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From Antitrust Law Daily, February 23, 2018

Exclusion of mail-order pharmacy from network not an antitrust violation

By E. Darius Sturmer, J.D.

Express Scripts, Inc.—the largest pharmacy benefits manager (PBM) in the United States, with over 97 percent of all retail pharmacies participating in its network—would not have engaged in a group boycott, monopolization, or tying in violation of federal antitrust law by terminating independent New York-based pharmacy Park Irmat Drug Corp. ("Irmat") from its network "without cause" and for supposed contractual infractions, the federal district court in St. Louis, Missouri, has ruled. Irmat’s boycott claim lacked the specificity required by Twombly, in the court’s view, and the complaining pharmacy failed to describe a viable relevant market for its monopolization claim. A motion by Express Scripts and its corporate parent for dismissal of the claims against them was, therefore, granted (Park Irmat Drug Corp. v. Express Scripts Holding Co., February 21, 2018, White, R.).

Pharmacy benefits management. PBMs like Express Scripts are companies that manage the pharmacy benefits for health plans and self-insured entities, negotiate drug discounts with manufacturers, and develop lists of drugs approved for reimbursement. Express Scripts also owns and operates a mail-order pharmacy. PBMs manage 95% of all the drugs prescribed and covered under group and individual health plans in the United States. According to the complaint, Express Scripts and CVS Health Corporation ("CVS Health") control 65 percent of the PBM market. For an independent pharmacy to operate successfully, Irmat alleged, "it is essential . . . to participate in all of the largest PBMs’ networks, including Express Scripts’."

Irmat, a pharmacy in business since 1978, enrolled with a PBM through a pharmacy services administrative organization in 2012, giving it access to over 100 payors’ pharmacy networks, including Express Scripts. It began concentrating on dermatological pharmaceuticals, and promptly made "substantial investments in its mail-order business" that included hiring "scores of employees," constructing new facilities, and obtaining two pharmaceutical industry accreditations.

Irmat’s allegations. In May 2016, Irmat asserts, Express Scripts first sent it a cease-and-desist letter challenging "the nature of its pharmacy operations" and alleging several other infractions of the parties’ Pharmacy Provider Agreement ("PPA"), to which Irmat replied. Just two months later, however, Express Scripts informed Irmat that it was terminated from the network effective in mid-September of that year for providing mail-order services to customers in contravention of the agreement’s "retail provider" definition and Irmat’s alleged failure to use its best efforts to dispense formulary drugs. The complaint alleges that the dealings between Express Scripts and Irmat "reflect[ed] a conspiracy between Express Scripts and co-conspirator PBMs, including CVS Health," that was aimed at suppressing competition for mail-order pharmacy business from independent pharmacies such as Irmat.

Group boycott. The court agreed with Express Scripts that the allegations of conspiracy lacked the requisite specificity and were insufficient to rise beyond the realm of lawful parallel conduct. Rejected were Irmat’s contentions that many of the same "plus factors" for conspiracy that the court deemed sufficient in several other antitrust cases brought by compounding pharmacies against PBMs were present in the instant case and warranted similar judicial treatment. Irmat failed to allege a motive to conspire from its allegations of "a common course of conduct among the PBMs" to foreclose it from the market, the court found. Irmat’s termination from Express Scripts’ retail pharmacy network and, later, CVS Health’s mail-order network were for entirely different reasons, the court pointed out. "Although the result of Express Scripts’ and CVS Health’s conduct was that Irmat does not now participate in either PBM’s networks as a mail-order pharmacy, the difference in how that result came to be [did] not suggest a common motive."

Moreover, Irmat failed to allege any action taken by Express Scripts that was against its self-interest or enough market concentration to constitute a "plus factor." Its allegation of the PBM co-conspirators’ control of the relevant trade association did not sufficiently describe a high-level of interfirm communication.

Monopolization. Irmat alleged that Express Scripts used the monopoly power it had achieved as a mail-order pharmacy owner-operator to prevent its members from obtaining the benefits of Irmat’s expertise in dermatological pharmaceuticals and renowned customer service and to cause a price increase for drugs its members could obtain through manufacturer coupon programs offered by Irmat, the court noted. However, the submarket it alleged within its alleged broad product market for mail-order pharmacy services—"the market for mail-order pharmacy services to Express Scripts members"—did not constitute a viable relevant market considering interchangeability and the cross-elasticity of demand, the court found. The consumer for purposes of the claims was the health insurance plan, not the individual patient; absent a contractual relationship, the plan was free to use another PBM.

The market could not be a "single brand" relevant market like the market the Supreme Court found sufficient in Eastman Kodak either, the court held, because consumers were free to choose other PBMs and no contention was made that Express Scripts was the only mail-order pharmacy.

Even if the inadequate relevant market pleadings were not fatal to the claims, Express Scripts’ alleged refusal to deal did not amount to monopolistic conduct because Express Scripts was not obligated to deal with other market participants. The allegations did not fall with the exception recognized by the Supreme Court in Aspen Skiing, in which it was decided that termination of a pre-existing relationship could evidence an anticompetitive animus, because they overstated the score of the instant parties’ relationship.

Tying. Finally, the court rejected Irmat’s claim that Express Scripts illegally tied one distinct product—retail pharmacy services to its members—to another—an agreement not to sell mail-order pharmacy services to those same members. There was no allegation that Express Scripts forbade Irmat from participating in any of the other networks it had joined, not even those like CVS Health that included mail-order services.

The case is No. 4:17-CV-0979 RLW.

Attorneys: David Scupp (Constantine Cannon LLP) for Park Irmat Drug Corp. Christopher A. Smith (Husch Blackwell, LLP) for Express Scripts Holding Co. and Express Scripts, Inc.

Companies: Park Irmat Drug Corp.; Express Scripts Holding Co.; Express Scripts, Inc.

MainStory: TopStory Antitrust MissouriNews

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