Omnicare, Inc. v. UnitedHealth Group, Inc.

• Decision Date: 14 February 2011
• Docket Number: No. 09-1152,09-1152
• Citation: 629 F.3d 697
• Parties: OMNICARE, INC., Plaintiff-Appellant, v. UNITEDHEALTH GROUP, INC., PacifiCare Health Systems, Inc., and RxSolutions, Inc., d/b/a Prescription Solutions, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

629 F.3d 697

OMNICARE, INC., Plaintiff-Appellant,

v.UNITEDHEALTH GROUP, INC., PacifiCare Health Systems, Inc., and RxSolutions, Inc., d/b/a Prescription Solutions, Defendants-Appellees.

No. 09-1152.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 13, 2009.

Decided Jan. 10, 2011.

Rehearing En Banc Denied Feb. 14, 2011.

Harvey Kurzweil, Attorney (argued), Dewey & Leboeuf, New York, NY, for Plaintiff-Appellant.

Steven M. Edwards, Attorney (argued), Hogan Lovells U.S. LLP, New York, NY, for Defendants-Appellees.

Before KANNE and TINDER, Circuit Judges, and GRIESBACH, District Judge.^*

TINDER, Circuit Judge.

In the months leading up to the 2006 launch of Medicare Part D, institutional pharmacy Omnicare entered into separate service contracts with merging Medicare Part D plan sponsors UnitedHealth Group and PacifiCare. The terms of the UnitedHealth Group contract were favorable to Omnicare; the terms of the PacifiCare contract, which Omnicare signed without negotiation, were significantly less so. Shortly after the UnitedHealth Group-PacifiCare merger was finalized, UnitedHealth Group abandoned its contract with Omnicare and joined PacifiCare's. Omnicare cried foul and filed a Sherman Act claim, alleging that UnitedHealth Group and PacifiCare conspired to depress the rate of reimbursement it would receive. It also raised a host of additional claims, including state antitrust claims and common law fraud, conspiracy to commit fraud and unjust enrichment claims. The district court granted summary judgment to the insurers and denied Omnicare's cross motion for partial summary judgment. Omnicare appeals, and we affirm.

I. Background

Plaintiff-appellant Omnicare is the nation's largest institutional pharmacy. It provides pharmaceutical services to long-term care facilities, such as nursing homes, in 47 states. Defendant-appellee UnitedHealth Group ("United") is a large national provider of health insurance. It acquired defendant-appellee PacifiCare, a smaller, California-based health insurer, on December 20, 2005. As part of that acquisition, United also became the owner of PacifiCare's wholly owned subsidiary, defendant-appellee RxSolutions, a "pharmacy benefits manager" ("PBM") that negotiates contracts with pharmacies and processes claims from plan members. See In re Pharmacy Benefit Managers Antitrust Litig., 582 F.3d 432, 434 (3d Cir.2009) (describing PBMs).

United and PacifiCare began their merger talks in early 2005, while each was developing an individual Medicare Part D plan proposal. Medicare Part D, a new government-subsidized prescription drug program for seniors and disabled individuals, was scheduled to "go live" on January 1, 2006, and the Centers for Medicare and Medicaid Services ("CMS") required private insurers to submit their plan proposals for consideration by August 1, 2005.Insurers whose plans were approved would be permitted to enter into contracts with CMS and begin providing benefits to Medicare Part D enrollees in January 2006. Before their plans could be approved, plan sponsors had to demonstrate to CMS that they had in place pharmacy networks capable of serving their anticipated enrollees. To assemble these networks, which had to include enough retail and institutional pharmacies to provide "convenient access" for enrollees, including Medicaid-eligible individuals who would be randomly assigned to Part D plans in late 2005, plan sponsors had to negotiate reimbursement contracts with numerous pharmacies. Both United and PacifiCare were negotiating contracts with Omnicare during the period of due diligence preceding their merger.

PacifiCare employed its in-house PBM RxSolutions to conduct its negotiations with Omnicare. By all accounts the negotiations did not proceed smoothly. In early June 2005, RxSolutions sent to Omnicare a copy of PacifiCare's "any willing provider" contract, a form contract that CMS required Part D plan sponsors to develop and make available to any pharmacy willing to sign it. Omnicare in turn sent RxSolutions its own form contract, which included eighteen "Patient Protections" that Omnicare developed to address the special needs of long-term care patients. Omnicare and RxSolutions attempted to negotiate, but because each insisted on using its own form contract as the starting point they never made it out of the gate. By mid-July, eight days after United and PacifiCare signed their formal merger agreement, negotiations between Omnicare and PacifiCare broke down completely when PacifiCare, citing price concerns, walked away from the table. Omnicare assured PacifiCare that it would "stand ready to negotiate," but PacifiCare eschewed Omnicare's overtures and submitted its Part D bid to CMS without Omnicare in its pharmacy network. After its application was rejected, PacifiCare reopened negotiations with other pharmaceutical service providers, including Omnicare's competitor Managed Healthcare Associates, Inc., to remedy deficiencies in its pharmacy network. PacifiCare secured CMS approval for its Part D plan in September 2005 without Omnicare in its network.

United also enlisted the assistance of a PBM, Walgreens Health Initiatives ("WHI"), to negotiate with Omnicare on its behalf. After some back-and-forth over reimbursement rates, WHI and Omnicare were able to agree on a contract under which Omnicare would provide pharmaceutical services to United's Part D enrollees who lived in Omnicare-contracted long-term care facilities. United, to whom the enrollees would pay their premiums, would then reimburse Omnicare at a rate of AWP-12% plus a fixed dispensing fee per prescription filled. ¹This reimbursement rate was comparable to the rates Omnicare negotiated with most other health insurers. The United-Omnicare contract, which was executed on July 29, 2005, included Omnicare's eighteen "Patient Protections." United submitted its bid to CMS, with Omnicare in its pharmacy network, and received approval to operate an extensive Part D plan. Shortly after signing its contract with Omnicare and securing CMS approval, however, United enlisted outside counsel to advise it on the legality of the "Patient Protections" and other Omnicare-engineered provisions in the contract. It did not apprise Omnicare of its concerns and expressly forbade its PBM from doing so.

While the Part D network negotiations and proposal developments were winding down, the merger between United and PacifiCare was picking up. Both insurers had due diligence teams in place, and by early June 2005, the teams were meeting regularly to discuss a variety of topics, including PacifiCare's plans for its Part D program. United tried to assuage its concerns about PacifiCare's Part D readiness by giving PacifiCare a list of "Part D Questions" to answer. In its responses, PacifiCare revealed that its expected reimbursement rate for network pharmacies was AWP-16%. PacifiCare also provided United with a copy of its standard "any willing provider" form contract.

An actuary employed by a United affiliate met with PacifiCare representatives in early July 2005 to discuss the potential financial risks associated with Part D. At the meeting, PacifiCare disclosed its projected national average bids for its Part D plans. The actuary in turn provided, in a sealed envelope that was addressed to a PacifiCare executive who was not present, corresponding information concerning United's projected Part D plans. Following the meeting, the actuary prepared a written summary of the actuarial risks associated with PacifiCare's projected Part D strategy and then disqualified himself from further Part D involvement. United's board approved the acquisition in short order after being briefed on the actuary's summary, and PacifiCare and United executed a formal merger agreement on July 6, 2005. The merger agreement included a provision barring PacifiCare from entering contracts under which it would incur liabilities of more than $3 million prior to the consummation of the merger; a contemporaneous "company disclosure letter" also in the record (and referred to in the merger agreement) explicitly exempted Part D contracts from that prohibition.

After the merger agreement was signed, but before the deal closed, United and PacifiCare discussed how they might integrate their operations if the merger were approved by the Department of Justice's Antitrust Division. (The merger was ultimately approved on December 20, 2005, after United and PacifiCare divested themselves of some overlapping holdings.) In September 2005, PacifiCare and United executives began collaborating on a memorandum (the "strategic options memo" or "SOM") entitled "United Health Group's Pharmacy Management Options." The SOM outlined various "strategic options" that the merged entities could eventually take with regard to RxSolutions, PacifiCare's in-house PBM. One of the suggestions made in the SOM was to use RxSolutions "as a stalking horse to obtain the best service and contracts." Several iterations of the SOM were circulated among United and PacifiCare executives from September 2005 until at least January 2006. Although the "stalking horse" language was present in all the drafts, it was used in connection with different strategic options as the SOM evolved. The very first circulated draft of the SOM was attached to a lengthy e-mail in which a PacifiCareexecutive proposed discussing unspecified "sensitive items voice to voice" with a United executive.

United and PacifiCare's internal communications were not known to Omnicare at the time, but their merger was widely publicized. See, e.g., Milt Freudenheim, United-Health to Buy PacifiCare in Push into Medicare, N.Y. Times, July 7, 2005, at C1; Vanessa Fuhrmans, Dennis K. Berman & Rhonda Rundle, Two Health Plans Agree on a Deal for $8.1 Billion—UnitedHealth Adds Heft in California and Medicare with move on PacifiCare, Wall St. J., July 7, 2005, at A1. Indeed, when Omnicare "became concerned that PacifiCare-insured patients in ...