Antitrust Law Daily Wrap Up, TOP STORY—E.D. Mo.: Compounding pharmacy states valid conspiracy claims against prescription benefit manager, (Jul 10, 2015)

By Greg Hammond, J.D.

A compounding pharmacy could move forward with claims that a prescription benefit manager conspired to restrain trade, in violation of the Sherman Act and New York antitrust law. The federal district court in St. Louis determined that the pharmacy adequately alleged an unlawful agreement or conspiracy; injury to competition in a relevant market; and antitrust injury sufficient for standing (HM Compounding Services, Inc. v. Express Scripts, Inc., July 9, 2015, Ross, J.).

HM Compounding Services, LLC (HMC) operates one of the largest compounding pharmacies in the eastern United States. The company, along with three individuals, filed suit against CVS Caremark Corp., OptumRX, Inc., Prime Therapeutics LLC, and Express Scripts, Inc. (ESI), alleging that they engaged in a concerted effort to eliminate HMC, and other independent compounding pharmacies, as competitors in the prescription benefit drug market by placing unwarranted and illegal restrictions on patient access to compounded medications. The relationship between HMC and each defendant is governed by a Pharmacy Network Agreement. The federal district court in Central Islip, New York, previously granted ESI’s motion to sever HMC’s claims against it and to transfer those claims to the federal district court in Missouri. ESI has subsequently moved to dismiss HMC’s first amended complaint and to dissolve the temporary restraining order entered by the New York court.

Per se violation. HMC alleged that ESI conspired “to end all coverage for compound prescription medications, and eliminate HMC and other independent compounding pharmacies as competitors in the Relevant Market,” and that this conduct constitutes both a per se and rule of reason claim under the Sherman Act.

The court first declined to dismiss the per se claim, noting that there is often no bright line separating per se from rule of reason analysis. Further, even if HMC fails to establish a per se violation of the Sherman Act, the question remains whether the allegedly unreasonable restraint of trade comports with the rule of reason.

Rule of reason. ESI raised three challenges to HMC’s antitrust claims under the rule of reason: (1) HMC failed to allege an unlawful agreement or conspiracy between ESI and its co-conspirators; (2) HMC failed to adequately plead injury to competition in a relevant market; and (3) HMC has not alleged an antitrust injury sufficient for standing.

With regard to the first argument, the court concluded that HMC sufficiently alleged a preceding agreement to engage in concerted action. HMC alleged that ESI and each of the co-conspirators are active members of the Pharmaceutical Care Management Association and that executives from each of the co-conspirators and ESI serve on the Association’s Board of Directors; the co-conspirators and ESI represent the three largest prescription benefit managers, managing 95 percent of all prescription drugs covered by insurance and dominating the prescription benefit manager market with a market share of over 80 percent; ESI and its co-conspirators joined together to study the market for compound prescriptions and collectively determined how to exclude compound medicines; the co-conspirators sent letters to physicians and patients containing false and misleading information concerning compound medications; and the co-conspirators announced new policies concerning copayments allegedly aimed at excluding compound medications within days of each other.

ESI next argued that HMC’s proposed relevant market fails to adequately account for comparable substitutes in the marketplace and HMC failed to adequately plead facts explaining how ESI’s allegedly anticompetitive conduct actually restrained trade or harmed consumers. The court rejected ESI’s first argument, noting that there is no requirement that market definition be pleaded with specificity. In addition, HMC’s allegations of elimination of a market competitor, a decrease in output, reduced consumer choice, and a decline in the quality of goods, were sufficient allegations of anticompetitive effects sufficient to state a claim under Section 1 of the Sherman Act.

Finally, the court concluded that HMC has sufficiently pleaded an antitrust injury by asserting ESI excluded HMC as a competitor from the marketplace. Specifically, HMC alleged that as a direct and proximate result of ESI’s and the co-conspirators’ concerted conduct, HMC has been and will continue to be irreparably injured and financially damaged in its business and property in that HMC has suffered and will continue to suffer significant lost revenue and net profits from the substantial decrease in reimbursement from compound medicines covered by health insurance policies and plans, and HMC has not received reimbursement for thousands of prescriptions already filled and submitted to ESI.

The court consequently concluded that HMC adequately alleged violations of the Sherman Act and New York antitrust law. The motion to dismiss HMC’s antitrust claims was therefore denied.

Temporary restraining order. The motion to dissolve the temporary restraining order was also denied. The court found that the order, by its express terms and by agreement of the parties, is to remain in full force and effect until a hearing on the preliminary injunction.

The case number is 4:14-CV-1858 JAR.

Attorneys: Jessica M. Baquet (Jaspan Schlesinger LLP) and Winthrop B. Reed, III (Lewis Rice, LLC) for HM Compounding Services, LLC and HMX Services, LLC. Amanda Lynn Nelson (Cozen O'Connor) and Christopher Smith (Husch Blackwell LLP) for Express Scripts, Inc.

Companies: HM Compounding Services, Inc.; HMX Services, LLC; Express Scripts, Inc.

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