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BELLEVUE DRUG CO. v. ADVANCE PCS

March 2, 2004.

BELLEVUE DRUG CO., ROBERT SCHREIBER, INC., d/b/a BURNS PHARMACY, and REHN-HUERBINGER DRUG CO., d/b/a PARKWAY DRUGS #4, on behalf of themselves and all others similarly situated, and the PHARMACY FREEDOM FUND and the NAT'L COMMUNITY PHARMACISTS ASS'N, Plaintiffs,
v.
ADVANCE PCS, Defendant.



The opinion of the court was delivered by: EDUARDO ROBRENO, District Judge

MEMORANDUM

Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns Pharmacy, and Rehn-Huerbinger Drug Co., d/b/a Parkway Drugs #4, on behalf of themselves and others similarly situated (collectively "plaintiffs"),*fn1 along with the Pharmacy Freedom Fund and the National Pharmacists Associations bring this action against Advance PCS under section 1 of the Sherman Act, 15 U.S.C. § 1, based on allegations of a horizontal agreement among competitors having the effect of restraining trade in the drug dispensing industry. Based on the defendant's allegedly illegal activities, plaintiffs seek treble damages and injunctive relief under sections 4 and 16 of the Clayton Act, 15 U.S.C. § 15 and 26.

Presently before the Court is defendant's motion to dismiss the complaint for failure to state a claim upon which relief can be granted. For the reasons that follow, the motion shall be denied.

  I. BACKGROUND*fn2

  As a prescription benefit manager ("PBM"), Advance PCS contracts individually with various plan sponsors to provide a variety of services related to the prescription drug industry, including purchasing brand name and generic prescription drugs and dispensing services from retail pharmacies; managing networks of retail pharmacies; and processing and adjudicating claims made by retail pharmacies for prescriptions they fill for members of prescription plans ("plan members") that Advance PCS administers.*fn3

  In its role as a plan administrator, Advance PCS is not itself the real purchaser of dispensing services or prescription drugs from network retail pharmacies. Instead, it acts as a purchasing agent on behalf of the plan sponsors that individually contract with Advance PCS. Specifically, the complaint alleges that "by jointly conferring their pharmacy purchase decisions upon Advance PCS" the plan sponsors accomplish a horizontal agreement. Further, the complaint alleges that the arrangement that the individual plan sponsors have with Advance PCS eliminates competition because they no longer actively compete with one another for the dispensing services and prescription drugs sold by the retail pharmacies. The arrangement — alleged by plaintiffs to have the effect of a "horizontal price fixing" agreement — enables the participants to agree not to bid up the price or bid against each other, thereby reducing the apparent demand for filling prescriptions, and concomitantly reducing the market price for prescription drugs and dispensing services provided by retail pharmacies.*fn4

  As alleged by plaintiffs, the "aggregated economic power" that Advance PCS yields enables it to set reimbursement rates for retail pharmacies' brand name and prescription drugs and dispensing services below that which would prevail in a competitive marketplace.*fn5 Although plaintiffs do not allege that the plan sponsors conspire with each other directly to effect this arrangement, the complaint does allege that each plan sponsor is aware of and understands the involvement of other plan sponsors and the role of Advance PCS as a common agent for these plan sponsors.

  Advance PCS, in addition to administering prescription drug benefit plans, operates its own mail-order pharmacy business. On top of the horizontal price-fixing agreement discussed above, plaintiffs allege that Advance PCS engages in anti-competitive conduct by using its aggregated market power derived from the combination of plan sponsors to create artificial vertical advantages for its own dispensing activities. More specifically, plaintiffs allege that Advance PCS contractually prohibits retail pharmacies from dispensing more than a 30-day supply of drugs. Meanwhile, mail-order pharmacies operated by Advance PCS are permitted to dispense a 90-day supply. Using information provided by the retail pharmacies it deals with, Advance PCS contacts plan members and advertises that the plan member can purchase a 90-day supply of a drug from Advance PCS's mail-order operation for one co-payment. This co-payment is advertised to be less than the total of three co-payments which would be paid for three, 30-day supplies of the same drug from a competing retail pharmacy subject to Advance PCS's co-payment and drug distribution restrictions. This activity diverts the refill and follow-on prescription business, alleged to be the most profitable part of the prescription drug dispensing business, from the retail pharmacies to Advance PCS's mail-order operation.

  Finally, plaintiffs allege that Advance PCS uses its aggregated power to unilaterally impose "onerous" contract terms on retail pharmacies that choose to participate in the Advance PCS network. These terms include co-payment restrictions and limitations on the fees plaintiffs are permitted to charge for the submission of claims, checks on patient eligibility, drug checks, and plan-member use of a particular pharmacy.

  II. DISCUSSION

  A. Standard for Motion to Dismiss.

  A motion to dismiss for failure to state a claim serves to test the sufficiency of a complaint. See Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). A plaintiff's allegations are considered true and are construed in the light most favorable to him, see Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989), and his complaint should not be dismissed "unless it appears beyond doubt that [he] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  Under Fed.R.Civ.P. 8(a)(2), the complaint "shall contain a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The main purpose behind Rule 8(a)(2) is to give the defendant adequate notice of the claim asserted against him in order for him to adequately respond. Loftus v. SEPTA, 843 F. Supp. 981, 986 (E.D. Pa. 1994) (citing Conley, 355 U.S. at 47)). A plaintiff need not anticipate probable defenses and respond to them in his complaint. Campbell v. D'Agostino, No. 03-5328, U.S. Dist. LEXIS 24520, at *9 (E.D. Pa. Dec. 11, 2003). There is no heightened pleading standard in antitrust cases, and the general principles governing Rule 12(b)(6) motions apply. See In re Mercedes-Benz Antitrust Litig., 157 F. Supp.2d 355, 359 (D.N.J. 2001) (citing MCM Partners, Inc. v. Andrews-Bartlett & Assocs., Inc., 62 F.3d 967, 976 (7th Cir. 1995)).

  It has long been the rule in this Circuit that a complaint alleging a conspiracy "must contain sufficient information for the Court to determine whether or not a valid claim for relief has been stated and to enable the opposing side to prepare an adequate pleading." Rose v. Bartle, 871 F.2d 331, 366 n. 60 (3d Cir. 1989). What this means is that
the plaintiffs must plead with particularity the "circumstances" of the alleged wrongdoing in order to place the defendants on notice of the precise misconduct with which they are charged. Only allegations of conspiracy which are particularized, such as those addressing the period of the conspiracy, the object of the conspiracy, and certain actions of the alleged conspirators taken to achieve that purpose, will be deemed sufficient. . . . An inference [of conspiracy] . . . from the Complaint . . . ...

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