Compounding Pharmacy’s Group Boycott Claim Survives Motion to Dismiss

by Patterson Belknap Webb & Tyler LLP

On August 23, 2016, the District Court for the Eastern District of Missouri allowed claims by a compounding pharmacy to proceed, denying a motion to dismiss filed by the defendant pharmacy benefit manager (“PBM”).  In Precision Rx Compounding LLC, et al. v. Express Scripts Holding Co., et al., No. 16-cv-0069 (E.D. Mo.), the plaintiff Precision Rx is a compounding pharmacy and the defendant, Express Scripts, is a  PBM  that contracts with health plan administrators and insurance payors to manage pharmacy benefit plans.

According to the complaint, Express Scripts and the nation’s three other largestPBMs conspired to boycott Precision Rx and other compounding pharmacies to eliminate competition.  Precision Rx claims that the alleged conspirators agreed to: (1) make misleading statements about the safety and efficacy of compounded drugs; (2) eliminate coverage and deny claims for compounded drugs, even in the absence of changes to health plans; (3) raise administrative hurdles to reimbursement for compounding pharmacies; (4) conduct frequent and abusive audits of compounding pharmacies; (5) restrict or eliminate the use of mail-order delivery of compounded drugs; and (6) terminate compounding pharmacies’ provider arguments without cause or for pretextual reasons.

Express Scripts moved to dismiss.  It argued that the plaintiffs failed to adequately plead an agreement between it and the other pharmacy benefit managers to boycott compounding pharmacies.  Instead, it claimed that there was an obvious, non-collusive alternative explanation for their parallel behavior—to reduce the cost of compounded pharmaceuticals.

Applying the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the District Court held that the complaint’s allegations of parallel behavior were combined with sufficient “plus factors” to satisfy Twombly’s plausibility requirement, at least at the motion-to-dismiss stage:

● First, the timing of the conduct coincided with meetings of the Pharmaceutical Care Management Association (“PCMA”), a trade group of PBMs.

● Second, the court noted that the highly concentrated nature of the pharmacy benefit management industry also supports an inference of conspiracy. The alleged co-conspirators make up 80% of the market, and Express Scripts alone controls 50% of the market.

● Lastly, the Court noted that Express Scripts published its “compound management solution” publicly, laying out in detail its plan to eliminate “95% of revenues paid to plaintiffs and other compounding pharmacies.” Such broadcasting of presumably sensitive business information may have indicated a desire to signal intentions to other competitors to facilitate the joint goal of eliminating independent compounding pharmacies from the market.

The Court’s emphasis on the timing of the allegedly anticompetitive conduct relative to the PMCA meetings, without more, is particularly expansive.  In other cases, courts have relied on allegations of specific conduct at such trade association meetings, not simply a coincidence in timing.  And, given that trade association meetings occur on a regular basis, it’s difficult to see how truly unilateral conduct could ever avoid scrutiny simply by connecting the timing of the conduct to the trade association meetings.  In this case, however, the other plus factors bolstered the Court’s conclusion, and a bare correlation in timing between PMCA meetings and the alleged conduct may not have been sufficient.

Thus, while Twombly’s heightened standards for pleading a plausible antitrust conspiracy claim continue to apply, this case is a useful reminder that an antitrust plaintiff can avoid dismissal with circumstantial evidence of conspiracy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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