Blue Cross & Blue Shield of N.C. v. Rite Aid Corp.

• Citation: 519 F.Supp.3d 522
• Decision Date: 09 February 2021
• Docket Number: File No. 20-cv-1731 (ECT/KMM)
• Court: U.S. District Court — District of Minnesota
• Parties: BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, f/k/a North Carolina Blue Cross and Blue Shield, Inc. ; Blue Cross and Blue Shield of Alabama; Cambia Health Solutions, Inc.; Asuris Northwest Health; Regence BlueShield of Idaho, Inc.; Horizon Healthcare Services, Inc., d/b/a Horizon Blue Cross Blue Shield of New Jersey; Horizon Healthcare of New Jersey, Inc., d/b/a Horizon NJ Health; Regence BlueCross BlueShield of Oregon; Regence BlueCross BlueShield of Utah; Regence BlueShield of Washington, d/b/a Regence BlueShield; Blue Cross Blue Shield of North Dakota, f/k/a Noridian Mutual Insurance Company, Plaintiffs, v. RITE AID CORP. and Rite Aid Hdqtrs. Corp., Defendants.

519 F.Supp.3d 522

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, f/k/a North Carolina Blue Cross and Blue Shield, Inc. ; Blue Cross and Blue Shield of Alabama; Cambia Health Solutions, Inc.; Asuris Northwest Health; Regence BlueShield of Idaho, Inc.; Horizon Healthcare Services, Inc., d/b/a Horizon Blue Cross Blue Shield of New Jersey; Horizon Healthcare of New Jersey, Inc., d/b/a Horizon NJ Health; Regence BlueCross BlueShield of Oregon; Regence BlueCross BlueShield of Utah; Regence BlueShield of Washington, d/b/a Regence BlueShield; Blue Cross Blue Shield of North Dakota, f/k/a Noridian Mutual Insurance Company, Plaintiffs,

v.RITE AID CORP. and Rite Aid Hdqtrs. Corp., Defendants.

File No. 20-cv-1731 (ECT/KMM)

United States District Court, D. Minnesota.

Signed February 9, 2021

Kelly Hibbert, Daniel William Wolff, Jerome P. DeSanto, Kent Alan Gardiner, Stephen John McBrady, and Zachary Ian Ruby, Crowell & Moring LLP, Washington, D.C.; David R. Crosby and Kadee Jo Anderson, Stinson LLP, Minneapolis, MN, for Plaintiffs.

Michael James Ableson, Morgan Lewis & Bockius LLP, New York, NY; David Weese Marston, Jr., Morgan Lewis & Bockius LLP, Miami, FL; Margot Bloom and Troy S. Brown, Morgan Lewis & Bockius LLP, Philadelphia, PA; Andrew R. Shedlock and K. Jon Breyer, Kutak Rock LLP, Minneapolis, MN, for Defendants.

OPINION AND ORDER

Eric C. Tostrud, United States District Judge

This is a case about prescription drug prices. Plaintiffs are eleven corporations that provide health care plans and services to millions of individuals throughout the United States. Defendants—who will be referred to collectively as "Rite Aid"—operate one of the largest retail drugstore chains in the United States.

It's more complicated than this, but Plaintiffs allege essentially that Rite Aid overcharged them for prescription drugs it sold and dispensed to individuals for whom Plaintiffs provided prescription-drug coverage. Plaintiffs allege that, for each drug Rite Aid sold, Rite Aid was legally obligated to report the drug's "usual and customary price." Plaintiffs would then pay Rite Aid an amount based on the lesser of the usual and customary price or a negotiated price. According to Plaintiffs, Rite Aid reported inflated usual and customary prices, and its inflated price reporting caused Plaintiffs to pay more than they should have on millions of claims resulting in overcharges worth hundreds of millions of dollars. Invoking diversity jurisdiction, Plaintiffs assert common-law claims for fraud, fraudulent concealment, negligent misrepresentation, and unjust enrichment.

Rite Aid seeks dismissal on several grounds under Federal Rule of Civil Procedure 12(b). The first two grounds are jurisdictional: it argues that there is not subject-matter jurisdiction because Plaintiffs have failed to plead an Article III-worthy injury, and it challenges personal jurisdiction because, it argues, there is an insufficient connection between Rite Aid's lawsuit-related activities and Minnesota. Alternatively, Rite Aid argues that Plaintiffs have failed to plead claims on which relief may be granted.

Rite Aid's motion will for the most part be denied. Whether Plaintiffs allege an Article III injury is a no-doubter. They do, meaning there is subject-matter jurisdiction over this case. Though it is a closer question, the better answer at this preliminary stage is that there is personal jurisdiction over Rite Aid because it communicated most of the millions of allegedly fraudulent claims to Plaintiffs through a pharmacy benefit manager located in Minnesota. Finally, with the exception of their negligent misrepresentation claim, Plaintiffs plead plausible claims and, where required, Plaintiffs’ factual allegations satisfy the particularity-in-pleading requirement of Rule 9(b).

I¹

Rite Aid is incorporated under Delaware law and maintains its principal place of business in Pennsylvania. Compl. ¶¶ 20–21 [ECF No. 1]. It is "one of the largest retail drugstore chains in the United States" and operates more than 2,400 retail locations in eighteen states, though not in Minnesota. Id. ¶ 21 (citation omitted); Ableson Decl. ¶ 2, Ex. A [ECF No. 45-1 at 5, 14, 23, 30, 39, 47, 55, 63, 72, 81, 90, 98, 106] (identifying number of stores by state for fiscal years 2008–2020).

Each of the eleven Plaintiffs "provides a full spectrum of health care plans and services to ... [individual] members." Compl. ¶¶ 9–19. Eight of the eleven Plaintiffs are "independent licensee[s] of the Blue Cross and Blue Shield Association." Id. ¶¶ 9–11, 14–18. Every Plaintiff is incorporated and maintains its principal place of business in a state other than Delaware, Pennsylvania, or Minnesota. Id. ¶¶ 9–19.²

"At all relevant times, Rite Aid was, is, and has been a network pharmacy for every Plaintiff, meaning that Plaintiffs’ [m]embers can use their prescription drug benefit to fill their prescriptions at Rite Aid pharmacy locations at in-network pricing." Id. ¶ 23. The price Plaintiffs pay for a prescription drug is based on the lesser of a negotiated price or the drug's "usual and customary" price. Id. ¶¶ 1–2, 38, 43, 50(c).

The usual and customary (or "U&C") price is "generally defined as the cash price to a member of the general public paying for a prescription drug without insurance." Id. ¶ 1; see also id. ¶¶ 30–31. This cash price isn't always the same. Market conditions might cause it to rise or fall. Important here, some uninsured, cash-paying individuals pay discounted prices. Id. ¶¶ 5, 57, 59–61. In these situations, "the true U&C price" is the lowest price for which a prescription drug is "widely and consistently available[.]" Id. ¶ 69. Authoritative pronouncements from some public and private sources require the prices offered through pharmacy discount programs to be reported as U&C prices. Id. ¶¶ 32–33.

The relationship between Plaintiffs and Rite Aid is indirect; positioned between Plaintiffs and Rite Aid are pharmacy benefit managers (or "PBMs"). Id. ¶¶ 23, 50. Plaintiffs contract with "PBMs to adjudicate and administer prescription benefits with a network of pharmacies on their behalf." Id. ¶ 48. "When a health plan employs the services of a PBM, instead of submitting claims directly to the health plan, the retail pharmacy submits claims for payment from the health plan to the health plan's chosen PBM." Id. Rite Aid also contracts with PBMs as a part of maintaining its network relationship with Plaintiffs. See id. ¶ 37. In other words, when Rite Aid submits a claim to a PBM for reimbursement by a health plan, Rite Aid does so under a contract between it and the PBM. Id.

The Complaint concisely describes the process by which Rite Aid's prescription-drug charges go through PBMs and reach Plaintiffs for payment, id. ¶ 50: (1) One of Plaintiffs’ members "presents a prescription at a Rite Aid pharmacy ... and purchases the corresponding prescription drug, less the share of the purchase price covered by the [m]ember's prescription drug benefit." Id. ¶ 50(a). (2) "Rite Aid then reports to the [appropriate] Plaintiff's PBM the data associated with the sale, including the U&C charge for the drug it dispensed[.]" Id. ¶ 50(b). (3) "Using Rite Aid's reported information, the Plaintiff's PBM adjudicates the claim on Plaintiff's behalf using the ‘lesser of’ logic that incorporates the U&C price term." Id. ¶ 50(c). In other words, if the U&C charge Rite Aid reported is greater than the negotiated price, then a "Plaintiff pays, through its PBM, the negotiated price to Rite Aid." Id. If the reported U&C charge is less than the negotiated price, then a Plaintiff pays, through its PBM, the reported U&C price. Id. Some Plaintiffs’ contracts with PBMs explicitly required that discounts—or at least some discounts—given by network pharmacies like Rite Aid be included in the determination of a prescription drug's U&C price. Id. ¶¶ 35(b), (e), (h), (i).

Plaintiffs’ central allegation is that "Rite Aid has systematically misrepresented its U&C charges—the cash price uninsured customers pay for prescription drugs—to Plaintiffs and other payors" because Rite Aid knowingly did not report prices it offered through a discount program as U&C prices. Id. ¶ 54; see also id. ¶¶ 5–6, 54–72. Rite Aid implemented a prescription-drug-discount program in reaction to competition from big-box retail stores. Id. ¶¶ 3, 55–57. In 2006, Walmart—and soon after, Target and Costco—each adopted discount programs "that offered steeply discounted prices for hundreds of popular prescription drugs to cash customers." Id. ¶ 55. "Many retailers whose primary line of business was not operating a pharmacy, which were able to absorb lower margins on generic drug sales because pharmacy sales represent such a low percentage of total sales, followed suit." Id. "The new competition from big[-]box retailers placed enormous pressure on Rite Aid pharmacies to match those discount prices in order to retain Rite Aid's cash-paying customers." Id. ¶ 57. Therefore, "around September 2008, Rite Aid launched the nationwide Rx Savings Card Program ("RSC Program")[.]" Id. ¶ 5. "The RSC Program offers steeply discounted prices on thousands of widely prescribed generic and brand drugs to customers who paid for their prescriptions without using insurance." Id. ¶ 60. "The RSC Program is free to any member of the public." Id. ¶ 59. There is no cost to join, and there are no eligibility criteria.

Id. All who enroll are accepted into the program. Id.

"Since Rite Aid launched its RSC Program nationwide in September 2008, it has falsely represented its U&C charges on claims paid by Plaintiffs." Id. ¶ 66. Rite Aid did not report "its discounted RSC Program prices, third-party discount card program prices, or other discounted cash prices as U&C[.]" Id. Instead, though "cash sales under the RSC Program (and other similar programs) far exceeded Rite Aid's sales at" non-discounted prices paid by non-insured, cash-paying customers, Rite Aid reported "U&C prices that were paid by...