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HHCS Pharmacy, Inc. v. Express Scripts, Inc.

United States District Court, E.D. Missouri, Eastern Division

December 15, 2017

HHCS PHARMACY, INC., d/b/a Freedom Pharmacy, Plaintiff,
v.
EXPRESS SCRIPTS, INC., Defendant.

          MEMORANDUM AND ORDER

          RONNIE L. WHITE, UNITED STATES DISTRICT JUDGE.

         This diversity case is before the Court on the motions of Express Scripts, Inc. (Defendant) (1) for summary judgment on Counts I and II of the First Amended Complaint (FAC) of HHCS Pharmacy, Inc., doing business as Freedom Pharmacy (Plaintiff); (2) to exclude the expert testimony of Jed Grennan on the question of Plaintiff s damages; and (3) for summary judgment on Counts III, V, and VII of the FAC. [ECF Nos. 78, 95, 97] Plaintiff opposes each motion.[1]

         Background

         Defendant is a pharmacy benefits manager. (FAC ¶8, ECF No. 47.) In this role, Defendant contracts with insurance carriers, health plan administrators, and other third-party payors "to facilitate delivery of prescription drugs to health plan members or other beneficiaries." (Blaies Decl. ¶6, ECF No. 25.) This facilitation is effectuated, in part, by the creation of networks established with various pharmacies that agree to fill prescriptions for the members. (Id. ¶7.) Plaintiff was one such pharmacy. (FAC Ex. 1, ECF No. 47 Ex. 1.)

         In May 2014, Defendant entered into a Pharmacy Provider Agreement (the "Agreement") with Plaintiff. (Id.) This Agreement defined "Pharmacy" as one which met its definition of "Retail Provider": "[A] pharmacy that primarily fills and sells prescriptions via a retail, storefront location ..." (Id. at 1, 2.) A '"Retail Provider' [did] not include mail order ..." (Id. at 2.) Also,

Provider shall, and shall cause its personnel to, be bound by and comply with the provisions of this Agreement and all applicable laws, rules and regulations, including ...applicable state boards of pharmacy's, other applicable governmental bodies' laws, rules and regulations, and all required federal, state and local licenses, certificates and permits that are necessary to allow the Provider, the Pharmacy, and pharmacist (as applicable) to dispense Covered Medications to Members ...

(Id. at 4.) If the Provider "cease[d] to be licensed by the appropriate licensing authority" or if Defendant "determine[d] that the Provider was dispensing Covered Medications in violation of any applicable law, rule and/or regulation, " the Agreement could be immediately terminated by Defendant. (Id. at 6.) Defendant's Provider Manual (the "Manual") is incorporated into the Agreement and also requires the Provider to "maintain valid non-resident licenses in all states to which it mails/ships/delivers Covered Medications." (Def.'s Stat. of Unconverted Material Facts ("SUMF") ¶¶ 4, 7; ECF No. 101.) If a Provider violates any terms of the Agreement, including the Manual, the Provider is deemed noncompliant and is subject to further action, including termination, at Defendant's sole discretion. (Manual at 34; ECF No. 25, Ex. 3.)

         The Agreement authorized Defendant to audit a Provider and allowed for the Provider to appeal any results. (FAC Ex. 1 at 4-15.) This audit could include reviewing documentation verifying that the Provider has pharmacy and pharmacist licenses, "including licenses/permits/registrations required by states in which legend prescriptions are shipped/mailed." (Manual at 34.) The initial audit report and a deadline for appeal of such are given the Provider. (Lown Dep. at 11, ECF No. 100-9 at 4.) After review by the post-audit team, a final report and deadline for grieving the report is given the Provider. (Id. at 11-12.) Any discrepancies identified are reviewed and any appropriate adjustments are then made. (Id. at 12.)

         In November 2015, Jorge Miranda, an auditor for Defendant, conducted an audit of Plaintiff. (Miranda Dep. at 28, 36, ECF No. 110-2.) "During an audit, [Defendant] typically reviews a subset of prescription claims that the pharmacy submitted to [Defendant]." (Blaies Decl. ¶ 19, ECF No. 25.) Of the claims selected for the audit of Plaintiff, Miranda checked beforehand to determine whether Plaintiff had the appropriate active non-resident state licenses. (Miranda Dep. at 48.) It did not. (Id.) Specifically, Plaintiff did not have non-resident licenses for Minnesota, North Carolina, New Jersey, Ohio, South Dakota, and Texas, but "mailed, shipped, and/or delivered one or more prescriptions" to these six states. (SUMF ¶¶ 10-21.) Each of these states require by regulation or statute that pharmacies shipping or mailing prescriptions into that state have a permit or license to do so. (See Def.'s Mem. at 7, n.5; ECF No. 79 (listing relevant provision for the six states)).

         By letter dated December 3, 2015, Defendant forwarded to Plaintiff the results of the audit. (Blaies Decl. Ex. 4; ECF No. 27-5.) The dates of the eighty-one prescriptions cited in the Discrepancy Evaluation Report ranged from October 27, 2014 to October 9, 2015. (Id. at 4-13.) The discrepancy at issue for seventy-seven was "Unauthorized Mail [UM]"; for three was "Overbilled Quantity] [OB]"; and for one was both UM and OB. (Id.) Plaintiff appealed these findings. (Blaies Decl. ¶ 24.) One finding relating to an OB discrepancy reduced the amount at issue from $68.86 to $54.14, but the findings were unchanged that Plaintiff had mailed seventy-eight prescriptions to states for which it did not have a non-resident license. (Blaies Decl. Exs. 27-5 at 4-13, 27-6 at 4-13.) Subsequently, Plaintiff was notified that the chargeback amount was reduced to $126, 441.04. (Blaise Decl. Ex. 27-6 at 2.) Plaintiff was also notified that the "[f]inalization of th[e] audit [did] not preclude further action on behalf of [Defendant's] clients." (Id.)

         Defendant took further action, informing Plaintiff by letter of June 13, 2016 that Defendant was terminating its Agreement with Plaintiff and, effective July 18, 2016, would no longer consider Plaintiff to be a member of Defendant's provider network. (Blaise Decl. Ex. 10 at 3.) This letter cited two reasons for the termination. (Id.) First, Plaintiff had failed to maintain its required status as a "Retail Provider" and was instead primarily conducting a mailorder business. (Id.) Second, Plaintiff was "regularly mailing drugs to members in states without the appropriate licensure." (Id.)

         Plaintiff does not dispute that it was mailing drugs to states for which it had no active non-resident license or that those states require such. Rather, Plaintiff argues it was in the process of applying for the needed licenses and it should have been, but was not, given an opportunity to correct the lack of licenses. Plaintiff further argues that the real reason for its termination from the network was Defendant's desire to gain market share by diverting high-price pharmaceuticals to a mail-order enterprise, Accredo Health Group, Inc. ("Accredo"), [2] that is a wholly-owned subsidiary of Defendant. (See Blaise Dep. at 10, ECF No. 100-4.)

         Plaintiff seeks redress for Defendant's alleged (1) breach of the Agreement by terminating Plaintiff from the network of participating pharmacies (Count I); (2) breach of the implied duty of good faith and fair dealing (Count II); (3) unjust enrichment (Count III); and (4) breach of contract by failing to pay Plaintiff monies owed (Count VII). Plaintiff also seeks ...


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