Matrix Distribs., Inc. v. Nat'l Ass'n of Boards of Pharmacy

• Decision Date: 04 December 2020
• Docket Number: Civ. No. 18-17462 (KM) (MAH)
• Parties: MATRIX DISTRIBUTORS, INC., PRIMED PHARMACEUTICALS, LLC, and OAK DRUGS, INC., Plaintiffs, v. NATIONAL ASSOCIATION OF BOARDS OF PHARMACY and OPTUMRX, INC., Defendants.
• Court: U.S. District Court — District of New Jersey

MATRIX DISTRIBUTORS, INC., PRIMED PHARMACEUTICALS, LLC,and OAK DRUGS, INC., Plaintiffs, v. NATIONAL ASSOCIATION OF BOARDS OF PHARMACYand OPTUMRX, INC., Defendants.

Civ. No. 18-17462 (KM) (MAH)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

December 4, 2020

OPINION

KEVIN MCNULTY, U.S.D.J.

:

OptumRx, Inc., is a pharmacy benefit manager ("PBM") that administers the prescription drug benefits of health insurance plans. To that end, OptumRx contracts with pharmacies to dispense prescriptions to plan beneficiaries. As part of those contracts, OptumRx began requiring that pharmacies source drugs only from distributors accredited by the National Association of Boards of Pharmacy ("NABP"). Claiming that the accreditation requirement is unlawful, three distributors (Matrix Distributors, Inc., PriMed Pharmaceuticals, Inc., and Oak Drugs, Inc. ("Distributors")) sued OptumRx and NABP, which now move to dismiss. For the following reasons, OptumRx's and NABP's motions to dismiss the amended complaint (DE 165, 166) are GRANTED.¹

I. BACKGROUND

A. The Drug Supply Chain

An overview of the relevant market may be helpful. The prescription drug supply chain involves (1) manufacturers, which make drugs to sell to (2) wholesale distributors, which sell drugs to (3) hospitals or pharmacies, which dispense drugs to (4) patients. (Am. Compl. ¶ 26.) The wholesale distribution market is dominated by primary distributors, with three firms alone accounting for 92% of the market. (Id. ¶ 28.) Below the primary distributors are secondary distributors, like the Distributors here. (Id. ¶ 30.)

Servicing this distribution chain are the PBMs. PBMs contract with health insurance providers to administer the prescription drug benefits in their plans. (See id. ¶ 17.) PBMs also contract with pharmacies to dispense covered prescriptions to members of the plans which the PBM administers. (See id. ¶ 19.) Pharmacies must contract with a PBM to serve patients covered by plans administered by that PBM. (Id. ¶ 46-48.) As a result, PBMs have a network of pharmacies and effectively act as a middleman between pharmacies and health insurers. (See id. ¶ 18.) OptumRx is one of the largest PBMs, with a network of 67,000 pharmacies. (Id. ¶ 4.)

This drug supply chain is regulated at the federal and state level. (Id. ¶¶ 123-24.) State boards of pharmacy play an active role, and all participate inNABP. (Id. ¶¶ 49, 88.) NABP is led by an executive committee made up of current or former members of state boards. (Id. ¶¶ 57-61.) NABP provides several services to state boards: (1) a database on pharmacists (including their licensure, disciplinary history, and the like) (id. ¶ 64); (2) licensing exams or accreditation programs, some of which all states require (id. ¶¶ 65-67); (3) a data-sharing platform for prescription monitoring programs (id. ¶ 68); (4) inspection programs (id. ¶¶ 70, 72); and (5) model legislation and rules (id. ¶ 74). Most of NABP's revenue comes from applicant fees for its licensure or accreditation programs. (Id. ¶¶ 79-81.)

B. The VAWD Requirement

At issue here is one of NABP's accreditation programs. The Verified-Accredited Wholesale Distributor ("VAWD") program aims to certify that distributors meet standards of supply chain integrity. (Id. ¶ 87.) NABP developed the VAWD program "under the direction of the state boards" as a "mechanism for inspecting and regulating wholesale distributors" to combat the distribution of counterfeit drugs. (Id. ¶ 88.) Under the program, NABP promulgated criteria for distributors, such as that they only distribute drugs purchased from manufacturers, or that they keep distribution facilities separate from other facilities. (Id. ¶¶ 109-22.) When a distributor seeks VAWD accreditation, NABP personnel assess the distributor's operations and inspect its facilities for compliance with those criteria. (Id. ¶ 94.) In four states (Indiana, Iowa, Wyoming, and North Dakota), VAWD accreditation has become a condition for obtaining a distribution license. (Id. ¶ 90.) In twenty-two states, VAWD accreditation entitles a distributor to regulatory relief (i.e., waiver of certain licensing processes). (Id. ¶ 92.)

State regulators are not the only ones that utilize the VAWD program; PBMs like OptumRx do, too. (See id. ¶ 145.) OptumRx required its pharmacies to source drugs only from VAWD-accredited distributors. (Id. ¶ 148.) OptumRx made it known in 2016 that this VAWD requirement would be a part of itscontracts with pharmacies, so that failure to comply could result in a pharmacy's being ousted from its network. (Id. ¶ 152.)

Matrix unsuccessfully applied for accreditation and remains unaccredited by NABP. (Id. ¶¶ 185-201.) PriMed and Oak both faced denials before becoming accredited in 2019. (Id. ¶¶ 202, 225-26.) All the while, some pharmacies have ceased purchasing from the Distributors or declined to do business with them because of their difficulties in gaining VAWD accreditation. (Id. ¶¶ 260, 262-64.)

C. The First Challenge to the VAWD Requirement

Aggrieved by the VAWD requirements, a trade association for secondary distributors, the Association of Independent Pharmaceutical Wholesalers ("AIPW"), sued OptumRx and federal agencies/officials in the United States District Court for the District of Columbia. (Compl., Ass'n of Indep. Pharm. Wholesalers, Inc. v. OptumRx, Inc., No. 16-cv-02214-KBJ (D.D.C. Nov. 4, 2016) ("AIPW"), DE 1.) AIPW alleged that the VAWD requirement was unlawful because it (1) amounted to a federal rule that would require notice-and-comment rulemaking, (2) violated federal regulations, (3) violated federal rulemaking statutes, (4) violated California consumer protection law, and (5) tortuously interfered with distributors' contracts with pharmacies. (Id. ¶¶ 155-94.) An amended complaint specified that AIPW included Matrix and PriMed. (AIPW Am. Compl. ¶¶ 147-48.)²

Before the court could rule on pending motions to dismiss and for a preliminary injunction, the parties stipulated to a dismissal. Specifically, the parties notified the court that they had reached a confidential settlement, which would not be submitted. (AIPW, DE 57.) In response, the court issued an order stating that the case was dismissed without prejudice, but that if no party moved to reopen in a specified time, then the case would stand dismissed with prejudice. (AIPW, DE 58.) Before the reopening deadline passed, OptumRxand AIPW entered a stipulation of dismissal with prejudice. (AIPW Stip.) Months later, Matrix and PriMed moved for relief from the dismissal and to reopen the case, arguing that, while they were AIPW members, (1) they did not consent to the settlement, (2) the agreement was "revised to reflect [their] non-participation," and (3) the parties did not so inform the court. (AIPW Mot. at 1, 3, 4.) The court denied the motion in a minute order because Matrix and PriMed were not "parties to this case." No activity has occurred since.

D. This Challenge to the VAWD Requirement

A month after AIPW wound down, the Distributors brought a challenge to the VAWD requirement against OptumRx and NABP in New Jersey Superior Court, simultaneously moving for injunctive relief. The case was removed to this Court. (DE 1.) I denied the motion for a temporary restraining order, directed the parties to conduct expedited discovery, and then held a preliminary injunction hearing. (DE 16, 122, 123.) During this time, Matrix and PriMed's accreditation process was ongoing, and before I could rule on the preliminary injunction motion, Matrix and PriMed achieved accreditation. (DE 150.) Accordingly, the Distributors withdrew the injunction motion and amended the complaint. (DE 152, 153.)

The Amended Complaint asserts the following claims:

• Count 1: a claim against NABP and OptumRx by Matrix for a declaration, under the Declaratory Judgment Act, 28 U.S.C. § 2201, that certain VAWD criteria are preempted and an accompanying injunction prohibiting (1) NABP from enforcing those criteria and (2) OptumRx from excluding Matrix from selling to OptumRx pharmacies without accreditation (Am. Compl. ¶¶ 276-93);³

• Count 2: a claim against OptumRx for violating New York Public Health Law § 280-c, seeking a declaration that OptumRx is violating that lawand an injunction allowing Matrix to sell to OptumRx pharmacies in New York (Am. Compl. ¶¶ 294-302);

• Count 3: a claim against NABP and OptumRx under 42 U.S.C. § 1983 for violations of the Drug Supply Chain Security Act ("DSCSA"), 21 U.S.C. § 360eee et seq., and the Supremacy Clause, seeking damages (Am. Compl. ¶¶ 303-17);

• Count 4: a claim against NABP and OptumRx under § 1983 for violations of procedural due process under the Federal and New Jersey Constitutions, seeking damages (Am. Compl. ¶¶ 318-33);

• Count 5: a claim against NABP, in the alternative to Count 4, for violations of the common-law right to due process, seeking damages (id. ¶¶ 334-42);

• Count 6: a claim against OptumRx for tortious interference with contract, seeking damages (id. ¶¶ 343-79);

• Count 7: a claim against OptumRx for tortious interference with prospective economic advantage, seeking damages (id. ¶¶ 380-85);

• Count 8: a claim against OptumRx for tortious interference with the Distributors' wholesale licenses, seeking damages (id. ¶¶ 386-96); and

• Count 9: a claim against NABP, in the alternative if the Court finds that NABP is not a state actor, for violations of the New Jersey Consumer Fraud Act ("NJCFA"), N.J. Stat. Ann. § 56:8-2.1, seeking damages (Am. Compl. ¶¶ 397-405).

OptumRx and NABP now move to dismiss the Amended Complaint.

II. DISCUSSION AND ANALYSIS

There are many claims and many more arguments for dismissal, but in sum, I hold as follows:

• Dismissal based on claim preclusion is not appropriate on this record.

• Counts 1, 3, and 4 are dismissed for failure to plead state action.

• Count 2 is dismissed because New York Public Health Law § 280-c is not enforceable via a private right of action.

• Count 5 is dismissed because New Jersey

...