the complaint suggest only a unilateral determination by Express Scripts to terminate Pharmacy First, rather than a horizontal agreement among Pharmacy First's direct competitors. See Lomar Wholesale Grocery, Inc. ,
Because Pharmacy First has not pled a plausible per se violation, the Court turns to Pharmacy First's alternative argument that Count I states a rule-of-reason claim under exclusive dealing principles. In contrast to the per se approach, under the rule of reason test, determining whether a practice imposes an unreasonable restraint on trade requires courts to examine all of the facts disclosed on the record and to weigh all the circumstances. Concord Boat ,
To allege trade was unreasonably restrained through the use of an exclusive agreement, Pharmacy First must establish concerted action. " 'To satisfy the concerted action requirement, the plaintiff must demonstrate that the defendants shared a unity of purpose or a common understanding, or a meeting of the minds.' " Insulate ,
Pharmacy First asserts that it has alleged exclusive agreements between Express Scripts and the four PSAOs that required Express Scripts to terminate its contract with Pharmacy First and deal only with the four PSAOs. In support of this assertion, Pharmacy First points to the following allegations in the complaint: that Pharmacy First was terminated as an authorized PSAO; that Express Scripts informed pharmacies that it was contracting only with the four PSAOs; and that Express Scripts further instructed pharmacies that if the they wished to access Express Scripts network utilizing a PSAO, they had to affiliate with one of the chosen four.
But these allegations reference nothing more than the end result of an RFP process. They do not plausibly suggest any collusion between Express Scripts and the four PSAOs to exclude Pharmacy First and other PSAOs. It cannot be reasonably *1079inferred from these facts that Express Scripts agreed with the four PSAOs to deal exclusively with them and to terminate Pharmacy First's access to its network. Instead, as discussed above, the complaint describes a unilateral determination by Express Scripts to contract with the four PSAOs after a competitive bid process. Such an independent business decision does not constitute unlawful concerted action. See, e.g., Cable Line, Inc. v. Comcast Cable Commc'ns of Pa., Inc ., No. 3:16-CV-1000,
Tying Claim (Count II)
"A tying arrangement is an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Park Irmat Drug Corp. , 911 F.3d at 518. "For a plausible tying claim in this situation, [a plaintiff must allege] that Express Scripts conditioned participation in its PBM network on either the purchase of a tied product or service, or on refraining from the purchase of a tied product or service." Id.
Pharmacy First does not plead a typical tying claim; nor has it plausibly pled facts bringing its atypical claim within the confines of the Sherman Act. First, "[t]ypically, an express refusal to sell the tying product without the tied product is the basis for an illegal tying arrangement." Amerinet, Inc. v. Xerox Corp .,
Pharmacy First has not pled the existence of an explicit agreement conditioning the purported tying product (access to Express Scripts' network) on the purchase of the purported tied product (PSAO services from one of the four authorized PSAOs).
In particular, Pharmacy First pleads that Express Scripts imposed "punitively low" reimbursement rates, "network restrictions," "fees," and other administrative burdens on pharmacies attempting to contract directly with Express Scripts. Although the complaint does not make clear when these burdens were imposed, Pharmacy First suggests in its opposition brief that the burdens were imposed as part of Express Scripts' decision effective June 29, 2018, to use the four authorized PSAOs. As such, Pharmacy First contends that "[w]hile directly accessing [Express Scripts'] network may have been a viable option for a small subset of independent pharmacies before the tie, [Express Scripts'] recent imposition of [these] onerous burdens on pharmacies wishing to continue direct access in or around June 2018 make that path unviable going forward." ECF No. 23 at 20.
But Pharmacy First does not allege facts demonstrating how these alleged burdens render direct contracts unviable. For example, Pharmacy First does not allege the amounts of the reimbursement rates and the fees; how these alleged rates, fees, restrictions, and other administrative burdens compare to the terms Express Scripts offers pharmacies using a PSAO and to the terms Express Scripts previously imposed on pharmacies contracting with it directly; and/or how many pharmacies have actually chosen to use a PSAO rather than contracting with Express Scripts directly in light of the new burdens. See, e.g., Eastman v. Quest Diagnostics Inc ., No. 15-cv-415,
Second, typically, "a tying arrangement is defined as the sale or lease of one item (the tying product) on the condition that the buyer or lessee purchase a second item (the tied product) from the same source ." Rosebrough Monument Co. v. Mem'l Park Cemetery Ass'n ,
*1081Although neither the Supreme Court nor the Eighth Circuit has addressed the issue,
Pharmacy First does not plausibly plead that Express Scripts has a direct economic interest in the purported tied product, PSAO services from one of the four authorized PSAOs. The complaint's references to reduced administrative costs and a centralized reimbursement structure, while perhaps constituting legitimate business reasons for Express Scripts' decision to consolidate its PSAO service providers, does not constitute a direct economic interest. See CTUnify, Inc. v. Nortel Networks, Inc .,
Counts III, IV, and V
Because Counts I and II will be dismissed, the Court declines to exercise *1082supplemental jurisdiction over Pharmacy First's state law claims in Counts III and IV. In re Canadian Imp. Antitrust Litig .,
CONCLUSION
For the reasons set forth above,
IT IS HEREBY ORDERED that Defendant Express Scripts, Inc.'s motion to dismiss is GRANTED as follows : Counts I, II, and V are DISMISSED with prejudice ; Counts III and IV are DISMISSED without prejudice . ECF. No. 15.
All claims against all parties having been resolved, the Court will enter a separate Order of Dismissal.
Courts may consider exhibits attached to the complaint, as well as materials necessarily embraced by the pleadings, on a motion to dismiss. Park Irmat Drug Corp. v. Express Scripts Holding Co .,
As Pharmacy First notes in its surreply, the Ninth Circuit in Coal. For ICANN Transparency, Inc .,
The Court assumes, without deciding, that (1) access to Express Scripts' network and (2) PSAO services from one of the four authorized PSAOs constitute distinct products or services for the purpose of a tying claim. Express Scripts does not contest this point in its motion.
The complaint does not allege what percentage of all pharmacies, as opposed to just independent pharmacies, contract directly with PBMs and with Express Scripts in particular.
In Jefferson Par. Hosp. Dist. No. 2 v. Hyde ,
In a footnote in its opposition brief, Pharmacy First suggests that, to the extent the Court finds merit in any of Express Scripts' arguments, Pharmacy First should be permitted leave to file an amended complaint containing additional allegations. But the one "fact" noted, namely, that Express Scripts advised Pharmacy First that it had reached agreements with the four selected PSAOs (ECF No. 23 at 2 n.2 ), does nothing to change the analysis. And though permitted to file a surreply, Pharmacy First suggested no additional facts that it could allege in an amended complaint. See Cornelia I. Crowell GST Tr. v. Possis Med., Inc .,
Reference
- Full Case Name
- WHOLESALE ALLIANCE, LLC v. EXPRESS SCRIPTS, INC.
- Cited By
- 8 cases
- Status
- Published