Aids Healthcare Found. v. Express Scripts, Inc.

658 F.Supp.3d 693

AIDS HEALTHCARE FOUNDATION, Plaintiff, v. EXPRESS SCRIPTS, INC., Defendant.

Case No. 4:22-cv-00743-AGF

United States District Court, E.D. Missouri, Eastern Division

Signed February 28, 2023

Andrew F. Kim, Kim Riley Law, Northridge, CA, Kirra Nicole Jones, AIDS Healthcare Foundation, Los Angeles, CA, for Plaintiff.

Christopher A. Smith, Sarah C. Hellmann, Husch Blackwell LLP, St. Louis, MO, Ellison Ward Merkel, Samantha Yantko, Quinn Emanuel LLP, New York, NY, Jonathan G. Cooper, Maia Livengood, Michael John Lyle, Quinn Emanuel LLP, Washington, DC, for Defendant.

MEMORANDUM AND ORDER

AUDREY G. FLEISSIG, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Express Scripts, Inc.'s ("Express Scripts") motion (ECF No. 26) to dismiss all four counts of Plaintiff AIDS Healthcare Foundation's ("AHF") amended complaint. The Court heard oral argument on February 2, 2023. For the reasons set forth below, the motion will be granted.

BACKGROUND

The following facts are taken from AHF's amended complaint. The Court also considers "[d]ocuments necessarily embraced by the pleadings," meaning "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." See Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012) (holding that such documents may be considered on a 12(b)(6) motion); see also Podraza v. Whiting, 790 F.3d 828, 833 (8th Cir. 2015) (holding the same as to "documents incorporated into the complaint by reference.")

AHF owns a chain of pharmacies serving primarily people of limited economic means living with HIV/AIDS, including patients enrolled in the Medicare Part D prescription drug program. Express Scripts is a pharmacy benefits manager ("PBM"). As such, Express Scripts administers prescription drug programs for its clients, which include commercial health plans, Medicare Part D plans, and other health insurance plans. Specifically, it serves as an intermediary between its prescription-drug plan clients and the pharmacies that insured patients use. Express Scripts reimburses pharmacies for prescriptions filled by patients, less the amount of the patient's copayment under his or her prescription-drug plan. The prescription-drug plan, in turn, reimburses Express Scripts.

The Center for Medicare and Medicaid Services ("CMS") is the operating division within the United States Department of Health and Human Services responsible for administering, among other things, the Part D program. CMS promulgates rules and regulations governing Part D plans.

CMS "Negotiated Prices" Definition and Star Ratings

Under the statutes and regulations applicable to Part D plans, Part D plan sponsors and PBMs must make available to beneficiaries "negotiated prices" for covered Part D drugs; in other words, "plan sponsors [are] to give to Part D plan Beneficiaries the benefit of the prices the plan sponsors actually pay to pharmacies, net of any price reductions." Id. ¶ 26. Under the regulations, in effect at the relevant time, CMS defined "negotiated prices" to mean:

[P]rices for covered Part D drugs that meet all of the following:

(1) The Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the amount such network entity will receive, in total, for a particular drug.

(2) Are inclusive of all price concessions from network pharmacies except those contingent price concessions that cannot reasonably be determined at the point-of-sale; and

(3) Include any dispensing fees; but

(4) Excludes additional contingent amounts, such as incentive fees, if these amounts increase prices and cannot reasonably be determined at the point-of-sale.

(5) Must not be rebated back to the Part D sponsor (or other intermediary contracting organization) in full or in part.

42 C.F.R. § 423.100 (emphasis added) (effective Jan. 1, 2016 to Dec. 31, 2023).

According to AHF, Express Scripts and other PBMs took advantage of the "reasonably be determined" exception set forth in paragraph (2) to impose payment adjustments after the point-of-sale, purportedly based on pharmacies' performance, that effectively reduce the reimbursement rate to pharmacies. AHF describes these performance adjustments as "claw backs." AHF alleges that "claw backs are payments or payment adjustments made by PBMs after the point-of-sale that alter the agreed cost of Part D covered drugs as between PBMs and pharmacies." ECF No. 23, Am. Compl. at ¶ 23. AHF alleges that such so-called claw back programs have become "an industry wide phenomenon not unique to [Express Scripts]." Id. ¶ 24.

AHF contends that most of these performance adjustment programs, including Express Scripts' program, purport to use Star Ratings promulgated by CMS in order to measure the pharmacies' performance. CMS promulgates Star Ratings for the purpose of evaluating, ranking, and publicizing the performance of Medicare Part D plans. CMS rates plans on a one-to-five scale, with a five rating representing the best performers. The best performing plans receive benefits such as the ability to advertise their high ratings and to enroll new members outside of enrollment periods. The best performing plans also stand to receive monetary bonuses from CMS. The Star Ratings are based on a plan's performance with respect to numerous metrics. CMS does not use the Star Ratings or the Star metrics to impose monetary penalties on plan sponsors.

Contracts Between AHF and Express Scripts

AHF entered contracts with Express Scripts that permitted AHF's pharmacies to fill prescriptions for Part D beneficiaries whose benefits Express Scripts manages as a PBM. These contracts created exclusive and mandatory "networks" for Express Scripts' plan sponsor clients. Beneficiaries must use these networks or pay high costs for out-of-network services. AHF's pharmacies cannot dispense prescriptions to such beneficiaries for reimbursement with Part D funds unless Express Scripts agrees. With HIV drugs, out-of-network costs can be thousands of dollars, making it impossible, from a practical standpoint, for beneficiaries to elect out-of-network services.

According to AHF, because Express Scripts is one of the nation's largest PBMs, if AHF did not contract with Express Scripts to join its network, AHF would lose the ability to provide services to patients - the vast majority of whom are people of limited economic means living with HIV/AIDS - in Express Scripts' network.

AHF and Express Scripts initially contracted in 2017. The initial contract did not include any provision related to performance adjustments. See ECF No. 29-2, Defs.' Ex. 1. However, the contract provided for future amendments as follows:

Unless prohibited or modified by existing law, [Express Scripts] may amend any term, part or provision of this Agreement, including without limitation, any exhibits, requirements for participation, schedules, amendments, or addenda . . . by giving written notice to [AHF] at least ten (10) calendar days prior to the Effective Date of the amendment ("Notice Period"). [AHF] shall be deemed to have accepted such amendment in the event it fails to provide written notice of its objection to [Express Scripts] prior to the expiration of the Notice Period. If [AHF] continues to submit claims after the effective date of any proposed amendment, then such amendment will be deemed approved and accepted by [AHF] as if [AHF] had given its express written consent thereto, and such amendment shall automatically become a part of this Agreement . . . . Notwithstanding the foregoing, and only to the extent a signature is required or requested by [Express Scripts], the parties acknowledge and agree that any contract document, including, but not limited to, rate exhibits, schedules, letters of agreement, etc., proposed by [Express Scripts] and executed by [AHF] hereafter shall automatically become incorporated into this Agreement without the necessity of a formal amendment.

Id. at § 7.4.

Express Scripts amended the parties' contract in 2019 and 2020, in order to include a performance adjustment program that effectively reduced the reimbursement rates Express Scripts paid to AHF for filling patient prescriptions.

Specifically, a 2019 amendment to the parties' contracts governing Express Scripts' Medicare Part D network and signed by both parties, provided:

In addition to [the agreed-upon reimbursement rates], and solely with respect to Applicable Covered Products, [AHF] agrees that it shall be assessed certain quarterly post point-of-sale, per Claim reimbursement adjustments ('Performance Adjustments') based on [AHF's] Pharmacies performance, as measured by [Express Scripts] and/or by a vendor designated by [Express Scripts], and as more fully described on Attachment 1. The Performance Adjustments shall be based on Provider's placement in the following performance tiers ('Performance Tiers'):

Provider Performance Tiers

Performance Tier

Provider Ranking

(Based on % of claims, across all Network claims)*

Performance Adjustment

1

Top Performers (Top 1%)

0% of AWP

2

High Performers (Top 2 - 15%)

Up to an average of 2% of AWP

3

Standard Performers (Middle 60%)

Up to an average of 4% of AWP

4

Low Performers (Bottom 25%)

Up to an average of 8% of AWP

ECF No. 27-6, Def.'s Ex. 5 at § 2.2.¹ Attachment 1, in turn, described and defined "quality metrics" to be used in connection with measuring pharmacy performance as "one or more star metric and/or display measures, as published by CMS . . . ." Id. at Attachment 1, § 1.2.

The 2019 amendment further provided:

The parties acknowledge and agree that more than one set of Performance Tiers (and associated Performance Adjustments) may be in effect and applied from time to time to claims submitted by Provider under the terms of this Exhibit. [Express Scripts] shall be obligated to manage to the overall Performance

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