Sheet Metal Workers Local No. 20 Welfare & Benefit Fund v. CVS Pharmacy, Inc.

• Decision Date: 11 May 2021
• Docket Number: C.A. No. 16-046 WES, C.A. No. 16-447 WES
• Citation: 540 F.Supp.3d 182
• Parties: SHEET METAL WORKERS LOCAL NO. 20 WELFARE AND BENEFIT FUND, and Indiana Carpenters Welfare Fund, on behalf of themselves and all others similarly situated, Plaintiffs, v. CVS PHARMACY, INC., et al., Defendants. Plumbers Welfare Fund, Local 130, U.A., on behalf of itself and all others similarly situated, Plaintiffs, v. CVS Pharmacy, Inc., et al. Defendants.
• Court: U.S. District Court — District of Rhode Island

540 F.Supp.3d 182

SHEET METAL WORKERS LOCAL NO. 20 WELFARE AND BENEFIT FUND, and Indiana Carpenters Welfare Fund, on behalf of themselves and all others similarly situated, Plaintiffs,

v.CVS PHARMACY, INC., et al., Defendants.

Plumbers Welfare Fund, Local 130, U.A., on behalf of itself and all others similarly situated, Plaintiffs,

v.CVS Pharmacy, Inc., et al. Defendants.

C.A. No. 16-046 WES

C.A. No. 16-447 WES

United States District Court, D. Rhode Island.

Signed May 11, 2021

Filed May 18, 2021

Barbara Mahoney, Pro Hac Vice, Ivy Arai Tabbara, Pro Hac Vice, Jeniphr Breckenridge, Pro Hac Vice, Robert F. Lopez, Pro Hac Vice, Steve W. Berman, Pro Hac Vice, Steve Fimmel, Pro Hac Vice, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Ben M. Harrington, Pro Hac Vice, Benjamin Siegel, Pro Hac Vice, Hagens Berman Sobol Shapiro LLP, Berkeley, CA, Donald F. Harmon, Pro Hac Vice, Vincent D. Pinelli, Pro Hac Vice, Burke Burns & Pinelli, Ltd., Elizabeth A. Fegan, Pro Hac Vice, Fegan Scott LLC, Zoran Tasic, Pro Hac Vice, Daniel J. Kurowski, Pro Hac Vice, Hagens Berman Sobol Shaprio LLP, Chicago, IL, Lynn A. Ellenberger, Pro Hac Vice, Fegan Scott LLC, Pittsburgh, PA, Stephen M. Prignano, McIntyre Tate LLP, Providence, RI, for Plaintiffs Plumbers Welfare Fund, Local 130, U.A.

Robert Clark Corrente, Timothy K. Baldwin, Whelan Corrente & Flanders LLP, Providence, RI, Craig D. Singer, Pro Hac Vice, Enu A. Mainigi, Pro Hac Vice, Grant Andrew Geyerman, Pro Hac Vice, Kathryn E. Hoover, Pro Hac Vice, Robert Belden, Pro Hac Vice, William T. Burke, Pro Hac Vice, Williams & Connolly LLP, Washington, DC, for Defendant CVS Pharmacy, Inc.

Craig D. Singer, Pro Hac Vice, Grant Andrew Geyerman, Robert Belden, Pro Hac Vice, Williams & Connolly LLP, Washington, DC, Robert Clark Corrente, Timothy K. Baldwin, Whelan Corrente & Flanders LLP, Providence, RI, for Defendant Caremark L.L.C.

MEMORANDUM AND ORDER

WILLIAM E. SMITH, District Judge.

Plaintiffs Sheet Metal Workers Local No. 20 Welfare and Benefit Fund ("Sheet Metal Workers"), Indiana Carpenters Welfare Fund ("Indiana Carpenters"), and Plumbers Welfare Fund Local 130 ("Plumbers") (collectively, "Plaintiffs" or "named Plaintiffs") move to certify four classes of third-party payors ("TPPs") or health plans in two consolidated cases. Pls.’ Mem. in Supp. of Pls.’ Mot. for Class Certification ("Pls.’ Mot.") 1-3, ECF No. 123;¹ see also Reply in Supp. of Pls.’ Mot. for Class Certification ("Pls.’ Reply") 3-4, ECF No. 145-1 (amending the class definition for the "Omissions Consumer Protection Class").² They allege that Defendant CVS Pharmacy, Inc. ("CVS") and five pharmacy benefit managers ("PBMs") – Defendant Caremark, L.L.C. ("Caremark", together with CVS, "Defendants"), Express Scripts, Inc., OptumRx, Inc., Medco Health Solutions, Inc.,³ and MedImpact Healthcare Systems, Inc. – engaged in a nationwide scheme and conspiracy to overcharge TPPs, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and various state laws. First Am. Compl. ("FAC") 5-9, 52-84, ECF No. 171. Specifically, Plaintiffs allege that CVS defrauded and overcharged the health plans in failing to treat its Health Savings Pass ("HSP") membership prices as its "Usual and Customary" ("U&C") prices when reporting U&C prices to the PBMs. Moreover, Plaintiffs claim that CVS and the PBMs conspired to conceal from the TPPs that the HSP prices were not included in its U&C prices.

In addition, Caremark moves to dismiss Sheet Metal Workers’ claims against Caremark, on the basis that the parties have agreed to arbitrate any disputes between them. See generally Mem. in Supp. of Caremark LLC's Mot. under the FAA to Dismiss the Claims of Sheet Metal Workers ("Caremark Mot. to Dismiss") 1, ECF No. 163-1.

For the reasons that follow, Plaintiffs’ Motion for Class Certification, ECF No. 120, is GRANTED, and Caremark's Motion to Dismiss, ECF No. 163, is also GRANTED. The Court DENIES WITHOUT PREJUDICE Plaintiffs’ Motions to Exclude the Expert Testimony of Catherine Graeff, Michael P. Salve, Ph.D., and Brett E. Barlag, ECF Nos. 140-42.

I. Background⁴

Retail pharmacy chains generally sell their prescription drugs to two groups of consumers: those with prescription insurance, and those without insurance, also referred to as cash payors. FAC ¶ 29. Customers with insurance make up well over 90 percent of CVS's prescription drug business, and their prescription purchases are processed and paid for (in part or in full) by health plans, including health insurance companies, third-party administrators, health maintenance organizations, self-funding health and welfare benefit plans, health plans, and other health benefit providers (collectively referred to herein as "health plans" or "TPPs"). Id.

Pharmacies, including CVS, report the prices they charge cash customers, known as the "Usual and Customary" or "U&C" price, to PBMs and TPPs to comply with the National Council for Prescription Drug Program's ("NCPDP") requirements. Id. ¶¶ 1, 33-35. This arrangement (and the contracts between CVS and the PBMs), in part, guarantees that TPPs and insured consumers do not pay more for a prescription drug than an uninsured consumer would pay for the same drug. Id. ¶ 1.

Pharmacy benefit managers, or PBMs, facilitate transactions between TPPs and pharmacies. Id. ¶ 28. TPPs contract with PBMs to perform services "including the negotiation of drug prices with drug companies, creation of formularies, management of prescription billing, construction of retail pharmacy networks for insurers, and provision of mail-order services." Id. PBMs set up how pharmacy claims are adjudicated consistent with instructions from their TPP clients. Id. ¶ 36. Pursuant to PBM/TPP contracts, TPPs pay their PBMs for generic drugs purchased by their members based on the "lower of" three benchmark prices: average wholesale price ("AWP") less a defined percentage (i.e., AWP - %); U&C or Maximum Allowable Cost ("MAC"). Id. ¶¶ 39-41. A drug's AWP is set and published by third parties. Id. ¶ 40. PBMs set the MAC for each generic drug on their proprietary MAC lists. Id. ¶ 41. The U&C is set by the pharmacy and is typically the highest of the three prices. Id. ¶ 42.

PBMs also contract with pharmacies to dispense drugs to their TPP clients. Id. ¶ 43. In those contracts, PBMs also typically agree to pay pharmacies based on benchmark prices, such as AWP, U&C, and MAC. Id. As the middlemen, PBMs make their profit from charging their TPP clients more for drugs than they pay the pharmacy for the transactions. Id. Thus, PBMs do not disclose the prices they charge their TPP clients, nor what they pay pharmacies. Id.

It was against this backdrop that, in September 2006, "Walmart turned the world of generic prescription drugs upside-down" by announcing that it would charge $4 for a 30-day supply, and $10 for a 90-day supply, of hundreds of generic prescription drugs. Id. ¶¶ 2, 52. Target, Walgreens, Rite Aid, and other retailers with pharmacies followed suit. Id. ¶ 52. Walmart and Target (until CVS acquired Target pharmacies in 2015) reported $4 as their U&C prices. Id. Tweaking the model a bit, Walgreens and Rite Aid required customers to "join" their generic prescription drug programs to reap the benefits. Id. ¶ 57.

Plaintiffs allege that CVS joined with Caremark (and later ScriptSave), a fellow subsidiary of CVS Health Corporation, to sketch out a discount generic drug program that shielded CVS from reporting the discount price as its U&C to PBMs. Id. ¶¶ 56-57, 71-83. In March 2008, prior to launching the HSP program, CVS and Caremark analyzed how adopting a generic discount program would impact CVS's revenue from TPPs. Id. ¶ 59. An analyst at CVS determined that the impact to TPP revenue would be $866 million annually if CVS included all the drugs on the Walmart list, and, if CVS included all the drugs on the Walgreens list, the impact would be an additional $329 million. Id. As a result, CVS structured its HSP differently, citing concerns that "[m]aking the program ‘too attractive’ creates higher risk for our 3rd party plan pricing and profitability." Id. ¶ 61 (quoting CVSSM-0002427, at 2430 (May 8, 2008 presentation given to Larry Merlo, as edited by Bari A. Harlam at Caremark)). Unlike Walmart and Walgreens, CVS decided to charge consumers a $10 annual fee to join the program. Id. ¶ 65. Plaintiffs allege that, in addition to collaborating with Caremark, CVS also "enlisted the participation of" three of the largest PBMs in the country, Express Scripts, OptumRx, and MedImpact, to embark on a scheme to conceal from health plans its HSP drug prices when reporting U&C prices. Id. ¶ 3.

In November 2008, the HSP program went live. Id. ¶ 64. From November 9, 2008 through 2010, customers paid a $10 annual fee to join the program, which gave them access to a 90-day supply of 400 commonly prescribed generic drugs for $9.99. Id. ¶¶ 64-65. Starting in 2011, the annual fee went up to $15, and CVS raised the price for HSP-listed drugs to $11.99 for a 90-day supply and $3.99 for a 30-day supply. Id. ¶ 65. From November 2008 to February 2016, CVS did not report the HSP price as the U&C price for HSP-eligible drugs. Id. ¶ 66. Caremark administered the HSP program from its inception until July 2013, when ScriptSave took over its administration; the program was discontinued on January 31, 2016. Id. ¶¶ 23, 70, 83. Caremark played a dual rule in this saga: in addition to administering the HSP program, many TPPs used Caremark as a PBM. Id. ¶ 3.

Importantly, PBMs have incentive to encourage or conceal inflated U&C prices – PBMs make more money when U&C prices are higher. Id. ¶ 47. When a PBM pays a pharmacy the U&C price for a generic drug transaction, the TPP also pays the U&C price to the PBM. Under those circumstances, the PBM makes no profit or "spread" between what it pays the pharmacy and what the TPP pays the PBM. Id. ¶ 49. During the HSP program, CVS's HSP prices were often lower...