Omnicare, Inc. v. Unitedhealth Group, Inc.

• Decision Date: 16 January 2009
• Docket Number: No. 06 C 6235.,06 C 6235.
• Citation: 594 F.Supp.2d 945
• Parties: OMNICARE, INC., Plaintiff, v. UNITEDHEALTH GROUP, INC., Pacificare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription Solutions, Defendants.
• Court: U.S. District Court — Northern District of Illinois

594 F.Supp.2d 945

OMNICARE, INC., Plaintiff, v. UNITEDHEALTH GROUP, INC., Pacificare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription Solutions, Defendants.

No. 06 C 6235.

United States District Court, N.D. Illinois, Eastern Division.

January 16, 2009.

COPYRIGHT MATERIAL OMITTED

Aldo A. Badini, Brian S. McGrath, Eamon O'Kelly, George E. Mastoris, Harvey Kurzweil, Henry Joseph Ricardo, Lisa M. Card, Michael C. Thelen, Susannah P. Torpey, Dewey & Leboeuff, LLP, New York, NY, Andrew Jonathon Schaeffer, Carrie A. Shufflebarger, William T. Robinson, III, Greenebaum, Doll & McDonald, Covington, KY, James T. Malysiak, Lee A. Freeman Jr., Richard P. Campbell, Jenner & Block, LLP, Chicago, IL, John D. Harkrider, Axinn, Veltrop & Harkrider, LLP, New York, NY, for Plaintiff.

Athanasios Papadopoulos, James King Gardner, Neal, Gerber & Eisenberg, Chicago, IL, Byron Todd Jones, Christopher W. Madel, Erik Casey Beckett, Jennifer G. Daugherty, Jennifer M. Robbins, Loren L. Hansen, Margaret M. Lockner, Martin R. Lueck, Michael V. Ciresi, Randolph C. Winton, Sara A. Poulos, Stephen P. Safranski, Thomas J. Undlin, Robins, Kaplan, Miller & Ciresi, LLP, Minneapolis, MN, Corey W. Roush, Robert Frederick Leibenluft, Hogan & Hartson, Washington, DC, Frederick M. Erny, Dinsmore & Shohl, LLP, Cincinnati, OH, Loretta E. Lynch, Steven M. Edwards, Hogan & Hartson, LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, District Judge.

Plaintiff Omnicare, Inc., is the nation's largest institutional pharmacy—that is, a provider of pharmacy services to persons in health care institutions. UnitedHealth Group ("UnitedHealth") and PacifiCare Health Systems, Inc. ("PacifiCare") are health insurers who provide prescription drug coverage to senior citizens under the Medicare "Part D" program. To qualify under that program, a health insurer must demonstrate to federal regulators that it can provide pharmacy services to individuals in long-term care facilities; a contract with an institutional pharmacy such as Omnicare is one way of doing so. Both UnitedHealth and PacifiCare entered into negotiations with Omnicare, and UnitedHealth signed an agreement with Omnicare before UnitedHealth was certified under the Medicare Part D program. During the same time period, UnitedHealth and PacifiCare were engaged in merger talks that culminated in a Merger Agreement between the two parties. PacifiCare broke off its negotiations with Omnicare a week after signing the Merger Agreement and then proceeded to obtain federal certification without Omnicare in its contract "network." PacifiCare later resumed contract talks with Omnicare, ultimately striking a deal far more favorable to it than the one UnitedHealth had achieved. Then, once the UnitedHealth-PacifiCare merger was complete, UnitedHealth abandoned its own deal with Omnicare and took advantage of the more favorable terms in PacifiCare's contract with Omnicare.

In this lawsuit, Omnicare contends that the merger violated antitrust laws and that Defendants are liable for fraud. The court denied Defendants' motion to dismiss, see Omnicare, Inc. v. UnitedHealth Group, Inc., 524 F.Supp.2d 1031 (N.D.Ill.2007), and the parties proceeded with discovery. Defendants now move for summary judgment on these claims and, for the reasons that follow, the motion is granted.

FACTUAL BACKGROUND

I. Medicare Part D

Medicare is a health insurance program administered by the federal government in order to provide coverage to elderly and disabled Americans. See 42 U.S.C. § 1395 et seq. In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which created a voluntary prescription drug benefit for seniors called Medicare Part D. Pub. L. No. 108-173, 117 Stat. 2066 (2003). Under Part D, the Centers for Medicare & Medicaid Services ("CMS") make payments to Prescription Drug Plan ("PDP") sponsors—typically insurance providers. PDPs, in turn, pay prescription drug providers—retail and institutional pharmacies—for providing pharmacy services to the individuals enrolled in the PDP. See 42 U.S.C. § 1395w-115. The PDP sponsors are compensated in two ways: through payments from CMS and through premiums paid by enrollees. Id. The prescription drug providers receive their payments pursuant to contracts with the PDP sponsors.

To participate in Part D, which went into effect on January 1, 2006, PDP sponsors were required to be approved by, and enter into a contract with, CMS. (Bagley Report ¶ 17, App. 155 to Mem. in Supp.) CMS divided the United States into thirty-four "PDP regions," and a PDP sponsor had to be approved for each region in which it wished to operate. As part of its bid for CMS approval, a Part D sponsor needed to demonstrate that it had sufficient pharmacy providers in its network in the PDP region to service both retail customers and patients in long-term care facilities ("LTCs"). (3/16/05 Long-Term Care Guidance, App. 57 to Mem. in Supp.) PDPs were required to provide a list of contracts with pharmacies that serve LTCs in order to "ensure that all of [the sponsor's] future Part D enrollees who are institutionalized can routinely receive their Part D benefits through the plans' network of pharmacies" rather than through "out of network" pharmacies. (Id. at 4.) CMS referred to this requirement of nearby, in-network pharmacies providing services to LTC enrollees as the "convenient access" standard. (Id.) In addition, CMS required PDP sponsors to offer a contract to any pharmacy willing and able to participate in the sponsor's LTC network.¹ (Id.)

In 2006, 23 million out of 42 million eligible seniors participated in Medicare Part D. (Ex. A to Rubinfeld Decl. ¶ 31, Attach. to Mem. in Opp'n.) Seniors can become enrolled in a PDP in one of two ways. First, seniors eligible for Medicare can simply choose to participate in Part D. Second, individuals who also qualify for Medicaid—another federal insurance program, one designed to provide coverage for individuals and families with low incomes—are automatically enrolled by the government. These low-income seniors, called "dual eligibles" because they are eligible for both Medicare and Medicaid, are enrolled in PDPs whose premiums are lower than an established cap set by CMS. (Id. ¶ 34.) These enrollees are technically free to switch to any other plan that falls below the cost threshold established by CMS, but a number of factors—such as the physical impairment of these enrollees and bureaucratic obstacles—make this a rarely-used option. (Rubinfeld Decl. ¶ 6(c), Attach. to Mem. in Opp'n.) Dual eligibles are fully subsidized by the federal government, which pays for both premiums and co-payments for the drugs, and constitute up to 65% of LTC residents. (Ex. A to id. ¶¶ 34-35.) Overall, though, Omnicare concedes that all individuals living in LTCs, including both dual-eligibles and voluntary enrollees, comprise only about 3-5% of total PDP enrollees. (Mem. in Opp'n at 6 n. 7.) Defendants' negotiations and resulting contracts with Omnicare, the largest LTC pharmacy in the nation, covered only LTC patients. (Omnicare's Supplemental Statement of Undisputed Material Facts ¶¶ 23, 31.)

II. Merger

UnitedHealth and PacifiCare, insurance providers who sought CMS certification as PDP sponsors in 2005, initiated merger discussions in January 2005. (Defs.' 56.1 ¶ 16.) As talks between the two entities intensified in the weeks leading up to signing the Merger Agreement on July 6, they entered into two separate confidentiality agreements dictating how information deemed "confidential" or "highly confidential" was to be exchanged during the "due diligence" period.² (Defs.' 56.1 ¶ 17.) Although there were some failures to comply with terms of the confidentiality agreements (Omnicare's Resp. to Defs.' 56.1 ¶¶ 17-19), the purpose for the agreements was apparent. The first confidentiality agreement, designed to protect confidential information, made that information available only to members of UnitedHealth's due diligence team and prevented them from sharing it with others outside that team. (Defs.' 56.1 ¶ 17.) The second confidentiality agreement created a "clean room" for highly confidential material and permitted only members of UnitedHealth's "clean team," a subgroup of the due diligence team, to have access to the materials. (Id. ¶ 18.) In addition, prior to the sharing of any information between the two parties, PacifiCare's outside antitrust counsel, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), developed a "data room" where Skadden attorneys reviewed all PacifiCare's documents to determine the propriety of sharing them with UnitedHealth. (Id. ¶ 19.)

Although much of the due diligence process had no relationship to the companies' plans for Part D, several meetings and other exchanges of information concerning Part D did take place. On June 9, 2005, UnitedHealth and PacifiCare met specifically to discuss PacifiCare's Part D program.³ (Id. ¶ 22.) At the meeting, Jacqueline Kosecoff, an Executive Vice President at PacifiCare, made a presentation entitled "Part D Prescription Drug Program," which included general information regarding administrative expense estimates and information about RxSolutions, a wholly-owned subsidiary of PacifiCare responsible for negotiating contracts with pharmacies on PacifiCare's behalf. (Part D Prescription Drug Program, App. 31 to Mem. in Supp.) From Kosecoff's presentation itself and notes prepared after the meeting, it appears that no pricing information was provided in the presentation outside of an assertion that PacifiCare would follow "an aggressive pricing strategy." (Id.; 6/17/05 Memo, App. 26 to Mem. in Supp.) Tom Paul, a UnitedHealth official, noted in a summary prepared after the meeting that PacifiCare provided only "little information" that was "very general," and stated that, based on the meeting, "[t]here is insufficient information to draw any...