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In re Express Scripts/Anthem ERISA Litigation

United States District Court, S.D. New York

January 5, 2018



          Edgardo Ramos, U.S.D.J.

         This litigation arises out of the relationship between Anthem, Inc. ("Anthem"), one of the nation's largest health benefits companies, and Express Scripts, Inc. ("ESI"), a pharmacy benefits manager ("PBM"), and the impact of their transactions on Plaintiffs, a proposed class of certain Anthem health plans and individual subscribers to Anthem health plans who receive prescription drug benefits through ESI. Plaintiffs assert seventeen causes of action against Anthem and ESI ("Defendants"), including causes of action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and the Patient Protection and Affordable Care Act ("ACA") anti-discrimination provision, 42 U.S.C. § 18116.

         On April 24, 2017, both Anthem and ESI moved to dismiss the Plaintiffs' Second Amended Complaint ("SAC") (Doc. 78). Docs. 93, 96. For the reasons stated below, both motions are GRANTED.

         I. BACKGROUND[1]

         A. Anthem and ESI's 2009 PBM Agreement

         Anthem is health benefits company that provides health care insurance and insurance administration programs. SAC ¶ 3. Anthem offers health care plans sponsored through an employer (Employee Welfare Benefit Plans regulated under ERISA) or offered directly from Anthem through, for example, the ACA insurance exchanges. Id. Anthem also provides "Administrative Services Only" ("ASO") plans to self-funded employers. Id. In an ASO plan, the health plan reimburses the health care costs of the plan beneficiaries, but pays Anthem a premium to administer the plan (and to negotiate on its behalf for lower rates with health care providers). Id. ¶ 9. ASO plans account for sixty percent of Anthem's business. Id. ¶ 10.

         To keep costs of prescription medications manageable, insurers like Anthem frequently use in-house or third-party PBMs to administer prescription medication programs for health plans. Id. ¶¶ 108, 121 ("A critical key to success for health insurers is to provide effective and affordable pharmacy/drug related services and administration for its members . . . .") (quoting Complaint (Doc. 1), at ¶ 11, Anthem v. Express Scripts, Inc., No. 16 Civ. 2048 (S.D.N.Y. 2016)). PBMs generally contract with pharmacies, negotiate discounts and rebates with drug manufacturers, review drug utilization, manage drug formularies, and process and pay prescription drug claims. Id.

         ESI is the largest PBM operating in the United States. Id. ¶ 109. Over 97% of the pharmacies in the country are in an ESI network. Id. ESI processes nearly 1.4 billion prescriptions each year. Id. ESI provides traditional PBM services and also operates mail-order delivery services for prescription drugs. Id. ¶ 108.

         On December 1, 2009, Anthem and ESI entered into a ten year agreement (the "PBM Agreement"). Id. ¶ 103. Under the PBM Agreement, ESI either processes claims of Anthem participants who fill prescriptions at retail pharmacies or fills the prescriptions of Anthem participants directly through its mail-order pharmacies. Id. ¶ 112. ESI also provides administrative services relating to prescription drugs for Anthem, Anthem's health plans, and Anthem participants. Id. ¶ 122.

         On the same day, Anthem and ESI entered into an agreement by which Anthem sold three PBM companies, NextRx, LLC, NextRx, Inc., and NextRx Services (collectively, the "NextRx companies") to ESI (the "NextRx Agreement"). Id. ¶ 125.[2] The execution of the PBM Agreement was a condition precedent to the signing of the NextRx Agreement. Id. ¶ 126. According to ESI, the purchase price for the NextRx entities was directly tied to the price Anthem would pay for prescription drugs over the course of the PBM Agreement. Id. ¶ 127. Specifically, ESI offered to pay $500 million to Anthem for the NextRx companies in exchange for providing prescription medications to Anthem subscribers at a lower price throughout the ten year PBM Agreement. Id. Conversely, ESI offered to pay a much greater amount for the NextRx companies-$4, 675 billion-but allegedly made clear that prescription medication pricing would be higher over the life of the Agreement. Id. ¶ 128.[3] Ultimately, Anthem opted for the greater upfront payment of $4, 675 billion. Id.

         B. Key Terms of the 2009 PBM Agreement

         Plaintiffs allege that the PBM Agreement allows ESI to exclusively set prescription drug pricing, subject to certain terms and limitations. Id. ¶ 133. According to Plaintiffs, the PBM Agreement gives ESI discretion over pricing through several different mechanisms:

         First, ESI negotiates for rebates and discounts from drug manufacturers. Id. ¶ 116. According to the PBM Agreement, ESI may "contract[] for its own account with manufacturers to obtain formulary rebates attributable to the utilization of certain brand medications and supplies by PBM client members."[4] Id.; Declaration of Joe R. Whatley, Jr. in Opposition to Motions to Dismiss (Doc. 110), Ex. C ("PBM Agreement") at Ex. N.

         Second, ESI controls the classification of prescription drugs as "brand" or "generic." Id. ¶ 117. Under the PBM Agreement, the name of a drug (e.g., whether it is marketed under a "brand" name or simply the chemical or "generic" name) "does not necessarily mean that the product is recognized as a generic for adjudication, pricing, or copay purposes." PBM Agreement Ex. N. Instead, "ESI distinguishes brands and generics through a proprietary algorithm ("BGA") that. . . uses [a variety of] data elements in a hierarchical process to categorize the products as brand or generic." Id. Plaintiffs allege that this impacts pricing because brand medications are generally more expensive than generic ones. SAC ¶ 117.

         Third, ESI determines the maximum allowable cost (the "MAC") for each of the prescription medications it provides to Anthem participants. Id. ¶ 118. ESI "maintains a MAC List of drug products identified as requiring pricing management. . . . ESI also maintains correlative MAC price lists based on current price reference data provided by FDB [First DataBank] or any other nationally recognized pricing source, market pricing and availability information from generic manufacturers and online research of national wholesale drug company files." Id.; PBM Agreement Ex. N.

         Fourth, Plaintiffs claim that ESI establishes the exclusionary formulary list, which excludes certain drugs from ESFs formulary. Id. ¶ 119.[5]

         Fifth, and crucially, Plaintiffs claim that ESFs interpretation of Section 5.6 of the PBM Agreement, if correct, would give ESI additional control over pricing. Id. Section 5.6, titled "Periodic Pricing Review, " provides that:

[Anthem] or a third party consultant retained by [Anthem] will conduct a market analysis every XXXXX during the Term of this Agreement to ensure that [Anthem] is receiving competitive benchmark pricing. In the event [Anthem] or its third party consultant determines that such pricing terms are not competitive, [Anthem] shall have the ability to propose renegotiated pricing terms to PBM and [Anthem] and PBM agrees to negotiate in good faith over the proposed new pricing terms. Notwithstanding the foregoing, to be effective any new pricing terms must be agreed to by PBM in writing.

PBM Agreement ¶ 5.6. Plaintiffs allege that the term "competitive benchmark pricing" is "atypical" and "not a standard term within the PBM industry." SAC ¶¶ 18, 142. Plaintiffs point to ESFs 2015 Annual Report, in which it states that it typically calculates prescription medication pricing based on the "average wholesale price" ("AWP"), id. ¶ 139, and ESFs PBM arrangement with the United States Department of Defense, which incorporates AWP as a pricing benchmark, id. ¶ 140. Section 5.6, in contrast, does not reference AWP or alternate pricing benchmarks, like MAC or Wholesale Acquisition Cost ("WAC"). Id. ¶ 142.

         Plaintiffs have alleged that ESI used the power it had under these provisions of the PBM Agreement, especially the lack of reference to a well-known pricing benchmark in Section 5.6, to charge Plaintiffs excessive prices for prescription medications. Id. ¶ 133.

         C. Negotiations After 2009

         In 2012, Anthem and ESI engaged in negotiations over pricing and signed an amended PBM Agreement. Id. ¶¶ 12 n.3, 144.[6]

         In preparation for the next pricing review, in late 2014 Anthem engaged third-party Health Strategy, LLC to conduct a market analysis to ensure that the pricing under the PBM Agreement remained competitive. SAC ¶ 145. In March 2015, Health Strategy reported to Anthem its conclusion that prescription drug pricing exceeded "competitive benchmark pricing" by more than $3 billion annually.[7] Id. ¶ 146. Anthem estimated that pricing under the PBM Agreement would therefore cost $13 billion more than "competitive benchmark pricing" over the remaining life of the Agreement, and would cost $1.8 billion more during the post-termination wind down period provided for in the Agreement. Id. ¶ 147.

         Thereafter, on March 18, 2015, Anthem informed ESI that it had determined that current prescription drug pricing was not consistent with "competitive benchmark pricing." Id. ¶ 165. Anthem provided ESI with different pricing terms that it believed would be consistent with competitive prices. Id. ESI neither timely disputed Anthem's proposed pricing terms, nor did it make a counter-proposal. Id. ¶ 166. On April 1, 2015, Anthem provided ESI with a formal notice of breach as required under the PBM Agreement. Id. ¶ 167. In June 2015, ESI contacted Anthem about the dispute, but refused to negotiate over Anthem's proposed pricing terms. Id. ¶ 170.

         Anthem and ESI representatives met on September 15, 2015, but ESI continued to refuse to negotiate over Anthem's proposed pricing terms. Id. ¶ 171. Over the next few months, Anthem and ESI continued to communicate, but did not meaningfully negotiate over their pricing disputes. Id. ¶¶ 171-78. On December 2, 2015, Anthem sent a revised pricing proposal to ESI, and, hearing no response, emailed again on December 14, 2015. Id. ¶¶ 179-80. The next day, ESI responded and reiterated its position that it was not obligated to negotiate over Anthem's proposed price terms. Id. ¶ 181. ESI informed Anthem it would respond substantively to the December 2, 2015 proposal in two weeks. Id. On January 7, 2016, ESI sent Anthem a counter-proposal that reduced pricing by $1 billion over the remaining life of the PBM Agreement. Id. ¶ 184. A week later, on January 13, Anthem responded, telling ESI that "Express Scripts' excessive pricing is harming Anthem and its customers.... Anthem is prepared to accept something less than competitive benchmark pricing . . . but obviously will not accept Express Scripts' grossly inflated pricing proposal." Id. ¶ 185. On January 22, 2016, Anthem sent ESI its third pricing proposal. Id. ¶ 186. On February 3, 2016, representatives from Anthem and ESI met a second time, and following the meeting, on February 5, Anthem submitted a proposal discussed in person. Id. ¶¶ 188-91. On February 12, 2016, ESI sent Anthem a counter-proposal that was not substantially different from its January 7, 2016 proposal. M¶I92.

         After two additional in-person meetings, and much back and forth over the following month, ESI's position on pricing remained the same. Id. ¶ 198. On March 21, 2016, Anthem sued ESI over its pricing dispute, making Anthem's allegations of price inflation public. See Anthem v. Express Scripts, Inc., 16 Civ. 2048 (S.D.N.Y. 2016).

         D. Alleged Harm to Plaintiffs

         Plaintiffs in this case are six individuals ("Subscriber Plaintiffs") and two fiduciaries of ERISA health plans ("Plan Plaintiffs"). Both sets of Plaintiffs seek to represent a class.

         Plaintiffs define the Subscriber Class as:

All persons who are participants in or beneficiaries of any health care plan from December 1, 2009 to the present in which Anthem provided prescription drug benefits through an agreement with Express Scripts and who paid a percentage based co-insurance payment (in any percentage amount, including 100%) in the course of using that prescription drug benefit.

SAC ¶ 303.[8] Plaintiffs define the Plan Class as:

Fiduciaries of all self-funded employee welfare benefit plans administered by Anthem from December 1, 2009 to the present in which Anthem provided prescription drug benefits through an agreement with Express Scripts.

Id. ¶ 302.

         Plaintiffs all argue that, because Health Strategy's report suggested that the PBM Agreement pricing was $3 billion more expensive than "competitive benchmark" pricing annually, ESI has been setting prescription drug pricing at inflated rates. See Id. ¶ 133. The Subscriber Plaintiffs allege that under their health plans, they are responsible for payment of coinsurance charges. Id. ¶ 4. Co-insurance payments are a percentage share of the costs of a prescription, and are specified in individual health plans. Id. n.2. Because co-insurance payments are set as a percentage, inflated prescription drug prices set by ESI would inflate the co-insurance amount Subscriber Plaintiffs are required to pay. Id. ¶ 149.

         The Plan Plaintiffs are health plans that are self-funded by employers but operated under ASO agreements with Anthem. Id. ¶¶ 3, 5. They allege that with respect to their plans, Anthem absorbed none of the costs of inflated prescription pricing, and they were required to cover the difference between the PBM Agreement pricing and "competitive benchmark pricing" using plan assets. Id. ¶ 148. Each of the Plaintiffs also makes specific allegations detailing their overpayment for prescription drugs.

         1. John Doe One

         Plaintiff John Doe One, a resident of Ohio, purchased Anthem health insurance in January 2016 through the insurance exchange set up under the AC A. SAC ¶ 35-36. His plan, Anthem Gold Pathway X HMO, included prescription medication benefits administered by ESI. Id.[9] Under the plan, Doe One is responsible for a co-insurance payment to ESI. Id. On February 9, 2016, he received an invoice from ESI for $1, 280.37 for a thirty day supply of his HIV medication Atripla.[10] Id. ¶ 38. On March 2, 2016, Doe One received an invoice for $736.12.[11] Id. At that time, the ESI website listed the total price of a ninety day supply of Atripla at $7, 361.19. Id. According to Plaintiffs, the price of Atripla for that same time period may actually have been as low as $6, 431.01. Id.¶ 39.

         Because Doe One believed that he had been overcharged for Atripla relative to market pricing, he submitted a letter to ESI's general counsel and Anthem's grievances and appeals department on April 11, 2016. M¶4O. In his letter, he sought a refund of the portion of his co- insurance payment attributable to ESI's allegedly inflated prices. Id. He also asked for a refund for "all others similarly situated." Id. On May 10, 2016, Doe One's request was denied.

         2. John Doe Two

         Plaintiff John Doe Two, a resident of California, joined a preferred provider organization ("PPO") plan offered by Anthem to his employer, MUFG Union Bank, N.A., [12] in January 2015. Id. ¶ 42. The PPO plan includes prescription medication benefits administered by ESI, under which Doe Two is responsible for a co-insurance payment. Id.[13] Doe Two was prescribed three specialty HIV medications-Truvada, Intelence, and Isentress-for which he was required to make 20% co-insurance payments. Id. ¶ 46. In February 2015, Doe Two paid a total of $715.58 in co-insurance payments for a thirty day supply of the three drugs. Id.[14] In March 2015, Doe Two paid a total of $731.57 for another thirty day supply of his medications. Id. ¶ 47.[15] In July 2015, Doe Two was required to obtain HIV medications through ESI's mail-order pharmacy Accredo rather than the retail pharmacy he had previously used. Id. ¶ 48. He also began receiving ninety day supplies. Id. That month, Doe Two paid $1, 780.98 in co-insurance payments for his ninety day supply of his medications. Id. Doe Two made similar co-insurance payments from July 2015 through June 2016. Id.

         In June 2015, ESI's web portal listed the total price for a ninety day supply of Truvada at $4, 222.37 (which amounts to $1, 407.46 for a thirty day supply). Id. However, Doe Two alleges that in this same time period, the market price for a thirty day supply of Truvada was $1, 284.28. Id. ¶ 49. ESFs listed price for a ninety day supply of Intelence was $3, 109.52 (which amounts to $1, 036.51 for a thirty day supply). Id. ¶ 48. Doe Two alleges that in this same time period, the market price for a thirty day supply of Intelence was $816.18. Id. ¶ 49. ESFs listed price for a ninety day supply of Isentress was $3, 707.30 (which amounts to $1, 235.77 for a thirty day supply). Id. ¶ 48. Doe Two alleges that the market price for a thirty day supply of Isentress was $1, 205.41. Id. ¶49.[16]

         On April 11, 2016, Doe Two sent a letter to his employer and Anthem's grievances and appeals department explaining that he believed he was overcharged for prescription drugs, and seeking a refund of the amount of his co-insurance payments attributable to ESFs inflated prices. Id. ¶ 50. He also asked for a refund to any other similarly situated subscribers. Id. On May 2, 2016, Anthem informed Doe Two that there was nothing Anthem could do to assist him. Id.

         John Doe Two alleges that his PPO plan is an employee welfare benefit plan governed by ERISA. Id. ¶ 42.

         3. Karen Burnett

         Plaintiff Karen Burnett, a Kentucky resident, has been enrolled in a plan sponsored by her spouse's employer, LG&E and KU Energy LLC, [17] since at least 2010. Id. ¶ 52. Her plan, the LG&E and KU Medical Dental and Vision Care Plan, provided health benefits through an Anthem ASO Plan. Id. ¶ 53. Burnett's prescription drug benefits were provided through ESI. Id. ¶ 54.[18] Under Burnett's plan, she was responsible for all prescription medication pricing that fell below her annual deductible. Id. ¶ 55. She was also responsible for the full cost of any medication obtained from an out of network provider. Id. Since May 2014, Burnett has regularly been prescribed ten different prescription medications. Id. ¶ 57. She has paid Express Scripts a total of $1, 196 for the medications she received from ESFs mail-order pharmacy. Id. She also estimates that she paid $283 to her retail pharmacy for prescription medications (at prices set by ESI) in the same time period. Id. At one point during this period, Burnett paid $128.23 for 180 tablets of Buproprion. Id. ¶ 58. However, Burnett alleges that the average price of that quantity and strength of Buproprion at the time was "as low as" $66.72. Id.

         Burnett alleges that her health plan is an employee welfare benefit plan governed by ERISA. Id. ¶ 52.

         4. Brendan Farrell

         Plaintiff Brendan Farrell, a New York resident, has received health care through his employer, Verizon Communications, [19] since at least 1999. Id. ¶ 61. His plan, the Verizon Medical Expense Plan for New York and New England Associates, provided benefits through an Anthem ASO plan. Id. ¶¶ 61-62. His prescription drug benefits were administered by ESI. Id. ¶ 63. Under the plan, and depending on the medication, Farrell was required to pay between 30% and 100% of the price charged by ESI for prescription medications below his annual deductible or a flat co-pay plus the cost differential between the brand-name and generic version of the drug. Id. ¶ 64. If Farrell used a pharmacy outside of ESFs network, he was responsible for between 30% to 40% of the price ESI charged for the prescription and the cost differential between ESFs price and the retail price charged at the pharmacy. Id.

         Since June 2014, Farrell has purchased at least ten different prescriptions for himself or other beneficiaries under his plan. Id. ¶ 66. He paid ESI $424 for medications he received from ESFs mail-order pharmacy, Accredo. Id. He also estimates that he paid $227 to retail pharmacies for prescription drugs. Id. At one point, Farrell paid $12.13 for 60 milliliters of Bromphen Syrup. Id. ¶ 67. However, Farrell alleges that the average cost of that medication is "as low as" $10.74. Id. Similarly, in December 2016, Farrell paid $924.84 for 50 grams of Retin-a Micro Pump Gel. Id. Farrell alleges that the average cost of that medication is "as low as" $874.98. Id.

         Farrell alleges that his health plan is an employee welfare benefit plan governed by ERISA. Id., ¶6\.

         5. Robert Shullich

         Plaintiff Robert Shullich, a resident of New Jersey, is a participant in the Am Trust Health and Welfare Plan, sponsored by his employer, AmTrust Financial Services, Inc.[20] Id. ¶ 70. Shullich has participated in the plan, which is administered by Anthem under an ASO agreement, since September 2014. Id. ¶ 70-71. Shullich's prescription drug benefits are provided by ESI. Id. ¶ 72. Under his plan, Shullich is responsible for a co-insurance payment of 25% of the price set by ESI for a "preferred" brand name medication and 50% of the price set by ESI for a "non-preferred" brand name medication. Id. ¶ 73. Since October 2014, Shullich has been prescribed over ten different prescription drugs, and paid a total of $1, 317 to ESI for those medications. Id. ¶ 74. He estimated paying an additional $203 directly to his pharmacy. Id. At one point, Shullich paid $10 for 90 tablets of Furosemide. Id. ¶ 75. Shullich alleges that the average cost of Furosemide at that time was "as low as" $1.11. Id. Shullich also paid $57.83 for 190 tablets of Potassium Chloride Extended Release. Id. Shullich alleges that the average cost of this medication was "as low as" $41.15 at that time.

         Shullich alleges that his health plan is an employee welfare benefit plan governed by ERISA. Id. ¶ 70.

         6. Brian Corrigan

         Plaintiff Brian Corrigan, a resident of Kentucky, signed up for an Anthem health care plan through an ACA exchange in January 2016. Id. ¶¶ 78-79. Corrigan was a participant in the Anthem Silver Pathway X PPO 10% for HAS SO4 plan until January 2017. Id. Under that plan, his prescription medication benefits were administered by ESI. Id. Corrigan was required to make a 10% co-insurance payment for all prescription medications. Id. In June 2016, Corrigan paid $43.16 for 30 tabs of Pravastatin Sodium and Omeprazole Delayed Release. Id. ¶ 80.[21]When Corrigan switched plans in 2017, he joined the Anthem Silver Pathway X HMO 5300 S05 plan, which still provides prescription drug benefits administered through ESI. Id. ¶ 81.

         7. Stamford Health

         Plaintiff Stamford Health, Inc. is a Connecticut corporation and a fiduciary of the Stamford Plan, an employee welfare benefit plan funded by Stamford Health contributions. Id. ¶¶ 84-86. Anthem administered certain Stamford Plan benefits pursuant to an ASO agreement until the end of 2014. Id. ¶ 87.[22] Anthem also administered prescription drug benefits for the Stamford Plan. Id. The plan documents provided that "the Maximum Allowed Amount for Prescription Drugs is the amount determined by Anthem BCBS using prescription drug cost information provided by the Pharmacy Benefits Manager (PBM)." Id. ¶ 88. Stamford Plan assets were used to pay prescription medication benefits, which cost the Plan over six million dollars in 2014. Id. ¶ 89-90.

         8. Brothers Trading Company

         Plaintiff Brothers Trading Company, Inc., an Ohio corporation, is the fiduciary of its employee welfare benefit plan, the Brothers Trading Plan. Id. ¶¶ 92-93. The Brothers Trading Plan is funded by contributions from Brothers Trading, and has been administered by Anthem through an ASO agreement since March 1, 2012. Id. ¶¶ 94-95. Brothers Trading Plan assets are used to pay prescription medication costs for participants and beneficiaries. Id. ¶¶ 96-97. In 2015, Brothers Trading spent $900, 000 on prescription medications. Id. ΒΆ 99. Brothers Trading alleges that the prices it pays for its ...

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