Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Lakeview Pharmacy of Racine, Inc. v. Catamaran Corp.

United States District Court, M.D. Pennsylvania

March 31, 2017

LAKEVIEW PHARMACY OF RACINE, INC., Plaintiff
v.
CATAMARAN CORPORATION Defendant.

          MEMORANDUM

          MALACHY E. MANNION United States District Judge

         Pending 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 DENIED.

         I. FACTUAL BACKGROUND

         The 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. (Id. ¶8).

         PBMs 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).

         The 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 Provider Agreement).

         The 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.[1] It is also not clear how many “versions” of a provider manual exist. (See id.).

         Generally, 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).

         In 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).

         The defendant does not disclose the formula or methodology it uses to calculate and adjust its MAC prices. (Id. ¶48).

         The 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 acquisition costs.

         The 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).

         The 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. (Id. ¶105).

         The 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).

         II. PROCEDURAL BACKGROUND

         On 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.).

         On 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.).

         In 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.).

         On 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.

         On June 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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.