Alves v. Harvard Pilgrim Health Care Inc.

• Decision Date: 04 June 2002
• Docket Number: No. CIV.A.99-CV-12559-PB.,CIV.A.99-CV-12559-PB.
• Citation: 204 F.Supp.2d 198
• Parties: James ALVES and Hillel Stavis, individually and on behalf of persons similarly situated, Plaintiffs, v. HARVARD PILGRIM HEALTH CARE, INC., Harvard Pilgrim Health Care of New England, Inc., a Massachusetts corporation, Harvard Pilgrim Health Care of New England, Inc., a Rhode Island corporation, Harvard Vanguard Medical Associates, Inc., and Pilgrim Health Care, Inc. Defendants.
• Court: U.S. District Court — District of Massachusetts

204 F.Supp.2d 198

James ALVES and Hillel Stavis, individually and on behalf of persons similarly situated, Plaintiffs, v. HARVARD PILGRIM HEALTH CARE, INC., Harvard Pilgrim Health Care of New England, Inc., a Massachusetts corporation, Harvard Pilgrim Health Care of New England, Inc., a Rhode Island corporation, Harvard Vanguard Medical Associates, Inc., and Pilgrim Health Care, Inc. Defendants.

No. CIV.A.99-CV-12559-PB.

United States District Court, D. Massachusetts.

June 4, 2002.

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Stuart T. Rossman, Boston, MA, Frederic L. Ellis, Edward A. Broderick, Edward D. Rapacki, Ellis & Rapacki, Boston, MA, for Plaintiffs.

Michael A. Walsh, John Scott L. McConchie, Daniel P. Tighe, Griesinger & Walsh, LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

SARIS, District Judge.

I. INTRODUCTION

This case presents the interesting question of whether a sponsor of a health care benefit plan subject to the Employee Retirement Income Security Act ["ERISA"] may charge its members a "copayment" for certain prescription drugs that sometimes exceeds its own per-unit cost because of discounting arrangements with prescription drug providers. Plaintiffs James Alves and Hillel Stavis bring this proposed class action claiming that the defendants' decision to charge copayments in excess of costs, their failure to disclose material information pertaining to the prescription drug costs, and their disclosure of misleading information violated the terms of the plans and constituted a breach of fiduciary duty under ERISA and federal common law.¹ They seek compensatory damages, disgorgement of unlawful profits, restitution, declaratory and injunctive relief and other equitable remedies. Defendants have moved for summary judgment on all claims. For the reasons set forth below, defendants' motion for summary judgment is ALLOWED on all counts.

II. UNDISPUTED FACTS

A. Background

1. Defendants

The class representatives, James Alves and Hillel Stavis, bring this class action against five defendants. Four of the five are non-profit sponsors of employee health benefit plans: Harvard Pilgrim Health Care, Inc. ("HPHC") (formerly called Harvard Community Health Plan, Inc., or "HCHP"), licensed to do business in Massachusetts and Rhode Island; Pilgrim Health Care, Inc. ("PHC"), also licensed to do business in Massachusetts and Rhode Island; Harvard Pilgrim Health Care of New England, Inc. ("HPNE-MA"), incorporated in Massachusetts; and Harvard Pilgrim Health Care of New England, Inc. ("HPNE-RI"), incorporated in Rhode Island.² The fifth defendant, Harvard Vanguard Medical Associated, Inc. ("HVMA"), is a non-profit corporation that operates health centers and dispenses prescription medications to members of certain HPHC plans pursuant to contracts with HPHC. Of the five defendants, HPHC is the dominant corporate entity. It is closely intertwined with each of the remaining four defendants. Not only does HPHC partially control HVMA, but PHC, HPNE-RI and HPNE-MA are its wholly owned affiliates.

2. Plaintiffs

Through his employer, plaintiff Alves was a member of HPHC and PHC health insurance plans from November 1, 1995 through May 31, 1999. Alves and his family purchased twenty-three prescriptions for which the copayment exceeded defendants' cost for the drug purchase. Plaintiff Stavis was a member of plans offered by HPHC (and HCHP) from April 27, 1992 through May 31, 2000. Among the prescription drug purchases his family and he made through these plans, seventy-nine exceeded the cost for the drugs. Neither of the two plaintiffs is currently a member of any HMO sponsored by any defendant.

3. The Plans

Although the copayment provisions of the plans to which plaintiffs belonged (PHC and HPHC) contain minor differences in wording, their essential features are the same. First of all, the two plans define "copayments" in almost identical terms. PHC defines the term as the "specific charge which a member is required to pay for certain benefits described in this document"; HPHC defines it as "fees payable by members for certain covered services."

With regard to copayment amounts, the HPHC plan (called the Added Choice Plan), which was in effect when Stavis enrolled, provides:

When the Member's Employer Group has purchased the prepaid drug benefit, HCHP provides coverage for Medically Necessary prescription drugs and certain Medically Necessary non-prescription drugs and medical supplies subject to the following conditions and limitations .... The Copayment is $5 per prescription, or per refill for up to a 30-day supply.

Stip., Ex. D at 1361. The HPHC member agreement in effect from 1998 until 1999 includes a bold-faced section called "Copayment," which states in pertinent part:

Each Copayment below applies to up to a 30-day supply of a prescription or refill.

• $5 per prescription or refill for those drugs listed in the Formulary....

• $10 per prescription or refill for those drugs not listed in the Formulary ....

Stip., Ex. DD at 1412.

The PHC Plan rider in effect from November 1995 until May 31, 1998 similarly provides: "Benefits shall be available for prescription drugs .... subject to a nine dollar ($9) co-payment for brand name drugs and a three dollar ($3) co-payment for generic drugs." Stip. Ex. U at S-15.

Further cost information is available for HPHC, which distributes drugs through in-house pharmacies at health centers and a network of independent pharmacies like CVS. The ingredient cost to HPHC of a single prescription dispensed at an in-house pharmacy varied from about $.01 to more than $15,000.00; the average cost was $38.56 in 2000; $34.77 in 1999; $30.61 in 1998; $27.12 in 1997; $23.74 in 1996; and $20.90 in 1995. The ingredient cost to HPHC of a single prescription dispensed at an independent network pharmacy varied from $.02 to more than $8,600.00, while the average cost (in the form of a reimbursement payment) was $42.13 in 2000; $43.10 in 1999; $37.49 in 1998; $33.71 in 1997; $30.42 in 1996; and $31.05 in 1995. (See App. B, Def.'s Mem. Supp. Mot. Sum. J., Aff. of James Kenney, ¶¶ 5-7)

B. Standard of Review

"Summary judgment is appropriate when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Barbour v. Dynamics Research Corp., 63 F.3d 32, 36 (1st Cir.1995) (quoting Fed. R.Civ.P. 56(c)), cert. denied, 516 U.S. 1113, 116 S.Ct. 914, 133 L.Ed.2d 845 (1996). "To succeed [in a motion for summary judgment], the moving party must show that there is an absence of evidence to support the nonmoving party's position." Rogers v. Fair, 902 F.2d 140, 143 (1st Cir.1990); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

"Once the moving party has properly supported its motion for summary judgment, the burden shifts to the non-moving party, who `may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing there is a genuine issue for trial.'" Barbour, 63 F.3d at 37 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "There must be `sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.'" Rogers, 902 F.2d at 143 (quoting Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505) (citations and footnote in Anderson omitted). The Court must "view the facts in the light most favorable to the non-moving party, drawing all reasonable inferences in that party's favor." Barbour, 63 F.3d at 36.

III. DISCUSSION

A. Standing

Defendants HPNE-MA and HPNE-RI argue that plaintiffs lack standing to bring suit against them because neither plaintiff was ever a member of an ERISA plan that they sponsor.

It is well established that "standing must be personal to and satisfied by `those who seek to invoke the power of federal courts.'" Allee v. Medrano, 416 U.S. 802, 828, 94 S.Ct. 2191, 40 L.Ed.2d 566 (1974) (quoting O'Shea v. Littleton, 414 U.S. 488, 493, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974)). "[A] named plaintiff cannot acquire standing to sue by bringing his action on behalf of others who suffered injury which would have afforded them standing had they been named plaintiffs .... Standing cannot be acquired through the back door of a class action." Id. at 828-29, 94 S.Ct. 2191.

When a single defendant offers a range of ERISA plans, an individual in one plan can represent a class of plaintiffs— including some belonging to other plans— as long as "the gravamen of the plaintiff's challenge is to the general practices [of the defendant] which affect all of the plans."

Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 422 (6th Cir.1998). See also Forbush v. J.C. Penney Co., 994 F.2d 1101, 1106 (5th Cir.1993) (same); Sutton v. Med. Serv. Ass'n of Pa., 1993 WL 273429, *5 (E.D.Pa.1993) (same).

While ordinarily "a plaintiff who has no cause of action against [a] defendant can not `fairly and adequately protect the interests' of those who do have such causes of action," an exception may apply to cases in which "all defendants are juridically related in a manner that suggests a single resolution of the dispute would be expeditious." La Mar v. H & B Novelty & Loan Co., 489 F.2d 461, 466 (9th Cir.1973); see also Moore v. Comfed Savings Bank, 908 F.2d 834, 838 (11th Cir.1990) (permitting joinder of defendant banks that had no dealings with class representatives).

Under Fallick, I conclude that plaintiffs' claims against HPNE-MA and HPNE-RI should not be dismissed for lack of standing. Because these defendants are wholly owned affiliates of HPHC, in which plaintiffs were participants, and the copayment plan provisions...