United States District Court, S.D. New York
OPINION AND ORDER
Edgardo Ramos, U.S.D.J.
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.
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.
Anthem and ESI's 2009 PBM Agreement
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.
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.
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. ¶
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.
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. 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. Ultimately, Anthem opted for the greater
upfront payment of $4, 675 billion. Id.
Terms of the 2009 PBM Agreement
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:
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." Id.; Declaration of Joe R.
Whatley, Jr. in Opposition to Motions to Dismiss (Doc. 110),
Ex. C ("PBM Agreement") at Ex. N.
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.
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.
Plaintiffs claim that ESI establishes the exclusionary
formulary list, which excludes certain drugs from ESFs
formulary. Id. ¶ 119.
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.
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.
Negotiations After 2009
2012, Anthem and ESI engaged in negotiations over pricing and
signed an amended PBM Agreement. Id. ¶¶ 12
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. 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.
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. ¶
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.
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.
Alleged Harm to 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.
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
SAC ¶ 303. 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.
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.
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
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. 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. Id. ¶ 38. On March 2,
2016, Doe One received an invoice for $736.12. 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.
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.
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.,  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. 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. In March 2015, Doe
Two paid a total of $731.57 for another thirty day supply of
his medications. Id. ¶ 47. 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.
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.
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.
Doe Two alleges that his PPO plan is an employee welfare
benefit plan governed by ERISA. Id. ¶ 42.
Karen Burnett, a Kentucky resident, has been enrolled in a
plan sponsored by her spouse's employer, LG&E and KU
Energy LLC,  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. 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.
alleges that her health plan is an employee welfare benefit
plan governed by ERISA. Id. ¶ 52.
Brendan Farrell, a New York resident, has received health
care through his employer, Verizon Communications,
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.
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.
alleges that his health plan is an employee welfare benefit
plan governed by ERISA. Id., ¶6\.
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. 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.
alleges that his health plan is an employee welfare benefit
plan governed by ERISA. Id. ¶ 70.
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.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.
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. 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.
Brothers Trading Company
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. ¶ 99. Brothers Trading alleges that the
prices it pays for its ...