Stop & Shop v. Blue Cross & Blue Shield

• Decision Date: 10 January 2003
• Docket Number: No. 99-282-T.,99-282-T.
• Citation: 239 F.Supp.2d 180
• Parties: STOP & SHOP SUPERMARKET COMPANY, and Walgreen Eastern Co., Inc., Plaintiffs, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Coordinated Health Partners, Inc. d/b/a Bluechip, CVS Corporation, Thomas E. Morrison, Maxi Drug, Inc. d/b/a Brooks Pharmacy, C. Daniel Haron, Pharmacare Management Services, Inc., Greg S. Weishar, Provider Health Services, Inc., Ronald Bochner, and United Healthcare of New England, Inc., Defendants.
• Court: U.S. District Court — District of Rhode Island

239 F.Supp.2d 180

STOP & SHOP SUPERMARKET COMPANY, and Walgreen Eastern Co., Inc., Plaintiffs, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Coordinated Health Partners, Inc. d/b/a Bluechip, CVS Corporation, Thomas E. Morrison, Maxi Drug, Inc. d/b/a Brooks Pharmacy, C. Daniel Haron, Pharmacare Management Services, Inc., Greg S. Weishar, Provider Health Services, Inc., Ronald Bochner, and United Healthcare of New England, Inc., Defendants.

C.A. No. 99-282-T.

United States District Court, D. Rhode Island.

January 10, 2003.

COPYRIGHT MATERIAL OMITTED

William M. Dolan, III, Brown, Rudnick, Berlack, Israels, LLP, Providence, RI, J. Mark Gidley, Robert D. Paul, Gregg A. Hand, Peter J. Carney, White & Case LLP, Washington, DC, for Plaintiff.

Steven E. Snow, Partridge, Snow & Hahn LLP, James Ruggieri, John T. Walsh, Jr., Higgins, Cavanagh & Cooney, Robert C. Corrente, Christopher R. Bush, Hinckley, Allen & Snyder, R. Kelly Sheridan, Jr., Roberts, Carroll, Feldstein & Peirce, Inc., Providence, RI, Bruce D. Sokler, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C, David T. Shapiro, Thomas G. Krattenmaker, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C, Barbara H. Ryland, Arthur N. Lerner, Crowell & Moring, LLP, Washington, DC, for Defendant.

MEMORANDUM AND ORDER

TORRES, Chief Judge.

Stop and Shop Supermarket Company ("Stop & Shop") and Walgreen Eastern Co., Inc. ("Walgreens") brought this action pursuant to Section 1 of the Sherman Act, 15 U.S.C. § 1; Section 3 of the Clayton Act, 15 U.S.C. § 14; and sections 4 and 6 of the Rhode Island Antitrust Act, R.I. Gen. Laws §§ 6-36-4, -6. The plaintiffs claim that the defendants have rest trade and limited competition in the Rhode Island market for the sale of prescription pharmaceuticals covered by health insurance plans and that they have tortiously interfered with the plaintiffs' business relationships by creating a "closed network" of pharmacies at which plan subscribers are required to fill their prescriptions in order to obtain maximum reimbursement.

The claims against United Healthcare of New England, Inc. ("UHC"), Provider Health Services, Inc. ("PHS"), Maxi-Drug, Inc., d/b/a Brooks Pharmacy ("Brooks"), C. Daniel Haron and Ronald Bochner have been dismissed pursuant to the terms of a settlement agreement allowing the plaintiffs' pharmacies to join the network that serves UHC and is managed by PHS. The remaining defendants have filed two summary judgment motions, one by Blue Cross and Blue Shield of Rhode Island and Coordinated Health Partners, Inc., d/b/a Blue Chip (collectively referred to as "Blue Cross") and one by CVS Corporation ("CVS"), PharmaCare Management Services, Inc. ("PharmaCare"), Thomas E. Morrison and Greg Weishar.

Because this Court finds that the exclusive dealing arrangement at issue is not a per se violation of the antitrust laws and does not tortiously interfere with the plaintiffs' business relationships; and, because this Court further finds that there are disputed factual issues that must be resolved in order to determine whether the arrangement unreasonably restrains trade, the motions for summary judgment are granted in part and denied in part.

Facts

The record reveals the undisputed facts to be as follows. Blue Cross and UHC offer a variety of health insurance and HMO plans that pay the major portion of the cost of prescription pharmaceuticals obtained by their subscribers. Approximately 60% of Rhode Islanders covered by such plans are Blue Cross customers. An additional 25% are UHC customers.

Until 1997, Blue Cross had a mostly "open" pharmacy system in which subscribers could purchase prescription drugs at any pharmacy. Blue Cross also self managed the pharmacy benefits programs under its plans. Thus, Blue Cross, itself, determined what pharmaceuticals were covered; negotiated with individual pharmacies to establish the prices for pharmaceuticals purchased pursuant to the plans; and processed claims by subscribers.

In the fall of 1997, Blue Cross decided to hire a pharmacy benefits manager ("PBM") to administer the pharmacy benefits programs under its plans. Typically, a PBM establishes a "closed network" of participating pharmacies that agree to discount the prices that they charge for prescription pharmaceuticals purchased pursuant to a particular insurer's health insurance plans. The network pharmacies further agree not to join any other PBM network that competes with the PBM for that insurer's business. Pharmacies are induced to join such a network by the expectation that they will receive a greater volume of business because the insurer whose plans are administered by the PBM provides plan subscribers with an incentive to patronize network pharmacies by offering more generous reimbursement for pharmaceuticals purchased at those pharmacies than for pharmaceuticals purchased at non-network pharmacies and because the PBM agrees to limit the number of pharmacies in its network.

In September 1997, Blue Cross sent out a request for proposals and received competing bids from three PBM's: PharmaCare, PCS and WellPoint. PCS's bid was rejected because PCS was unwilling to share in the risk that the program would lose money.

PharmaCare, a subsidiary of CVS, proposed a closed network consisting of all of the CVS pharmacies and most of the independent pharmacies in Rhode Island. CVS's fifty-two pharmacies in Rhode Island account for roughly forty-one percent of the third-party reimbursed purchases of prescription drugs in the state.

WellPoint proposed a closed network consisting of pharmacies operated by plaintiffs Stop & Shop and Walgreens. Stop & Shop operates eighteen pharmacies and Walgreens operates fifteen pharmacies in Rhode Island.

WellPoint's bid was lower than PharmaCare's but Blue Cross expressed some dissatisfaction with both bids and gave the two PBMs an opportunity to submit modified bids. In December 1997, after receiving the modified bids, Blue Cross decided to select PharmaCare as its PBM but no agreement was signed at that time. The plaintiffs allege that WellPoint's bid was superior to PharmaCare's and that PharmaCare was selected for unspecified ulterior motives.

At the time that Blue Cross selected PharmaCare, UHC already had a "closed" network consisting primarily of Brooks pharmacies and managed by PHS (the "UHC/PHS network"). Brooks is the second largest retail pharmacy chain in Rhode Island with forty-two retail outlets and approximately nineteen percent of Rhode Island's third-party reimbursed pharmaceutical sales.

Blue Cross's selection of PharmaCare came on the heels of discussions among representatives of UHC, PHS and CVS about expanding the UHC/PHS network and including CVS in it. During those discussions, UHC officials told PHS officials that UHC wanted to include more pharmacies in the UHC/PHS network. Stop & Shop, Walgreens, and CVS all expressed an interest in joining the network, but Ronald Bochner, PHS's president, rejected the overtures by Stop & Shop and Walgreens.

In January 1998, Thomas Morrison, CVS's vice president of pharmacy services, contacted Bochner, and the two men discussed CVS's interest in joining the UHC/PHS network. Around that same time, Greg Weishar, the president of PharmaCare, wrote to Bochner offering to admit the PHS pharmacies into the Blue Cross/PharmaCare network if CVS was admitted into the UHC/PHS network. Weishar, also, rebuffed requests by Stop & Shop and Walgreens to join the Blue Cross/PharmaCare network.

On February 19, 1998, PHS agreed to allow CVS to join the UHC/PHS network. However, negotiations between PharmaCare, PHS and Brooks continued and it was not until May 18, 1998, that contracts were executed between PharmaCare and PHS and between PharmaCare and Brooks allowing Brooks and the other PHS pharmacies to join the Blue Cross/PharmaCare network. Those contracts prohibited Brooks and PHS's other member pharmacies from participating in other networks competing for Blue Cross's business and they prohibited PharmaCare from admitting into the Blue Cross/PharmaCare network pharmacies other than the existing members of that network and the members of the PHS network. Blue Cross ultimately approved admission of the PHS pharmacies into the Blue Cross/PharmaCare network pursuant to a provision in the agreement between Blue Cross and PharmaCare requiring that such approval be obtained.

On November 19, 1998, Blue Cross and PharmaCare executed the agreement making PharmaCare Blue Cross's PBM for a period of three years beginning on January 1,1999.

Blue Cross plans create a financial incentive for subscribers to patronize network pharmacies by providing subscribers with a higher level of reimbursement for prescription pharmaceuticals purchased at network pharmacies than for those purchased at non-network pharmacies. However, from the facts presented thus far, it is impossible to determine the precise nature or extent of that incentive. Blue Cross offers an array of plans in which the methods of reimbursement for the purchase of prescription pharmaceutical products vary greatly and the parties have failed to explain the relevant provisions of those plans or the differences, if any, in the amounts that subscribers are required to pay for prescription pharmaceuticals at network pharmacies as opposed to non-network pharmacies.

The plaintiffs have presented evidence that, since the establishment of Blue Cross's closed network, their sales of prescription pharmaceuticals to Blue Cross subscribers have declined; they have been forced to curtail plans to expand; the retail price of prescription pharmaceuticals at network pharmacies has increased and the level of services provided to consumers has been reduced.

The Plaintiffs' Claims

Count I of the amended complaint alleges that the defendants conspired to unreasonably restrain trade in violation of § 1 of the Sherman Act by excluding the plaintiffs from competing in the Rhode Island market for the retail sale of...