United States District Court, M.D. Pennsylvania
MALACHY E. MANNION United States District Judge
before the court is a motion to strike filed by plaintiff
Lakeview Pharmacy of Racine, Inc. (“Lakeview”).
(Doc. 58). The plaintiff requests that this court
strike the third affirmative defense listed in defendant
Catamaran Corporation's (“Catamaran's”)
answer, (Doc. 57), filed in response to the
plaintiff's second amended complaint, (Doc. 53).
For the foregoing reasons, the plaintiff's motion is
plaintiff is an independently owned community pharmacy. (Doc.
53 ¶1). The plaintiff has one retail and one
long-term care pharmacy. (Id. ¶27). The
defendant is a pharmaceutical benefit manager
(“PBM”) providing prescription drug benefit
services. (Id. ¶¶1, 8). The defendant was
formerly known as SXC Health Solutions, Inc.
(“SXC”). (Id. ¶6). In 2012, SXC
acquired Catalyst Health Solutions, Inc.
(“Catalyst”), a large PBM, through a corporate
merger. (Id. ¶7). SXC then rebranded itself as
the current defendant, Catamaran. (Id.). The
defendant has acquired other PBMs since the SXC-Catalyst
merger, including Restat LLC and Walgreens Health Initiative.
contract with insurance companies, self-insured employers,
and government entities (“plan sponsors”) to
administer prescription drug benefit programs. (Id.
¶16). A PBM will, typically, develop a list of drugs
covered by a particular plan sponsor; this list is often
called a “formulary.” (Id. ¶19).
Retail pharmacies access the PBM network by contracting with
the specific PBM acting as the middleman between the plan
sponsors and the members of that plan (“plan
members”). (Id. ¶20). The plan members
are the pharmacies' customers. (Id.). Retail
pharmacies interact with a variety of PBMs, which is wholly
dependant on the particular plan member or customer; the
customer's insurance card will identify the particular
PBM using a six-digit Rx Bin number. (Id. ¶23).
relationship between the defendant, a PBM, and independent
pharmacies is contractual in nature, but the defendant does
not directly negotiate with pharmacies. (Id.
¶25). The contract is negotiated through a pharmacy
services administration organization (“PSAO”)
serving as the pharmacy's agent. (Id.
¶¶26, 88). The plaintiff's relationship with
the defendant is based on contracts, also known as provider
agreements, that the defendant negotiated with a PSAO.
(Id. ¶27). The particular provider agreement at
issue in this case is an agreement negotiated between the
plaintiff's PSAO, an entity known as TriNet, and the
defendant before the defendant rebranded itself (the SXC
plaintiff alleges that the defendant uses confidentiality
agreements with PSAOs to keep critical aspects of provider
agreements hidden from independent pharmacies, including the
plaintiff. (Id. ¶28). The defendant has denied
this allegation. (Doc. 57 at 14). The plaintiff
alleges that the defendant has precluded the plaintiff and
other independent pharmacies from obtaining copies of
“fully executed contracts that govern all aspects of
their drug reimbursement” from the defendant. (Doc.
53 ¶29). The defendant has admitted that it
does not provide copies of provider agreements to non-parties
to those agreements. (Doc. 57 at 14). The pharmacies
do receive provider manuals and state-specific addendums.
(See Doc. 53 ¶¶36, 99). The
plaintiff relies on a 2013 Provider Manual it received.
(See id. ¶36). It is not clear if the
pharmacies receive anything else, though, based on the
plaintiff's allegations the pharmacies do not receive the
full contract. It is also not clear how many
“versions” of a provider manual exist. (See
a PBM will handle claim processing as the middle man between
plan members and plan sponsors. This process begins when a
customer/plan member presents his or her insurance and drug
prescription card to a pharmacist. (Id. ¶30).
The pharmacist will then submit a product selection code to
the PBM, fill the prescription, and charge the customer/plan
member the co-pay set by his or her plan sponsor.
(Id. ¶¶31-32). It is at this point of sale
that the pharmacist learns the amount of reimbursement for
the product from the PBM; this process is referred to as
claim adjudication. (Id. ¶¶32-33).
Although the pharmacist learns the reimbursement amount at
the point of sale, actual reimbursement to the pharmacy
occurs on a bi-monthly cycle. (Id. ¶34).
addition to processing reimbursements, in some cases the
defendant also sets the reimbursement rate for products and
services. (Id. ¶37). The plaintiff alleges that
for brand name drugs the defendant reimburses at a percentage
of the average wholesale price (“AWP”) of the
drug, plus a dispensing fee. (Id. ¶38). The AWP
is tied to pricing metrics published by third-party sources.
(Id.). In contrast, for multi-source generic drugs,
the defendant sets reimbursement based on a maximum allowable
cost (“MAC”), which is a discount from the AWP.
(Id. ¶42). The defendant's MAC price list
specifies the maximum per unit reimbursement to be paid to a
pharmacy for a generic drug, regardless of the manufacturer
of the drug, in an attempt to encourage pharmacies to seek
the lowest price from a wholesaler for that drug.
(Id. ¶45). The defendant's MAC lists form
part of its formulary. (Id. ¶47).
defendant does not disclose the formula or methodology it
uses to calculate and adjust its MAC prices. (Id.
plaintiff alleges that the defendant's MAC
prices/formulas are not tied to market conditions for the
particular, multi-source generic drug being priced.
(Id. ¶49). The plaintiff alleges that the
defendant penalizes independent pharmacies like the plaintiff
by using the lowest of multiple MAC prices for reimbursement.
(Id. ¶54). Most state Medicaid MAC lists are,
allegedly, directly linked to the pharmacy's acquisition
cost or indirectly linked to that cost using corollary cost
measures. (Id. ¶51). The plaintiff alleges that
the defendant's MAC methodology is not linked to
plaintiff also alleges that the defendant manipulates its MAC
prices based on market price adjustments to a drug by a
manufacturer. The plaintiff alleges that the defendant delays
increasing its MAC price reimbursement rate if there is an
increase by manufacturers of that drug, but that the
defendant immediately decreasing the reimbursement if there
is a decrease in the price of the drug. (See id.
¶¶63-69). The plaintiff alleges that the speed at
which the defendant updates its MAC lists is not commercially
reasonable. (Id. ¶69).
plaintiff's 2013 Provider Manual provides the pricing
mechanism to be used by the defendant, in addition to the
actual SXC Provider Agreement. (See id.
¶91).The 2013 Provider Manual does allow the defendant
to amend its MAC prices, but requires the defendant to
“utilize client or plan parameters, Medi-Span[, ] or
other national source[s], and internal processes as a
reference but not as the sole determinant of price.”
(See id. ¶101). It also states that the
pharmacy's “[r]eimbursement will be limited by the
pharmacies submitted ingredient cost plus dispensing
fee.” (Id.). The plaintiff also alleges that
the provider agreement between itself and the defendant
requires that there be a single MAC price for a particular
drug filled in particular quantity at a particular time.
plaintiff's 2013 Provider Manual also provides a
mechanism for the pharmacy to challenge a MAC priced
reimbursement. (Id. ¶94). The plaintiff's
MAC pricing appeals were submitted through its PSAO, TriNet,
and only the PSAO received the results of that appeal.
(Id. ¶96). The plaintiff alleges that the
defendant routinely rejects these appeals even if the MAC
price is below the pharmacy's acquisition cost.
(Id. ¶116). The plaintiff also alleges that the
defendant does not reimburse retroactively even if an appeal
is successful. (Id. ¶97). The defendant admits
that it has not reimbursed the plaintiff after a successful
MAC price appeal. (Doc. 57 at 45).
February 9, 2015, the plaintiff, along with twenty-eight
other independently owned community pharmacies, originally
filed this action against the defendant asserting several
breach of contract claims based on various provider
agreements with the defendant. (See Doc.
1). The original claims included the following: (1)
breach of contract under the Uniform Commercial Code (Count
I); (2) breach of the duty of good faith and fair dealing in
setting prices for prescription drugs (Count II); (3) breach
of the duty of good faith and fair dealing during the MAC
pricing appeals (Count III); and (4) breach of the duty of
good faith and fair dealing for failing to update MAC prices
(Count IV). (Id.).
April 20, 2015, the defendant filed a motion to compel
arbitration, coupled with a motion to dismiss any
non-arbitrable claims. (Doc. 11). The defendant
attached an affidavit and several exhibits to that motion
listing the various plaintiff pharmacies, their associated
PSAO, and copies of corresponding provider agreements. (Doc.
11-2). On April 30, 2015, the original plaintiffs
informed the court that they would not challenge the
defendant's arguments with respect to arbitration. (Doc.
12). The parties stipulated that any plaintiff
pharmacy with an arbitration clause in its corresponding
provider agreement would be given time to verify that
agreement with its agent and also agreed that all claims
relating to a contract with an arbitration clause would be
stayed pending arbitration. (Id.).
light of the exhibits attached to the motion and the
plaintiffs' failure to challenge the validity of the
arbitration clauses in the various provider agreements, on
July 16, 2015, the court partially resolved the
defendant's motion by granting the motion to compel
arbitration with respect to all parties except for the
current plaintiff, Lakeview. (Doc. 20).
Lakeview's PSAO was listed as TriNet and the agreement
between TriNet and the defendant did not contain an
arbitration clause. (Doc. 11-2 at 3, 111-127). Then,
on December 9, 2015, the court granted in part and denied in
part the defendant's motion to dismiss with respect to
Lakeview as the remaining plaintiff. (Doc. 29).
Specifically, the court granted the defendant's motion to
dismiss with respect to Counts I, II, and IV, but denied the
motion to dismiss with respect to Count III. (Id.).
December 23, 2015, the plaintiff filed its first motion for
leave to file an amended complaint. (Doc. 30). On
June 13, 2015, the court granted in part and denied in part
the plaintiff's request for leave. (Doc. 42).
The court allowed the plaintiff to remove factual allegations
relating to parties that were no longer part of the action
and allowed the plaintiff to plead an express breach of
contract claim using three different theories. The court
denied the plaintiff's attempt to replead the UCC claim
that was dismissed and would not allow the plaintiff to add a
claim based on the legal theory of quantum meruit. On June
16, 2016, the plaintiff filed an amended complaint which, in
accordance with the court's decision, contained two
counts, one for express breach of contract (Count I) and one
based on the implied duty of good faith and fair dealing
(Count II). (Doc. 47). Count I was premised on three
theories: (1) that the defendant's failure to use certain
independent sources in its MAC pricing methodology
constituted a breach of contract; (2) that the
defendant's decision to set reimbursement prices below
acquisition costs constituted a breach of contract; and (3)
and that the defendant's use of multiple MAC prices for
reimbursement constituted a breach of contract. Count II was
identical to the claim pled in Count III of the original
complaint, (Doc. 1), alleging that the defendant
breached the duty of good faith and fair dealing in its
handling of MAC pricing appeals.
23, 2016, the plaintiff filed a second motion to amend its
complaint. (Doc. 48). The plaintiff wished to
correct technical errors in the first amended complaint. The
motion was unopposed by the defendant. On June 27, 2016, the
court granted the plaintiff's request and allowed the
plaintiff to correct these errors. (Doc. 51). The
plaintiff's second amended complaint was filed on June
30, 2016. (See Doc. 53). On July 14, 2016,
the defendant filed an answer to the second amended
complaint, including responses to the plaintiff's
allegations in the second amended complaint and eight
affirmative defenses. (Doc. 57). Currently at issue
is the defendant's third affirmative defense which
states, “Any portion of Lakeview's claims that are
based on an alleged breach of the [a]greement that occurred