Blue Cross v. Peacock's Apothecary, Inc.

• Decision Date: 13 July 1983
• Docket Number: Civ. A. No. CV81-PT-1012-S.
• Parties: BLUE CROSS AND BLUE SHIELD OF ALABAMA, a non-profit corporation, Plaintiff, v. PEACOCK'S APOTHECARY, INC., a corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

567 F. Supp. 1258

BLUE CROSS AND BLUE SHIELD OF ALABAMA, a non-profit corporation, Plaintiff, v. PEACOCK'S APOTHECARY, INC., a corporation, et al., Defendants.

Civ. A. No. CV81-PT-1012-S.

United States District Court, N.D. Alabama, S.D.

July 13, 1983.

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Charles C. Pinckney, William G. Somerville, Jr., Lange, Simpson, Robinson & Somerville, Birmingham, Ala., for plaintiff.

Charles A. Graddick, Atty. Gen., H. William Wasden, Algert S. Agricola, Jr., Montgomery, Ala., for defendants, Alabama Bd. of Pharmacy and Bd. Members.

Ed Hill, pro se on behalf of himself and Peacock's Apothecary.

MEMORANDUM OPINION

PROPST, District Judge.

This cause comes on to be heard on defendants' Motion to Dismiss, or in the Alternative, for Summary Judgment, filed on February 10, 1983, and plaintiff's Motion for Summary Judgment, filed on March 15, 1983. Plaintiff and defendants have represented to the court that there are no factual disputes and that the case is proper for summary judgment, one way or another.

Facts

Blue Cross and Blue Shield of Alabama (hereinafter Blue Cross), plaintiff in this action, provides prescription drug benefits to fifty-one employer groups, pursuant to third party prescription programs that utilize participating pharmacy agreements. In summary, individuals who are a part of these employer groups go to "participating pharmacies" to get their prescription drugs under these third party prescription programs. The individual buying the drug pays only a small amount (a "co-payment") for each prescription. The pharmacist is reimbursed by Blue Cross for the balance of the prescription price.¹ Blue Cross is then reimbursed by the employer of the individual. Thus, the individual buys prescriptions at a reduced price through the third party prescription program.

Blue Cross provides these prescription drug benefits under third party prescription programs utilizing participating pharmacy agreements only to these fifty-one employer groups. Blue Cross does not provide any such prescription drug benefits under third party programs utilizing participating pharmacy agreements under any contracts or policies with individual subscribers or with any entities or persons other than those fifty-one employer groups.

Regarding all fifty-one employer groups, those benefits are provided as part of employee benefit plans established by the employers to provide health care benefits to their employees either through contracts of the employers with other Blue Cross plans in other states (with Blue Cross of Alabama serving as a participating plan in providing such benefits to the Alabama employees of such employers) or through contracts of the employers directly with Blue Cross of Alabama. In most if not all cases, those benefit plans, including such plans embracing prescription drug benefits, are established and maintained by employers in fulfillment of requirements of collective bargaining agreements with unions.

The fifty-one employer groups are composed of 4,812 employees. These employees, together with their family members, total 15,162 individuals. Approximately 80% of the 4,812 employees work in Alabama for Ford Motor Company and Chrysler Corporation. The Alabama employees of Ford and Chrysler, together with the Alabama retirees of General Motors Corporation, are covered under the "Auto National Account Program," under which the three motor companies contract pursuant to collective bargaining agreements with Blue Cross and Blue Shield of Michigan for provision of health care benefits to the employees of the motor companies, and Blue Cross and Blue Shield of Michigan in turn contracts (also pursuant to the collective bargaining agreements) with Blue Cross of Alabama and other local Blue Cross plans for provision of those benefits to the employees located in states outside of Michigan.

The concept of prescription drug benefits under third party prescription programs utilizing participating pharmacy agreements originated in collective bargaining negotiations between the United Auto Workers (UAW) and Ford Motor Company in 1967. An integral part of the prescription drug benefit plan that evolved in the 1967 collective bargaining negotiations was the use of participating pharmacy agreements: reimbursements to the pharmacies by Blue Cross would be based on the pharmacies' drug acquisition costs plus a dispensing fee. The prescription drug benefit plan was included in the Insurance Program, which was part of 1967 Ford collective bargaining agreement.

The Insurance Program required that prescription drugs expense benefits be provided, as set forth in Exhibit I thereof, in Michigan, and that the same benefits be provided to employees outside of Michigan on a uniform basis under a "National Account Program." The National Account Program for provision of such benefits to employees outside of Michigan was required to be implemented through use of a Master Group Operating Agreement between Ford and Blue Cross of Michigan, designated as the "Control Plan." The Control Plan was required to enter into participating plan agreements with local Blue Cross plans, such as Blue Cross of Alabama, for provision of these prescription drug benefits to Ford employees in Alabama and other states outside of Michigan. To guarantee that the health care benefit plan under the National Account Program would be uniform in states outside of Michigan in which it was administered, the 1967 Ford bargaining agreement required that Blue Cross of Michigan develop "Administrative Manuals," with the approval of the UAW and Ford, "for use by all participating local plans" to govern the benefits provided and reimbursement to providers in all states in which the benefits were administered. Exhibit I to the Insurance Program provides that participating providers will be paid "Prescription Charges," and defines "Prescription Charges" as "the acquisition cost of the drugs ... plus a Dispensing Fee." "Dispensing Fee" is defined as "a fee predetermined by the Plan for dispensing drugs as provided for in this program."

The collective bargaining agreements entered into in 1967 by the UAW with General Motors and Chrysler contained virtually the same provisions as the above-described provisions in the Ford bargaining agreement. Pursuant to those bargaining agreements, Ford, Chrysler, and General Motors in 1968 each entered into a National Account Program Master Group Operating Agreement with Blue Cross and Blue Shield of Michigan, and Michigan Blue Cross and Blue Shield in 1968 entered into National Account Program Participating Plan Agreements with Blue Cross and Blue Shield of Alabama and other local participating plans.

The prescription drug benefit program as originally conceived and incorporated in the 1967 collective bargaining agreements has been readopted with no appreciable change in each of the successive collective bargaining agreements between the UAW and the motor companies to the present time.

The present collective bargaining agreements of the motor companies continue to require the development by the Michigan Plan, with approval of the UAW and the companies, of an Administrative Manual to govern participating local plans, such as Blue Cross of Alabama, to assure uniformity in the administration of the benefit plan in all states. The current Administrative Manual developed accordingly to govern and assure uniformity in local administration by the participating plans, including Blue Cross of Alabama, requires that reimbursement of participating pharmacies be on the basis of the drug acquisition cost plus the dispensing fee in an amount predetermined by a local plan (such as Blue Cross of Alabama).²

Of the remaining employer groups, four are covered under National Account Programs for which Blue Cross of Alabama is the participating local plan: Mack Trucks, Inc., with Blue Cross of Lehigh Valley, Allentown, Pennsylvania, as the Control Plan; Valeron Corporation, with Blue Cross and Blue Shield of Michigan as the Control Plan; Heil Company with Blue Cross and Blue Shield United of Wisconsin as the Control Plan; and Roberts Corporation, with Blue Cross and Blue Shield United of Wisconsin as the Control Plan. The remainder of the fifty-one employer groups in Alabama, for which Blue Cross of Alabama provides prescription drug benefits, are small plans established by employers, located in Alabama, who employ members of the United Mine Workers (UMW). These employers have established the plans pursuant to the requirements of the Bituminous Coal Wage Agreements of 1978 and 1981, which are collective bargaining agreements between the UMW and employers in the coal mining industry.

Blue Cross of Alabama has participating pharmacy agreements with 627 pharmacies in Alabama. These agreements provide that Blue Cross will reimburse these pharmacies for acquisition cost plus the dispensing fee³ as determined by Blue Cross of Alabama as the "Local Plan." Thus, the reimbursement terms of these pharmacy agreements are consistent with those of the Auto National Account Program Administrative Manual.

The Third Party Prescription Program Act (the Pharmacy Act or the Act), which became effective on June 27, 1981, provides:

§ 34-23-110. Short title.

This article shall be known and may be cited as the "Third Party Prescription Program Act."

§ 34-23-111. "Third party prescription program" defined.

As used in this article, the term "third party prescription program" shall mean any system of providing for the reimbursement of pharmaceutical services under a contractual arrangement or agreement between a provider of such services and another party who is not the consumer of those services. Such programs may include, but not be limited to, employee benefit plans whereby a consumer receives prescription drugs or other pharmaceutical services and those services are paid for by an agent of the employer or others.

§ 34-23-112.

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