HM Compounding Servs., LLC v. Express Scripts, Inc.

• Decision Date: 08 November 2018
• Docket Number: No. 4:14-CV-01858 JAR,4:14-CV-01858 JAR
• Citation: 349 F.Supp.3d 781
• Parties: HM COMPOUNDING SERVICES, LLC, and HMX Services, LLC, Plaintiffs, v. EXPRESS SCRIPTS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Missouri

349 F.Supp.3d 781

HM COMPOUNDING SERVICES, LLC, and HMX Services, LLC, Plaintiffs,

v.EXPRESS SCRIPTS, INC., Defendant.

No. 4:14-CV-01858 JAR

United States District Court, E.D. Missouri, Eastern Division.

Signed November 8, 2018

Andrew Scott Brenner, Kristina Marie Infante, Lawrence V. Ashe, Shani Rivaux, Steven W. Davis, Tyler Evan Ulrich, Boies and Schiller LLP, Miami, FL, Nicholas A. Widnell, Richard A. Feinstein, Boies and Schiller, LLP, Washington, DC, for Plaintiffs.

Eric C. Lyttle, Pro Hac Vice, Meghan Ann McCaffrey, Michael John Lyle, Quinn and Emanuel, LLP, Washington, DC, Christopher Smith, Sarah Hellmann, Husch Blackwell LLP, Saint Louis, MO, Christopher A. Smith, Jason Husgen, Sarah C. Hellmann, Husch Blackwell, LLP, St. Louis, MO, Ally Hack, Amanda Lynn Nelson, Menachem J. Kastner, Cozen O'Connor, New York, NY, for Defendant.

MEMORANDUM AND ORDER

JOHN A. ROSS, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Plaintiffs HM Compounding Services, LLC and HMX Services, LLC (collectively "HM")'s Motion for Partial Summary Judgment (Doc. No. 472) and Defendant Express Script ("ESI")'s Renewed Motion for Summary Judgment (Doc. No. 478). The motions are fully briefed and ready for disposition.¹ Oral argument was held on October 12, 2018.

I. Background

The background of this case has been set out in detail in previous orders and will not be repeated here. Briefly, ESI terminated HM from its pharmacy provider network for misrepresenting during a re-credentialing process that it never waived or discounted member copayments. HM filed an amended complaint asserting various statutory and common law claims against ESI, which ESI moved to dismiss. The Court granted ESI's motion in part. ESI then filed counterclaims for, inter alia , breach of contract. ESI moved for partial summary judgment on HM's remaining claims² based on HM's alleged breaches of the parties' Pharmacy Provider Agreement and ESI's resulting right to terminate that Agreement. The Court denied partial summary judgment, finding factual disputes about the materiality of HM's alleged breach(es). (Doc. No. 340) ESI filed a motion for reconsideration of the Court's order denying partial summary judgment (Doc. No. 345), which the Court denied (Doc. No. 353).

Over the next year, the parties engaged in extensive and, at times, contentious discovery, necessitating the appointment of a Special Master. As detailed in its October 26, 2018 Memorandum and Order, the Court found HM's late production of thousands of documents – including records of cash transactions and system edits and overrides for prescription claims submitted to ESI for reimbursement ("the audit trail") – after repeated (and now admittedly false) representations to opposing counsel, the Special Master and this Court that it had searched "all sources," produced "all responsive documents", and had "no other documents" responsive to ESI's requests, grossly negligent and sanctionable.

After careful consideration, the Court entered measured sanctions to address HM's misconduct and reckless disregard for the truth of the matters. Specifically, the Court ruled that it would allow ESI to use the late produced documents and information derived therefrom as appropriate and prohibit HM from doing so. The Court also ruled that it would admit the spreadsheet created in 2014 by Marc Poirier, HM's Chief Financial Officer, as evidence of thousands of cash claims for prescriptions priced below AWP and the U&C cash prices HM was submitting to ESI for reimbursement. Lastly, the Court excluded the opinions of HM's damages expert Kenneth Schafermeyer in their entirety and those portions of the opinions of HM's experts Loyd Allen and Richard Moon that did not consider the U&C issue based upon HM's false representations that they had no cash transactions. (Doc. No. 543) Recent filings suggest HM continues to disclose additional new documents requested by ESI in discovery but not previously produced. (See Doc. No. 542) It is in this context that the Court granted the parties an opportunity to supplement their summary judgment briefing by October 31, 2018. ESI filed a supplemental memorandum of law in support of its renewed motion for summary judgment (Doc. Nos. 561, 562) which is now fully briefed; HM did not.³

II. Facts

HM was a member of ESI's pharmacy provider network pursuant to a Pharmacy Provider Agreement ("Provider Agreement") and Network Provider Manual ("Provider Manual") (collectively the "Agreement").⁴ Section 2.4.a of the parties' Provider Agreement, titled "Copayments," provides:

Provider shall collect from Members the lesser of the Usual and Customary Retail Price amount or the applicable Copayment indicated by ESI, or when applicable, the full Copayment when indicated by ESI, through its online processing system or if online processing is unavailable, in accordance with the Provider Manual. Copayments may not be waived or discounted and, unless directed by ESI in writing, Provider shall not collect any greater amount or any other taxes, fees, surcharges or compensation from any Member for any Covered Medications or services provided in connection therewith. In no event will ESI be liable for any Copayment. (Emphasis added.)

With regard to the collection of co-payments, the Provider Manual states that "[HM] may not institute Member copayment discount programs or otherwise alter a Member Copayment, unless such waiver or discount is required by law. If [ESI] becomes aware of an copayment or cost-sharing discounts being offered by [HM] – either through audit, investigation, Member statements, or review of [HM]'s website or other advertising materials – [HM] may be subject to immediate termination."

Section 2.4 of the Provider Manual requires that "[a]ll claims [ ] be submitted accurately and completely, online in the current NCPDP (National Counsel for Prescription Drug Programs) (vD.0) HIPAA-approved format..." Section 2.7 of the Provider Manual, titled "On Line Reimbursement Calculation," states that ESI will reimburse HM for the "lesser of: AWP (average wholesale price) ingredient cost minus contracted brand discount plus contracted brand dispensing fee for the applicable network... OR ... Usual and Customary Retail Price." Section 2.9 of the Provider Manual, titled "Compounds," states that "Network Providers shall not submit compound claims with an inflated average wholesale price (AWP) or ... manipulate the Usual and Customary retail price."⁵

Section 4.2 of the Provider Agreement is titled "Termination." Section 4.2.a of the Provider Agreement, titled "Without Cause," states that the "Agreement may be terminated by ESI without cause upon at least thirty (30) days written notice."

Section 4.2.b of the Provider Agreement, titled "Breach," states that:

In the event a party defaults in the performance of any of its obligations under this Agreement...the other party...may give written notice to the Defaulting Party of such breach. If the Defaulting Party has not cured such breach to the reasonable satisfaction of the Non-Defaulting Party within thirty (30) days after it receives such notice, the Non-Defaulting Party shall have the right to immediately terminate the Agreement....These rights and remedies are in addition to any and all other rights that exist or are available or may exist or be available to ESI pursuant to this Agreement.

Section 4.2.c of the Provider Agreement, titled "Immediate Termination," provides that, notwithstanding Section 4.2.b, ESI shall have the right to immediately terminate the Agreement in the event that:

(i) [HM] ceases to be licensed by the appropriate licensing authority; (ii) [HM] submits a fraudulent prescription drug claim or any information in support thereof; ... (iv) [HM] routinely fails to designate on its claims submission and/or supporting documents the information required by [ESI] or fails to comply with [ESI's] policies and procedures including, but not limited to, the Provider Manual and/or quality assurance and/or utilization review procedures; (v) any representation to [ESI] or any response to a question set forth on the Provider Certification is untrue or becomes untrue; ... (vii) [ESI] determines that [HM] is dispensing Covered Medications in violation of any applicable law, rule and/or regulation; ... (x) [HM] breaches any of its representations and warranties set forth in this Agreement or any other document provided to [ESI]; [or] (xii) [HM] fails to comply with any audit or investigative request, including the provision of information, made by [ESI] within the time period stated in such request.... (Emphasis added).

Likewise, the Provider Manual gives ESI the right to immediately terminate the Agreement in the event that "(iv) [HM] fails to comply with [ESI]'s policies and procedures including, but not limited to, the Provider Manual ...; (v) any representation to [ESI] or any response to a question set forth on the Provider Certification is untrue or becomes untrue; ... (x) [HM] breaches any of its representations and warranties set forth in this Agreement or any other document provided to [ESI] ..."

The Provider Manual specifically incorporates various State addenda, including a New Jersey Addendum ("the Addendum"). By its express terms, the Addendum applies when a pharmacy dispenses "covered medications to members of an HMO, Insurer, or Carrier licensed under New Jersey law (as such terms are defined under New Jersey law)." The provisions of the Addendum supersede the terms of the Provider Agreement and govern the parties' relationship whenever "there is a conflict between the terms and conditions set forth in this Addendum and the terms and conditions set forth in the Provider Agreement." (Doc. No. 473-1)

Section 6.a. of the Addendum provides that if the Provider Agreement is terminated, "[ESI] shall give [HM] at least ninety (90) days prior written notice. In the event of termination, [HM] has the right, within ten (10) days of receipt of notice,...