Beeman v. Tdi Managed Care Services, Inc., 04-56369.

• Decision Date: 02 June 2006
• Docket Number: No. 04-56369.,No. 04-56384.,04-56369.,04-56384.
• Citation: 449 F.3d 1035
• Parties: Jerry BEEMAN and Pharmacy Services, Inc., dba Beeman's Pharmacy; Charles Miller, dba Medicine Shoppe; Anthony Hutchinson and Rocida, Inc., dba Finley's Rexall Drug; Jim Morisoli and American Surgical Pharmacy, Inc., dba American Surgical Pharmacy; Bill Pearson and Pearson and House, on behalf of themselves and all others similarly situated and on behalf of the general public, dba Pearson's Medical Group Pharmacy, Plaintiffs-Appellants, v. TDI MANAGED CARE SERVICES, INC., dba Eckerd Health Services; Medco Health Solutions, Inc.; Express Scripts, Inc.; Advance PCS, Defendants-Appellees. Anthony Hutchinson, and Rocida, Inc., dba Finley's Rexall Drug; Charles Miller, dba Yucaipa Valley Pharmacy; Jim Morisoli, and American Surgical Pharmacy, Inc., dba American Surgical Pharmacy; Bill Pearson, and Pearson and House, dba Pearson's Medical Group Pharmacy, on behalf of themselves and all others similarly situated and on behalf of the general public; Jerry Beeman, and Pharmacy Services, Inc., dba Beeman's Pharmacy, Plaintiffs-Appellants, v. Anthem Prescription Management, Inc.; Argus Health Opinion Systems, Inc.; Benescript Services, Inc.; FFI Rx Managed Care; First Health Services Corporation, dba Virginia First Health Services Corp.; Managed Pharmacy Benefits, Inc.; Mede America Corp.; National Medical Health Card Systems, Inc.; Pharmacare Management Services, Inc.; Prime Therapeutics; Restat Corporation; Rx Solutions, Inc.; Tmesys, Inc.; WHP Health Initiatives, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

449 F.3d 1035

Jerry BEEMAN and Pharmacy Services, Inc., dba Beeman's Pharmacy; Charles Miller, dba Medicine Shoppe; Anthony Hutchinson and Rocida, Inc., dba Finley's Rexall Drug; Jim Morisoli and American Surgical Pharmacy, Inc., dba American Surgical Pharmacy; Bill Pearson and Pearson and House, on behalf of themselves and all others similarly situated and on behalf of the general public, dba Pearson's Medical Group Pharmacy, Plaintiffs-Appellants, v. TDI MANAGED CARE SERVICES, INC., dba Eckerd Health Services; Medco Health Solutions, Inc.; Express Scripts, Inc.; Advance PCS, Defendants-Appellees.

Anthony Hutchinson, and Rocida, Inc., dba Finley's Rexall Drug; Charles Miller, dba Yucaipa Valley Pharmacy; Jim Morisoli, and American Surgical Pharmacy, Inc., dba American Surgical Pharmacy; Bill Pearson, and Pearson and House, dba Pearson's Medical Group Pharmacy, on behalf of themselves and all others similarly situated and on behalf of the general public; Jerry Beeman, and Pharmacy Services, Inc., dba Beeman's Pharmacy, Plaintiffs-Appellants, v. Anthem Prescription Management, Inc.; Argus Health Opinion Systems, Inc.; Benescript Services, Inc.; FFI Rx Managed Care; First Health Services Corporation, dba Virginia First Health Services Corp.; Managed Pharmacy Benefits, Inc.; Mede America Corp.; National Medical Health Card Systems, Inc.; Pharmacare Management Services, Inc.; Prime Therapeutics; Restat Corporation; Rx Solutions, Inc.; Tmesys, Inc.; WHP Health Initiatives, Inc., Defendants-Appellees.

No. 04-56369.

No. 04-56384.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 3, 2006.

Filed June 2, 2006.

Michael A. Bowse and Allan Browne, Browne Woods & George, LLP, Beverly Hills, CA, Alan M. Mansfield, John W. Hanson, and Hallen D. Rosner, Rosner Law & Mansfield, San Diego, CA, Bonny E. Sweeney, Lerach Coughlin Stoia Geller

Rudman & Robbins, LLP, San Diego, CA, for the appellants.

Thomas N. Makris, Andrea L. Courtney, Pillsbury Winthrop Shaw Pittman LLP, Sacramento, CA, Daniel A. Johnson, Richard T. Williams, Holland & Knight, Los Angeles, CA, Richard S. Goldstein, Heller Ehrman LLP, New York, NY, John M. Landry, Joshua D. Taylor, Richard S. Goldstein, Heller Ehrman White & McAuliffe, LLP, Los Angeles, CA, Gail E. Lees, Christopher Chorba, Gibson Dunn & Crutcher, LLP, Los Angeles, CA, Angela S. Quinn, Husch & Eppenberg, LLC, St. Louis, MO, Lawrence P. Riff, Steptoe & Johnson, Los Angeles, CA, Martin D. Schneiderman, Steptoe & Johnson, LLP, Washington, DC, for the appellees in No. 04-56369.

Molly Moriarty Lane, Richard Odom, Morgan Lewis & Bockius, LLP, San Francisoco, CA, Michael Katz, Charles E. Patterson, Morrison & Foerster, Los Angeles, CA, C. Lee Ann McCurry, Troutman Sanders, Atlanta, GA, Kent A Halkett, Musick Peeler & Garrett, LLP, Los Angeles, CA, Lawrence P. Riff, Jason Levin, Steptoe & Johnson, Los Angeles, CA, Thomas N. Makris, Andrea L. Courtney, Pillsbury Winthrop Shaw Pittman LLP, Sacramento, CA, Brian D. Martin, Pillsbury Winthrop Shaw Pittman LLP, San Diego, CA, Robert F. Schoular, David S. Alverson, Sonnenschein Nath & Rosenthal, LLP, Los Angeles, CA, James W. Mercer, Santa Monica, CA, Neil R. O'Hanlon, Hogan & Hartson L.L.P., Los Angeles, CA, Nicholas P. Roxborough, Craig S. Pynes, Roxborough, Pomerance & Nye, LLP, Woodland Hills, CA, Alex R. Baghdassarian, Holland & Knight LLP, Los Angeles, CA, J. Kevin Snyder, Dykema Gossett LLP, Los Angeles, CA, Sean M. Sherlock, Snell & Wilmer L.L.P., Costa Mesa, CA, Robert A. Muhlbach, Kirtland & Packard, El Segundo, CA, Kurt C. Peterson, Lisa M. Baird, Reed Smith, LLP, Los Angeles, CA, Robert P. Mallory, Mathew Oster, McDermott Will & Emery, LLP, Los Angeles, CA, for the appellees in No. 04-56384.

Appeal from the United States District Court for the Central District of California; Virginia A. Phillips, District Judge, Presiding. D.C. No. CV-02-01327-VAP, D.C. No. CV-04-00407-VAP.

Before MARY M. SCHROEDER, Chief Judge, MYRON H. BRIGHT,^* and HARRY PREGERSON, Circuit Judges.

BRIGHT, Circuit Judge.

Plaintiffs-Appellants Pharmacies brought suit against Defendants-Appellees Pharmacy Benefit Managers ("PBMs") based on violations of California Civil Code §§ 2527 and 2528. The district court dismissed the Pharmacies' claims due to lack of "injury in fact" sufficient to confer Article III standing. We reverse and remand.

I

This case involves the relationship between PBMs (referred to in California Civil Code §§ 2527 and 2528 as "Prescription Drug Claims Processors"), pharmacies, and third-party payors (for example, health insurance companies, self-insured employer groups, and union health and welfare plans). A customer goes to a pharmacy with a prescription and presents both an insurance card and a co-pay to get the prescription. The pharmacy fills the prescription from inventory. The pharmacy then submits a claim to a PBM for reimbursement. The pharmacy usually has a contractual relationship with various PBMs to assist in performing claims processing services. A PBM coordinates certain aspects of the reimbursement relationship between pharmacies and third-party payors. The PBM processes the pharmacy's claim for reimbursement and pays the pharmacy reimbursements in the amount it unilaterally sets. The PBM, which handles claims for several third-party payors, then submits the claim to the payor and gets paid.

In 1981, the California Pharmacists Association introduced a bill which would require PBM reimbursements at customary charges made by pharmacies rather than the rates unilaterally set by PBMs. However, the bill that passed merely required PBMs to conduct or obtain the results of bi-annual studies of a statistically significant sample of California pharmacies' retail drug pricing for pharmaceutical dispensing services to private uninsured customers, and supply copies of those studies to "clients" on whose behalf the PBMs perform studies. See Cal. Civ. Code § 2527(c), (d).

The Pharmacies sought to enforce California Civil Code sections 2527 and 2528 by bringing an action against the PBMs. The PBMs sought to dismiss the case under Federal Rule of Civil Procedure 12(b)(6) by arguing the Pharmacies lack Article III standing. The District Court granted the motion to dismiss. This appeal followed.

II

Standing issues are reviewed de novo. Viceroy Gold Corp. v. Aubry, 75 F.3d 482, 487-88 (9th Cir.1996). The district court's interpretation of a statute is a question of law also subject to de novo review. Id. at 488. This court may affirm the district court's judgment on any ground supported by the record. Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir.2003).

III

The Pharmacies claim, among other things, they have suffered procedural injury sufficient to give them Article III standing. "To satisfy the injury in fact requirement, a plaintiff asserting a procedural injury must show that the procedures in question are designed to protect some threatened concrete interest of his that is the ultimate basis of his standing." Citizens for Better Forestry v. USDA, 341 F.3d 961, 969 (9th Cir.2003) (citations omitted). "Furthermore, he or she `needs [to] establish the reasonable probability of the challenged action's threat to [his or her] concrete interest.'" Id. (citation omitted) (alteration in original).

California Civil Code section 2527(c) requires prescription drug claims processors to conduct or obtain the results of a study or studies identifying the fees, separate from ingredient costs, of all, or of a statistically significant sample, of California pharmacies, for pharmaceutical dispensing services to private consumers.¹ Section 2527(d) provides in part: "[t]he study report or reports obtained pursuant to subdivision (c) shall be transmitted by certified mail by each prescription drug claims processor to the chief executive officer or designee, of each client for whom it performs claims processing services . . . . no less often than every 24 months." Section 2528 reads in part:

A violation of Section 2527 may result only in imposition of a civil remedy . . . . Any owner of a licensed California pharmacy shall have standing to bring an action seeking a civil remedy pursuant to this section so long as his or her pharmacy has a contractual relationship with, or renders pharmaceutical services to, a beneficiary of a client of the prescription drug claims processor, against whom the action is brought . . . .

Thus, sections 2527 and 2528 are intended to give the Pharmacies the ability to enforce PBMs' obligations to provide certain studies to PBM third-party payor clients.

Plaintiffs make out a procedural injury: the failure on the part of the PBMs to follow the statutory procedures requiring they conduct studies and provide them to third parties. Cf. Idaho Conservation League v. Mumma, 956 F.2d 1508, 1514 (9th Cir.1992) ("[B]ecause `NEPA is essentially a procedural statute designed to ensure that environmental issues are given proper consideration in the decisionmaking process,' injury alleged to have occurred as a result of violating this procedural right confers standing." (citations omitted)).

The Pharmacies must still, however, show the procedures are designed to protect some threatened concrete interest. See Mumma, 956 F.2d at 1514 ("The personal injury requirement will be met only if the alleged harm is `distinct and palpable . . . and not abstract or conjectural or hypothetical.'" (citation omitted)).

The Pharmacies argue California Civil Code sections 2527 and 2528 require the PBMs to make studies available to third-party payors. These studies would reflect the true market rate of return for pharmacy prescriptions. Thus, the Pharmacies claim the Legislature intended that by supplying those involved in the transactions with accurate information regarding free market pricing for the drugs, the market and third-party payors could make informed decisions about fair reimbursement rates to be paid or received...