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Park Irmat Drug Corp. v. Express Scripts Holding Co.

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

February 21, 2018




         This case is before the Court on the motion of Express Scripts Holding Company and Express Scripts, Inc., to dismiss for failure to state a claim the eight-count complaint filed against them by Park Irmat Corp. For the reasons set forth below, the motion will be granted.


         Accepting as true the allegations in the complaint, see Tension Envelope Corp. v JBM Envelope Corp., 876 F.3d 1112, 1116 (8th Cir. 2017), the following gave rise to this action.

         Express Scripts Holding Company and Express Scripts, Inc. (collectively referred to in the complaint as "Express Scripts") administer pharmacy benefits for third parties and also own and operate a mail-order pharmacy. (Compl. ¶¶l, 18; ECF No. 1.) Express Scripts is the largest pharmacy benefits manager ("PBM") in the United States, with over 97 percent of all retail pharmacies participating in its network. (Id. ¶17.) A PBM "manage[s] the pharmacy benefits for health plans and self-insured entities, negotiate[s] drug discounts with pharmaceutical manufacturers, and develop[s] ... lists of drugs approved for reimbursement." (Id. ¶28.) The decision of which PBM to use is made by patients' health insurance plans, which are usually chosen by patients' employers. (Id. ¶29.) "For a pharmacy that is not owned by a PBM to operate successfully, it is essential for the pharmacy to participate in all of the largest PBMs' networks, including Express Scripts'." (Id. ¶30.) To do so, independent pharmacies either contract directly with PBMS or indirectly through the pharmacy's agent, usually a Pharmacy Services Administrative Organization ("PSAO"). (Id. ¶31.)

         Park Irmat Corp. ("Irmat"), a New York-based pharmacy in business since 1978, began concentrating on dermatological pharmaceuticals in 2013. (Id. ¶34-35.) "As Irmat's dermatology business began to flourish, Irmat agreed to participate in patient assistance programs sponsored by leading drug manufacturers." (Id. ¶36.) Under such a program, the manufacturer covers a portion of the patient's insurance co-payment, thereby "allow[ing] patients to obtain medications that their doctors prescribe without having to make burdensome ... co-payments ...." (Id.) Participation in these programs provided Irmat with the "opportunity to significantly expand its business." (Id.) "[The] manufacturers provided Irmat with marketing channels and a potential customer base that extended nationwide." (Id. ¶37.) Consequently, "Irmat could no longer confine its operations to its Park Avenue storefront... [and] began providing mail-order services to customers throughout the country." (Id.) "From 2012 to 2015, Irmat's business grew exponentially, both in revenue and geographic scope." (Id.) Its staff drew from 20 employees in 2012 to a high of 208. (Id.) Also in 2012, Irma enrolled with a PSAO, AccessHealth, thereby gaining access to over 100 payors' pharmacy networks, including Express Scripts. (Id. ¶40.)

         In October 2014, Express Scripts, Inc. ("ESI") sent a Pharmacy Provider Agreement (the "Agreement"). (Compl. Ex. 3.) This Agreement provided, in relevant part,

1.4 "Pharmacy" or "Pharmacies" means the pharmacy or pharmacies listed on Exhibit B ... which are owned or operated by Provider, ... meets the definition of Retail Provider (as defined in Section 1.8) and has been approved by ESI to provide services hereunder....
1.8 "Retail Provider" shall mean a pharmacy that primarily fills and sells prescriptions via a retail, storefront location, is determined by ESI to fulfill an ESI business need with respect to participation in its retail network(s), and meets such other criteria established by ESI from time to time including any specific needs of a population, as determined by ESI in its sole discretion. "Retail Provider" shall not include mail order, specialty, home infusion, dispensing physician or internet pharmacies or such other provider types that do not meet ESI's Retail Provider criteria established from time to time.
2.2.b Credentialing and Recredentialing. Provider and its Pharmacies shall be eligible to provide services hereunder, including dispensing Covered Medications, only upon satisfaction of any credentialing/recredentialing and additional requirements imposed by ESI, including the providing of prompt written notice with any updates to the Provider Certification, as further prescribed in the Provider Manual. Failure to provide prompt updated information to the Provider Certification or to comply with Provider's obligations ... or any other credentialing/recredentialing requirements required by ESI from time to time shall constitute a breach of this Agreement and ESI may terminate Provider ... in ESI's sole discretion.
4.1 Term. Unless earlier terminated as provided in Section 4.2 of this Agreement, the term of this Agreement shall begin on the Effective Date and continue for a period of three (3) years ....
4.2 Termination.
4.2.a Without Cause. This Agreement may be terminated by ESI without cause upon at least thirty (30) days written notice to Provider ..., with such termination effective at the end of such notice period.
4.2.b Breach. In the event a party defaults in the performance of any of its obligations under this Agreement (the "Defaulting Party"), the other party (the "Non-Defaulting Party") may give written notice to the Defaulting Party of such breach. ... These rights and remedies are in addition to any and all other rights that exist or are available or may exist or be available to ESI pursuant to this Agreement, at law or in equity.
4.2.c Immediate Termination. Notwithstanding the provisions contained in Section 4.2.b, ESI shall have the right to immediately terminate this Agreement upon written notice to Provider in the event that ... (v) [Provider] no longer meets credentialing requirements ....
7.9 Waiver. No. waiver of a breach of any covenant or condition shall be construed to be a waiver of any subsequent breach. No. act, delay, or omission done, suffered, or permitted by the parties shall be deemed to exhaust or impair any right, remedy, or power of the parties hereunder.

(Compl. Ex. 3 at 4, 5, 8, 12.) Irmat was identified in the Agreement as the Pharmacy. (Id. at 3.) No. pharmacies were listed on the Exhibit B form. (Id. at 16.)

         In July 2015, Irmat was required by ESI to submit a re-credentialing application. (Compl. ¶44 & Ex. 1.) This application included eight practice types. (Ex. 1. at 6, 22.) Irmat checked "Open Door Retail/Community" and "Mail Order." (Id.) The former was 35 percent of its business; the latter was 65 percent. (Id.) Of the mail order business, 5 percent was local and 95 percent was out-of-state. (Id.) The application also asked, among other things, the names and license numbers of the pharmacists, the Drug and Enforcement Administration and the Medicaid license numbers of the pharmacy, the hours of operation, whether the pharmacy was an open-door pharmacy that filled prescriptions for walk-in customers, whether the pharmacy had been the subject of any disciplinary or legal action, and whether the pharmacy provided any compounding services. (Id. at 6-12, 22-30.) In response to a question whether the pharmacy had previously participated in an ESI or Medco[1] pharmacy network, Irmat replied it had as of June 2013. (Id. at 23.) The completed application was submitted on July 31, 2015. (Id. at 18, 30.)

         On August 7, ESI sent Irmat a two-sentence email. (Compl. ¶45 & Ex. 2 at 2.) The subject was "Express Scripts credentials approved" and the signatory was "Express Scripts Provider Credentialing." (Ex. 2 at 2.) The first sentence read: "We are pleased to inform you that your recently submitted credentials have been reviewed and you are approved to continue in the Express Scripts Holding Company pharmacy networks." (Id.) The other sentence read: "To access member and claims information, Payer Sheets and regulatory information register at our Pharmacist Resource Center." (Id.) It was sent from an email box that did not receive emails but had the name of "Ingrid Dominguez" at the top. (Id.) There is no indication of what position at Express Scripts Ms. Dominguez held; she did not sign the Agreement. (Id.; Compl Ex. 1-3 at 14.)

         Relying on the first sentence, "Irmat made substantial investments in its mail-order business, " including "hir[ing] scores of employees, constructing] a multi-million dollar facility in New York, " and spending "considerable time and resources to obtain" two pharmaceutical industry accreditations. (Id. ¶46.)

         In May 2016, "Express Scripts sent Irmat a cease-and-desist letter." (Id. ¶47.) The primary infraction allegedly committed by Irmat "was dispensing medications to Express Scripts members by mail." (Id.) "Express Scripts' letter wrongly claimed that Irmat misrepresented the nature of its pharmacy operations." (Id.) Other alleged infractions included "fail[ing] to use its best efforts to achieve formulary compliance" and discounting member copayments. (Id. ¶48-49.) The latter apparently referred to the co-payment assistance programs Irmat participated in with drug manufacturers. (Id. ¶49.) Both allegations were incorrect. (Id. ¶48-49.)

         In June 2016, Irmat replied to the letter, "remind[ing] Express Scripts" of its August 2015 email representations and of its erroneous allegations about Irmat's formulary compliance and copayment collections. (Id. ¶50.) Irmat also reminded Express Scripts of its earlier inquiry into whether Express Scripts maintained a separate mail-order pharmacy network and, when being informed it did not, of Irmat's willingness to join one should Express Scripts establish such a network. (Id.)

         By letter dated July 15, 2016, Express Scripts informed Irmat it was terminating Irmat from the network effective September 14, 2016. (Id. ¶51.) Reasons given were Irmat's mailorder business, in contravention of the definition of'"retail provider, '" and alleged failure to use its best efforts to dispense formulary drugs. (Id.) Irmat appealed its termination, "again noting that Express Scripts expressly approved Irmat's mail-order business" and again explaining that its dispensation of formularies was in compliance with New York law. (Id. ¶52.) On August 22, fourteen days after Irmat's appeal, Express Scripts informed Irmat its decision to terminate Irmat was affirmed and, in addition to the reasons earlier given, cited three disputes Irmat had had with state boards of pharmacy - disputes Irmat had already resolved. (Id. ¶53.) Express Scripts further stated that it was terminating Irmat '"without cause'" and also for cause based on the alleged infractions. (Id.)

         Express Scripts' termination of Irmat from its networks has caused Irmat "catastrophic injury" and significant harm to Irmat's customers. (Id. at 16.)

         The foregoing course of dealing between Express Scripts and Irmat reflects a conspiracy between Express Scripts and co-conspirator PBMs, including CVS Health Corporation ("CVS Health"), to suppress competition from independent pharmacies, including Irmat, for mail-order pharmacy business. (Id. at 1, 2-3, 5, 17.) All the co-conspirator PBMs belong to a trade association, the Pharmaceutical Care Management Association ("PCMA"). (Id. ¶3.) Indeed, executives of Express Scripts and the co-conspirator PBMs serve on the PCMA's board of directors. (Id. ¶84.) "PBMs manage 95% of all the drugs prescribed and covered under group and individual health plans in the country. Express Scripts, CVS Health, and the two other largest PBMs control approximately 80% of the PBM market, " with "Express Scripts and CVS Health alone cover[ing] over 65% of this market." (Id. ¶75.) CVS Health terminated Irmat from its pharmacy health networks in January or February 2017[2] "after conducting several abusive audits of Irmat." (Id. ¶11, 91, 92.) Irmat had been a participant in the networks since 2012, and been subjected "for a number of years" to meritless audits. (Id. ¶91.)

         Irmat alleges that the anticompetitive conduct of Express Scripts prevents customers "from obtaining the benefit of competitive pharmacy expertise, " harms those customers who would benefit from Irmat's dermatological expertise, and "deprives consumers of the cost-saving benefits that they enjoy through Irmat's participation in drug manufacturer patient assistance programs." (Id. ¶80-81.) Moreover, Express Scripts' conduct violates the Sherman Act, breaches their contract, and violates three states' Any Willing Provider laws. (Id. ¶13.) Express Scripts counters that Irmat has failed to state a claim for any of the purported violations or breach.


         Rule 12(b)(6) Standard. "Federal Rule of Civil Procedure 8(a)(2) requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to 'give the defendant fair notice of what the ... claims is and the grounds on which it rests.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v Gibson, 355 U.S. 41, 47 (1957)) (alteration in original). Federal Rule of Civil Procedure 12(b)(6) does not require detailed factual allegations, but does require "more than labels and conclusions"; "a formulaic recitation of a cause of action will not do." Id. Thus, to survive a 12(b)(6) motion to dismiss, 'a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face."' McShane Constr. Co. v. Gotham Ins. Co., 867 F.3d 923, 927 (8th Cir. 2017) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. (quoting Iqbal, 556 U.S. at 678). '" [Determining whether a complaint states a plausible claim for relief... [is] a context-specific task that requires [this] [C]ourt to draw on its judicial experience and common sense.'" Id. (quoting Iqbal, 556 U.S. at 678-79) (second and third alterations in original).

         In Twombly, the Supreme Court addressed the question whether a complaint alleging violations of § 1 of the Sherman Act included sufficient factual matter to survive a Rule 12(b)(6) challenge. 556 U.S. at 554-55. "[A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice." Id. at 556. This is so even if the conduct is "consciously undertaken." Id. at 557. Additionally, the Court noted that "it is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be expensive." Id. at 558 (interim citation omitted).

         Count I: Illegal Group Boycott. Irmat first claims that the continuing conduct of Express Scripts and its co-conspirators is an illegal group boycott in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. "Liability under § 1 of the Sherman Act ... requires a 'contract, combination ..., or conspiracy, in restraint of trade or commerce.'" Twombly, 550 U.S. at 548 (quoting 15 U.S.C. § 1). '"[T]he crucial question is whether the challenged anticompetitive conduct stem[s] from independent decision or from an agreement, tacit or express.'" Id. at 553 (quoting Theatre Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 540 (1954)) (first alteration added). "Concerted action forms the essence of a § 1 claim, unilateral actions do not give rise to antitrust liability under § 1." Minn. Ass 'n of Nurse Anesthetists v. Unity Hosp., 5 F.Supp.2d 694, 703 (D. Minn. 1998).

         Express Scripts argues that Irmat's claim lacks the specificity required by Twombly in that Irmat fails to (a) identify any communication between anyone at Express Script and another PBM; (b) allege any specific PCMA meeting at which the alleged conspiracy was conceived; and (c) allege any context removing the complained-of conduct from the realm of lawful parallel conduct. In response, Irmat argues that it has alleged many of the same plus factors found in this District to be sufficient in "the Compounding Cases" - antitrust cases brought by compounding pharmacies against one or more PBMs, including Express Scripts, Inc., and Express Scripts Holding Company - to withstand a Rule 12(b)(6) motion. See HM Compounding Servs., Inc. v. Express Scripts, Inc., 2015 WL 4162762 (E.D. Mo. ...

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