Grasso Enters., LLC v. Express Scripts, Inc.

• Decision Date: 11 January 2016
• Docket Number: No. 15–1578.,15–1578.
• Citation: 809 F.3d 1033
• Parties: GRASSO ENTERPRISES, LLC, et al., Plaintiffs–Appellants v. EXPRESS SCRIPTS, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

809 F.3d 1033

GRASSO ENTERPRISES, LLC, et al., Plaintiffs–Appellants

v.EXPRESS SCRIPTS, INC., Defendant–Appellee.

No. 15–1578.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 24, 2015.

Filed: Jan. 11, 2016.

Richard J. Quadrino, argued, Richard J. Quadrino, Harold Joseph Levy, Eugene S. Pagano, on the brief, Melville, N.Y., for Plaintiffs–Appellants.

Christopher A. Smith, argued, Thomas McKee Dee, Christopher A. Smith, Elizabeth Ann Bozicevic, on the brief, Saint Louis, MO, for Defendant–Appellee.

Before LOKEN, BEAM, and SHEPHERD, Circuit Judges.

LOKEN, Circuit Judge.

Plaintiffs Grasso Enterprises, NERxD, and Wiley's Pharmacy and Compounding Services are compounding pharmacies that prepare and sell customized compound drugs made in accordance with doctors' prescriptions. Express Scripts, Inc. ("ESI"), is a pharmacy benefits manager that contracts with health plan sponsors and administrators to administer the pharmacy benefits provided in their group health plans, many of which are governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. Plaintiffs have entered into separate Provider Agreements with ESI, which provide that, as members of ESI's pharmacy provider network, Plaintiffs "look solely to ESI for payment of Covered Medications" provided to health plan participants and beneficiaries. ESI pays Plaintiffs pursuant to the Provider Agreements; the health plans reimburse ESI.

In June 2014, ESI announced a program to reduce the increasing costs being incurred by health plans for compound drugs. As explained in a Declaration by ESI's Director of Investigations in Fraud, Waste, and Abuse Services, ESI "made recommendations to its client health plan sponsors to help control the cost of compound prescriptions, such as ... removing coverage for certain expensive compound ingredients." ESI began denying compound drug claims in July 2014 and fully implemented the program on January 1, 2015. Plaintiffs commenced this action on November 18, 2014, alleging that ESI is systematically denying payment of compound drug claims without adhering to the procedural requirements of ERISA's "Claims Regulation," 29 C.F.R. § 2560.503–1. Plaintiffs asserted claims for relief under two ERISA remedial provisions, §§ 502(a)(1)(B) and (a)(3), codified at 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3).

Plaintiffs amended their complaint and moved for a preliminary injunction declaring that ESI must pay all claims for compound medications until it is in compliance with the Claims Regulation, ordering ESI to issue explanation-of-benefit (EOB) forms complying with the Claims Regulation, and declaring that ESI must provide a procedure for patients to request access to compound medications to comply with the Patient Protection and Affordable Care Act, 42 U.S.C. § 300gg–6. After hearing oral arguments, the district court¹ denied the requested preliminary injunction on numerous grounds. Plaintiffs appeal. We have jurisdiction to consider an interlocutory appeal from the denial of a preliminary injunction. 28 U.S.C. § 1292(a)(1). Concluding that Plaintiffs failed to meet the well-established standards for preliminary injunctive relief, we affirm.²

I. Background

Plaintiffs attached to the First Amended Complaint summary plan descriptions for four health plans (two not governed by ERISA). These documents describe the role of ESI in administering the plans' pharmacy programs. Some expressly caution that not all compound drugs may be covered by the plan. But none describe the coverage of compound drug benefits in detail. Plaintiffs allege that ESI determines whether to pay or deny compound drug claims to plan beneficiaries. ESI asserts that health plan sponsors set the plan terms, including which treatments and medications are covered for plan participants and beneficiaries.³ The record does not clarify these issues, which would be critical to judicial review of an adverse benefits determination under ERISA. Plaintiffs assert these issues are irrelevant because they do not seek review of any specific claim denial.

In the First Amended Complaint, each Plaintiff asserted claims for injunctive relief in two capacities, as a "Plan–Designated Beneficiary," based on the plan descriptions of ESI's role in the pharmacy programs, and as a "Participant–Designated Beneficiary," based on assignments Plaintiffs received from health plan beneficiaries of "all rights to payment and other benefits" that the beneficiaries may have under their applicable health plans "for past, current, or future compounds, ingredients, or medications," and authorizing the pharmacy "to pursue any and all remedies to which [the beneficiaries] may be entitled, including the use of legal action in any court against the health plan, insurer, or its administrator." One assignment document for each Plaintiff was attached to the First Amended Complaint. The assignors were identified as Patients "A," "B," and "C," with their names redacted. The district court concluded that Plaintiffs have standing to assert ERISA claims only as assignees of patient beneficiaries.

The First Amended Complaint alleged that ESI, implementing its compound drug program, denied claims by Patients A, B, and C for refills of existing compound drug prescriptions that ESI had previously filled. Plaintiffs alleged that "ESI's legally defective and void computer-generated boilerplate notifications" violated numerous subparts of the detailed Claims Regulation. In support of Plaintiffs' motion for a preliminary injunction, the managing member of Grasso Enterprises declared that, "[s]ince the roll out of the program in June, approximately 60–70% of existing ESI prescriptions that have always been approved are now being rejected." The managing member of NERxD LLC declared that "[w]e are experiencing a 20–40% drop in our monthly gross revenues, and it appears that the key reason is ESI's scheme." The owner of Wiley's Pharmacy declared that the ESI portion of his business began declining in June 2014.

II. The Statutory Framework

ERISA includes a provision addressing the procedures for resolving disputes between health plan administrators and plan participants and beneficiaries:

§ 1133. Claims procedure

In accordance with regulations of the Secretary [of Labor], every employee benefit plan shall—

(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and

(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

29 U.S.C. § 1133. The ERISA Claims Regulation implements this provision, setting forth detailed procedural requirements that apply when a plan sponsor or administrator denies a claim for health care benefits. "The statute and the regulations were intended to help claimants process their claims efficiently and fairly" by requiring plan administrators to support their decisions so that claimants can "adequately prepare ... for any further administrative review, as well as an appeal to the federal courts." Richardson v. Cent. States, S.E. & S.W. Areas Pension Fund, 645 F.2d 660, 665 (8th Cir.1981). Consistent with this focus, the Claims Regulation provides a specific remedy for non-compliance:

(l ) ... In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

29 C.F.R. § 2560.503–1(l ) (emphasis added); see Brown v. J.B. Hunt Transp. Servs., Inc., 586 F.3d 1079, 1085–86 (8th Cir.2009) (failure to provide claimant a full and fair review of the decision to discontinue plan benefits "excuses [claimant's] failure to exhaust before bringing suit under § 1132(a)").

Because administrative exhaustion "serves many important purposes," review of benefits appeal procedures is more appropriate when "the reviewing court reviews the claims administrator's final decision to deny a claim, rather than the initial denial." Galman v. Prudential Ins. Co. of Am., 254 F.3d 768, 770 (8th Cir.2001). In conducting this review, our sister circuits do not require technical compliance with each subpart of the Claims Regulation. Rather, "[c]hallenges to ERISA procedures are evaluated under the substantial compliance standard." Lafleur v. La. Health Serv. & Indem. Co., 563 F.3d 148, 154 (5th Cir.2009), quoting Wade v. Hewlett–Packard Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 539 (5th Cir.2007), and cases cited. While we have not expressly adopted this substantial compliance standard, we have applied a substantively equivalent standard, evaluating whether a plan's entire claim denial process provided the claimant "a full and fair review of her claim." Midgett v. Wash. Grp. Int'l Long Term Disability Plan, 561 F.3d 887, 896 (8th Cir.2009) ; see Davidson v. Prudential Ins. Co. of Am., 953 F.2d 1093, 1096 (8th Cir.1992).

As the Supreme Court has repeatedly emphasized, "ERISA's carefully crafted and detailed enforcement scheme provides strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly." Great–W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) (quotations omitted). Plaintiffs seek preliminary and permanent injunctive relief under two of these remedial provisions. Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), provides that "a participant or beneficiary" may sue "to recover benefits due to him under...