Pharmacy Benefit Managers Antitrust Litig. Brady Enters., Inc. v. Medco Health Solutions, Inc.

• Decision Date: 18 January 2017
• Docket Number: Civil Action No. 06-1782,Civil Action No. 06-4305,Civil Action No. 06-4115,Civil Action No. 06-4114,Civil Action No. 03-4730
• Court: U.S. District Court — Eastern District of Pennsylvania
• Parties: In re PHARMACY BENEFIT MANAGERS ANTITRUST LITIGATION BRADY ENTERPRISES, INC., et al. Plaintiffs, v. MEDCO HEALTH SOLUTIONS, INC. Defendant. NORTH JACKSON PHARMACY, INC. and C&C INC., d/b/a/ BIG C DISCOUNT DRUGS, Plaintiffs, v. CAREMARK RX INC., et al, Defendants. NORTH JACKSON PHARMACY, INC., Plaintiff, v. EXPRESS SCRIPTS, INC., et al, Defendants. NORTH JACKSON PHARMACY, INC., Plaintiff, v. MEDCO HEALTH SOLUTIONS INC. Defendant.

In re PHARMACY BENEFIT MANAGERS ANTITRUST LITIGATION

BRADY ENTERPRISES, INC., et al. Plaintiffs, v. MEDCO HEALTH SOLUTIONS, INC. Defendant.

NORTH JACKSON PHARMACY, INC. andC&C INC., d/b/a/ BIG C DISCOUNT DRUGS, Plaintiffs, v. CAREMARK RX INC., et al, Defendants.

NORTH JACKSON PHARMACY, INC., Plaintiff, v. EXPRESS SCRIPTS, INC., et al, Defendants.

NORTH JACKSON PHARMACY, INC., Plaintiff, v. MEDCO HEALTH SOLUTIONS INC. Defendant.

Civil Action No. 06-1782

Civil Action No. 03-4730

Civil Action No. 06-4305

Civil Action No. 06-4114

Civil Action No. 06-4115

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA

January 18, 2017

MEMORANDUM

C. Darnell Jones, II J.

I. Introduction

This long pending multidistrict litigation involves antitrust claims brought by several Plaintiffs against companies engaged in the business of providing pharmaceutical benefits management services.¹ In the various suits, Plaintiffs allege that Defendants engaged in one or more price fixing conspiracies that resulted in reducing the amounts reimbursed to independent pharmacies for prescriptions they filled for participants of the drug benefit plans administered by the Defendants. In Civil Action 06-4305 (hereinafter "the lead case" or "Caremark"), Plaintiffs North Jackson Pharmacy, Inc. ("North Jackson") and C&C Inc., d/b/a/ Big C Discount Drugs ("Big C") (collectively "Plaintiffs") allege antitrust claims on behalf of a class of independent pharmacies² ("IPs") against Defendants Caremark Inc. (n/k/a/ Caremark, L.L.C.) and related entities (collectively "Caremark"). Plaintiffs allege two illegal conspiracies to control the pricespaid to IPs in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, namely that: (1) Caremark and other Pharmacy Benefit Managers ("PBMs") conspired with their clients — health plans run by employers, labor unions, health insurers and health maintenance organizations — to fix prices paid to IPs; and (2) Caremark conspired with other PBMs including Express Scripts, Advance PCS³ and Medco in a horizontal price fixing scheme to set reimbursement rates at unconscionable and punitively low levels.

Presently awaiting decision in the lead case are a Motion for class certification pursuant to Fed. R. Civ. P. 23, and a Motion by Caremark to exclude Plaintiffs' expert evidence. Presently awaiting decision in Civil Action 06-4114 ("Express Scripts"), a class action brought by North Jackson against Express Scripts, Inc. ("Express Scripts") and Civil Action 06-4115 ("Medco"), a class action brought by North Jackson against Medco Health Solutions, Inc. ("Medco"), is a Motion to decertify a class that was certified before the case became part of the MDL. Presently awaiting decision in Civil Action 03-4730 ("Brady") is a class certification Motion similar to that pending in Caremark. For the following reasons, Caremark's Motion to exclude expert evidence shall be granted, Plaintiffs' Motions for class certification in the lead case and in Brady shall be denied, and the class previously certified in Express Scripts and Medco shall be decertified.

II. The Class Certification Record in Caremark⁴

a. Background

North Jackson is an IP in Jackson County, Alabama owned by Bryan Hicks. (See No. 06-4305, ECF 1, SAC ¶ 9; see also 06-MD-1782, ECF 248-2, Declaration of Bryan Hicks ("Hicks Decl.") ¶ 1-2⁵; ECF 261-3, Hicks June 29, 2005 Dep. at 1.) Big C is an IP in Jackson County, Alabama owned in part by Dexter Cordes. (See SAC ¶ 10; ECF 261-4, Cordes June 28, 2005 Dep. at 1.) Plaintiffs seek to represent a class of "[a]ll independent pharmacies within the boundaries of the United States who contracted with any of the named Defendants, . . . to dispense and sell prescription drugs for any client payors" during the period of 1993 to the present (the 'Class Period')." (SAC ¶ 35.) According to a declaration provided by Gregory Madsen, Caremark's Senior Vice President, Retail Services, in 2006 there were about 25,000 pharmacies that Caremark considered to be IPs. (ECF 261-5, Madsen Decl. ¶ 12.) IPs are dispersed throughout the United States, including in both large urban settings and rural areas. (See id. ¶ 15.) Some IPs may have significant buying power, while others may not, depending on the competitive conditions of each particular market. (See id. ¶¶ 13, 15.)

PBMs like Caremark contract with entities that sponsor prescription drug benefit programs such as employers, labor unions, health insurance plans, and health maintenance organizations (collectively "Plan Sponsors") to act as a third-party administrator for the Plan Sponsors' programs. (See ECF 260-2, Aug. 2005 FTC Study Pharmacy Benefit Managers:Ownership of Mail-Order Pharmacies, at 1-3 ("2005 FTC Study").) To fulfil their contracts with Plan Sponsors, PBMs contract with pharmacies in order to build networks of retail pharmacies that can provide the Plan Sponsors' enrollees with convenient access to prescriptions. (See id. at 1.)

Plaintiffs allege two distinct antitrust conspiracies under Section 1 of the Sherman Act wherein Caremark conspired to reimburse IPs at a lower rate than what it paid to Chain Pharmacies. First, Plaintiffs allege that Defendants are agents for their clients, the health plans, in fixing prices to IPs (the "Plan Sponsor Conspiracy"). (See SAC ¶¶ 66, 71; ECF 248 at 1 ("First, Plaintiffs allege that Caremark and other PBMs reached an unlawful agreement with their client payors.").) Plaintiffs allege that various health plans acted through Defendants in a horizontal conspiracy to lower the prices that they paid to IPs for prescription dispensing services.⁶ (See SAC ¶ 71.) Second, Plaintiffs allege that PBMs conspired with one another in a"horizontal price fixing scheme[]" to "set[] reimbursement rates for Plaintiffs at unconscionable and punitively low levels which are far below the level that would exist in a true competitive market and, further, below any measure of Plaintiffs' costs including their variable, marginal, and/or actual costs," and by engaging in certain other conduct (the "PBM Conspiracy"). (Id. at ¶¶ 75-76; ECF 248 at 1 ("Second, Plaintiffs allege that Caremark conspired with other PBMs including Express Scripts, Advance PCS and Medco in violation of Section 1.").)

Plaintiffs allege that Caremark violated the antitrust laws through the following practices:

- Fixing and artificially depressing the prices to be paid to independent pharmacies for prescription drugs;

- Accepting "kickbacks" such as rebates, discounts, and other undisclosed incentives from drug manufacturers in return for placing themanufacturer's drugs on Caremark's formulary and "pushing" these drugs on physicians and pharmacists regardless of whether the drug is the least expensive and most therapeutically effective drug available and using these undisclosed kickbacks to set anticompetitive prices for drugs filled through their in-house mail order pharmacies;

- Conspiring and using their combined monopolistic market power to force unconscionable reimbursement rates on "member pharmacies" with the specific intent to manipulate prices. These reimbursement rates are far below the rates that would apply in a true competitive market. Additionally, Caremark and other PBMs unilaterally change the reimbursement rates without negotiating with the member pharmacies and force this new rate upon them;

- Acting as a conduit for the Client Payors to engage in horizontal restraint of trade by removing the need and existence for any market whereby they must compete in order to secure the services of pharmacists to service their insured. The removal of this market and conferring of the aggregate power to negotiate these services upon Caremark and other PBMs amounts to horizontal price fixing as it allows for the stabilization and repression of the fees pharmacists would be able to charge in a free and open market;

- Diverting health plan members to its mail order business and to its parent company, CVS, by prohibiting retail pharmacies from providing more than a 30-day supply of drugs, while allowing its own mail order pharmacies to provide 90-day supplies, through direct prohibitions on certain network pharmacies preventing them from dispensing refill and follow-up prescriptions, and by undercutting the copay the network pharmacy is required to charge for each 30-day refill;

- Removing the physician and pharmacist from their vital role in the health care equation. Caremark "pushes" its formulary drugs on health plan members, by-passing the physician and the pharmacist, regardless of whether the formulary drug is the cheapest or most therapeutic drug in that class;

- Requiring pharmacists to contact the prescribing physician and patient if a non-formulary drug was prescribed, and encourage a change to a formulary drug and to provide the prescribing physician with a list of alternative formulary drugs;

- Requiring member pharmacies to use and pay for common software systems to process claims that are designed to maintain the detrimental pricing schemes; and

- Imposing unreasonable and unnecessary additional costs on member pharmacies, including charging them a fee for each claim processed and a fee when the pharmacy seeks information from Caremark.

(ECF 181 at 4-5; SAC ¶ 5.)

The Federal Trade Commission in the 2005 FTC Study explained the mechanics of how PBM reimbursement to retail pharmacies operates. (2005 FTC Study at 1-5.) PBMs contractwith entities that provide prescription drug benefits to their enrollees, such as employers, labor union plans, and other entities, to manage those entities' prescription drug coverage benefits. (Id. at 2.) PBMs then establish networks of retail pharmacies to fill prescriptions for the Plan Sponsors' members. (Id. at 3.) Retail pharmacies receive revenue from the consumer in the form of co-payments collected at the point of sale and from the PBM in the form of reimbursements of the dispensed drug's ingredient cost plus any dispensing fee associated with filling the...