S-P Drug Co., Inc. v. Smith, S-P
| Decision Date | 20 April 1978 |
| Docket Number | S-P |
| Citation | 96 Misc.2d 305,409 N.Y.S.2d 161 |
| Parties | , 1978-1 Trade Cases P 62,006 DRUG CO., INC., Rogers Wholesalers, Inc., Ketchum & Co., Inc. and Empire City Pharmaceutical Society, Inc., Plaintiffs, v. J. Henry SMITH, Human Resources Administrator of the City of New York, Forrest Williams, Director of Medicaid of the City of New York, RX Data Corp. and Barbara B. Blum, Commissioner, New York State Department of Social Services, Defendants. |
| Court | New York Supreme Court |
Irving Gartenberg, New York City, for plaintiff Rogers wholesalers.
Jerome Sager, New York City, for plaintiff Empire City Pharmaceutical Soc., Inc.
Pomeranz & Pomeranz, New York City, for plaintiff S-P Drug Co., Inc.
Louis J. Lefkowitz, Atty. Gen., for New York State Dept. of Social Services.
Allen G. Schwartz, New York City, for Forrest William, Director of Medicaid.
Cally & Cally, New York City, for defendant RX Data Corp. EDWARD J. GREENFIELD, Justice:
Plaintiffs, wholesale drug dealers and a professional pharmaceutical society, sue to enjoin the State Department of Social Services, the RX Data Corp. and municipal agencies of the City of New York from carrying out a certain contract executed April 4, 1977 between the Department of Social Services and the RX Data Corp. It is the contention of the plaintiffs that the agreement is patently illegal and that as a result thereof, it confers substantial financial benefits on a private business to their detriment and the detriment of the public at large.
What is involved in this case is the system employed by the State, and previously by the City, under which information is supplied which forms the basis for payments for Medicaid prescriptions which are filled by the retail pharmacies who are members of the plaintiff society.
The Medicaid payments to pharmacies are made pursuant to a formula set up by the United States Department of Health, Education and Welfare prior to August 19, 1976; the payment formula was based upon the average wholesale cost of the particular drug dispensed by the pharmacist. Thereafter, new regulations were promulgated providing for a system of reimbursement to the pharmacies based upon either the usual and customary price charged to the general public or the departmentally computed estimated acquisition costs (EAC) of such drugs. Section 365-a 2(f) of the Social Services Law was amended to direct compliance with the new federal regulations. The legislation was effective in all of New York State outside of New York City on July 1, 1977, and became effective in New York City on April 1, 1978.
Under the previous practice, plaintiff S-P Drug Co., Inc., Rogers Wholesalers, Inc. and Ketchum & Co., Inc., as wholesale drug distributors competing with one another attempted to provide the retail pharmacies with price information as to the average wholesale cost of drugs so that they could calculate what their likely Medicaid reimbursement would be. The list of drugs being long and bulky, they developed the practice of putting all the price data on microfilm or upon microfiche cards which can be used by utilizing an appropriate machine or reader. This information, as to the average wholesale drug costs, together with other helpful information as to the drugs, was provided to the retail pharmacies by the plaintiff drug distributors for a fee. Defendant RX Data Corp. is evidently also in the business of providing such service to pharmacists, and all the companies compete freely in servicing the drug stores and providing them with the requisite information.
The information as to the allowable reimbursement costs which the plaintiffs and others provide to the retail pharmacies was supplied on a current basis by the Human Resources Administration of the City of New York, which, prior to April 1, 1978 was responsible for the reimbursement of pharmacies in conjunction with the Department of Health, Education and Welfare. If any independent retail pharmacist elected not to subscribe to any of the available microfiche services, the price information was available free of charge from the Human Resources Administration.
When the law changed on April 12, 1977, Section 365-a 2(f) of the Social Services Law required the State Department of Social Services to establish its own maximum reimbursement amounts for the filling of Medicaid prescriptions in accordance with standards set by the Department of Health, Education and Welfare. This would have required the Department of Social Services to compute the reimbursement prices for Medicaid prescriptions on the basis of estimated acquisition costs. In order to carry out this program, the Department of Social Services entered into the contract with RX Data Corp. which is the subject of attack in this lawsuit. The contract was executed without any public announcement or bidding. Under that contract, the RX Data Corp. was to supply to the State the estimated acquisition cost prices and formulary. These were to be supplied on a monthly basis for at least 3,500 of the most frequently purchased drug products. The Department of Social Services agreed not to disclose the underlying documentation for the estimated acquisition costs of drug products. All reports furnished to the Department were to become its property, but the State granted to RX Data Corp. the right to obtain statutory copyright for the price lists. Copies were to be supplied at specified costs for Social Services districts in the State of New York and the price list (which ran in excess of 1,000 pages) would be available for purchase by any member of the public at the price of 25 cents per page. The State agreed to pay RX Data Corp. the sum of $975.00 for the information which was to be supplied.
Armed with this exclusive access to price lists and the sole right to distribution to the public with the right conferred upon RX Data to copyright the information so as to assure its exclusivity, RX Data Corp. proceeded to market the lists on microfiche to retail pharmacies, including former customers of the plaintiff drug distributors at a price of $20.00 per month. These lists are marketed to the druggists as the sole official New York State figures. Plaintiffs estimate that this granting of the exclusive right to RX Data Corp. will produce in excess of One Million Dollars ($1,000,000) in sales to the RX Data Corp., almost all of which would be profit.
It is the contention of the plaintiffs that the contract grants to a private business a virtual monopoly on information essential to the operation of retail pharmacists; that it is in derogation of the Freedom of Information Law ( §§ 85-90 of the Public Officers Law); that it illegally grants copyright privileges to the contractor on information which should be in the public domain; and that the agreement to reimburse the RX Data Corp. the sum of $975.00 is a patent attempt to avoid the requirements of public bidding, generating a windfall to that company, thus constituting an illegal giveaway of public property.
While the amendment of Section 365-a 2(f) of the Social Services Law provides that nothing contained therein should be construed to alter, change, affect, impair or defeat rights acquired prior to enactment (Ch. 77 § 29 L.1977), plaintiffs contend that they have now been denied their former right to free information and their right to compete on an equal footing with others similarly situated. RX Data Corp., in its promotion announcements to pharmacists, notified the trade that the maximum allowable New York State reimbursement lists were its exclusive property and could be distributed and purchased only from RX Data Corp. at a price of $240.00 per year. RX Data Corp. has also offered to make its lists available to the drug wholesalers, who are plaintiffs in this case, at a cost of $10.00 per month per customer in effect licensing them at a price to distribute information that was previously free.
The very recital of the facts pertaining to this contract...
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