CPS Medmanagement LLC v. Bergen Reg'l Med. Ctr., L.P.

940 F.Supp.2d 141

CPS MEDMANAGEMENT LLC f/k/a McKesson Medication Management, LLC, Plaintiff,

v.BERGEN REGIONAL MEDICAL CENTER, L.P., Defendant.

CPS MedManagement LLC, Third Party Plaintiff,

v.McKesson Corporation, Third Party Defendant.

Civ. No. 2:09–4572 (KM).

United States District Court, D. New Jersey.

April 5, 2013.

Opinion Denying Reconsideration Aug. 8, 2013.

Keith D. McDonald, Steven A. Karg, Norris, McLaughlin & Marcus, PA, Bridgewater, NJ, for Plaintiff/Third Party Plaintiff.

Anthony Argiropoulos, Andrew W. Schwartz, Sills, Cummis, Epstein & Gross, P.C., Newark, NJ, for Defendant.

Kenneth Friedman, Manatt, Phelps, & Phillips, LLP, New York, NY, for Third Party Defendant.

OPINION

KEVIN McNULTY, District Judge.

This action arises from an Agreement in which Defendant Bergen Regional Medical Center, L.P. (the “Hospital”) engaged McKesson Medication Management, LLC (“MMM”) to manage its hospital pharmacy.¹ Each party alleges that the other has failed to perform its obligations under the Agreement. Pending before the Court are dueling motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. First, MMM has moved for summary judgment on the claims in its complaint. Second, both the Hospital and MMM have moved for summary judgment on the Hospital's counterclaims. The Court heard oral argument on March 19, 2013.

MMM's complaint alleges that the Hospital is liable on five unpaid invoices for services and inventory.² As to these claims, I find the evidence to be essentially uncontroverted. The Hospital neither paid the outstanding invoices nor disputed them as required by the parties' Agreement. I therefore grant MMM's motion for summary judgment on its breach of contract and book account claims. I will stay entry and execution of that partial judgment, however, because the Hospital has an unresolved, offsetting counterclaim. I also put off until later any application for late fees, interest, or attorney's fees.

The Hospital asserts a counterclaim for breach of contract, misrepresentation, breach of the implied duty of good faith and fair dealing, and fraudulent inducement.³ The counterclaim has two components.

The first component is a claim that MMM fell short on what the Hospital says was a contractual promise to realize $7 million in cost savings over the three-year term of the Agreement. Those cost savings were projected in the course of negotiations, but were never made a part of the written Agreement, which is a fully negotiated, integrated document. Primarily for that reason, I grant MMM's motion for summary judgment, and deny the Hospital's motion for summary judgment, on this cost-savings component of the Hospital's counterclaim.

The second component of the Hospital's counterclaim is a claim that MMM breached the parties' Agreement by rendering deficient performance in several respects. In broad strokes, the Hospital alleges that MMM did not properly manage the Pharmacy's inventory and did not adjudicate claims appropriately. As to this deficient performance component of the counterclaim, I find genuine issues of material fact, and deny both sides' motions for summary judgment.

I. FACTS & PROCEDURAL HISTORY⁴

A. The Hospital Seeks A New Operator For Its Pharmacy

The Hospital is a behavioral health, long term care, and acute general care hospital in Paramus, New Jersey. (Def. Facts ¶ 1 [ECF No. 61–1] ). Its Department of Pharmaceutical Services (the “Pharmacy”) has both inpatient and outpatient components. ( Id. ¶ 3). The inpatient pharmacy dispenses medications to patients who are admitted to the hospital; the outpatient pharmacy fills prescriptions for customers, like any retail drugstore. ( Id. ¶ 4).

From approximately 2002 until May 2006, the Hospital contracted with CPS to operate the Pharmacy. (Pl. Facts ¶¶ 2, 9 [ECF No. 60–6]; Def. Facts ¶ 6). The Hospital was not satisfied with CPS's performance, however, and in 2005 began looking for a replacement. (Pl. Facts ¶ 4; Def. Facts ¶ 7). The Hospital invited MMM to submit a proposal. (Pl. Facts ¶ 5; Def. Facts ¶¶ 8, 12).

MMM submitted its initial proposal on December 7, 2005 (the “December 7 Proposal”), and submitted an updated proposal on December 9, 2005 (the “December 9 Proposal”). (Def. Facts ¶¶ 12, 16). Each stated that “[p]ricing and terms in this proposal are effective through December 31, 2005.” (Dec. 7, 2005 Proposal at 12, Ex. A to Mendelowitz Cert. [ECF No. 61–4]; Dec. 9, 2005 Proposal at 12, Ex. A to Argiropoulos Cert. [ECF No. 61–8] ). The proposals were based upon “an open book management fee business model.” Each proposed a set monthly fee, as opposed to one that varied based on performance. (Dec. 7 Proposal at 10; Dec. 9 Proposal at 10).

The December 9 Proposal stated that MMM would “significantly reduce pharmacy expense over the next three years,” “optimize inventory and manage the purchasing and inventory system on an ongoing basis,” and “support and enhance the Hospital's current clinical and formulary management programs and introduce additional programs that will be a building block for clinical safety and cost reduction for many years to come.” (Dec. 9 Proposal at 3). MMM projected that its management of the Pharmacy would “allow the Hospital to realize $7 million in savings over the next three (3) years.” ( Id. at 10). That $7 million projection was broken down by year: savings in “year one of $1,526,140,” savings in “year two of $2,324,983,” and savings in “year three of $3,094,945,” ( id.), for a total of nearly $7 million (actually $6,946,068). ⁵ In addition, MMM touted its Purchasing Alliance for Clinical Therapeutics (“PACT”) as a means of minimizing medication costs “in selected therapeutic categories,” thereby “achiev[ing] savings unrivaled by other entities.” (Dec. 7 Proposal at 28).

On December 14, 2005, the Hospital inquired whether MMM planned to upgrade the IV mixing room to ensure regulatory compliance. Pointedly, the Hospital noted that the current operator, CPS, had offered to partially fund such an upgrade if its contract were renewed. (Ex. B to Mendelowitz Cert. [ECF No. 61–4] ). MMM responded that it would allocate money for renovations from the $1.5 million in savings it anticipated during the first year. ( Id.).

B. The Pharmaceutical Services Agreement

The Hospital ultimately selected MMM to operate the Pharmacy, and the parties entered into a Pharmaceutical Services Agreement (the “Agreement”), dated March 23, 2006. (Ex. C to Mendelowitz Cert. [ECF No. 61–4] ). The three-year term of the Agreement ran from May 1, 2006, through April 30, 2009. ( Id. § 4.1).

The Agreement contained a merger clause, which stated:

This Agreement, any Amendments or Addenda hereto, and any Schedules or Exhibits specifically mentioned herein constitute the entire Agreement between the parties regarding the subject matter hereof and supersede all prior or contemporaneous discussions, representations,correspondence and agreements, whether oral or written, pertaining thereto.... This Agreement may be amended or modified only by a writing duly executed by both parties expressly indicating intent by the parties to amend this Agreement.

( Id. § 5.16).

Pursuant to the Agreement, MMM was to perform certain services “[f]or the benefit of [the Hospital],” namely, to:

(a.) Maintain a Unit Dose System of medication distribution;

(b.) Maintain an I.V. admixture program;

(c.) Maintain pharmacy patient profiles;

(d.) Develop and update from time to time, with [the Hospital]'s cooperation and approval, Pharmacy policies, procedures and operations manuals;

(e.) Conduct in service educational programs for appropriate committees and staff of [the Hospital] pertaining to pharmaceutical services as appropriate or on an as requested basis;

(f.) Participate in [the Hospital]'s Pharmacy and Therapeutics Committee or equivalent;

(g.) Establish and maintain with [the Hospital] a drug surveillance and drug utilization review program;

(h.) Comply, with [the Hospital]'s cooperation, with all applicable Federal and state laws, rules and regulations ...;

(i.) Implement MMM's Quality Assessment Process and Performance Improvement Program;

(j.) Provide [the Hospital] with specific drug utilization data in order to allow for patient billing;

(k.) Monitor patient medication profiles at the time of dispensing for medication allergies, drug interactions, duplication of therapy and contraindications, with notification provided by the pharmacist to the prescriber of any serious or significant issues; and

(l.) Ensure that (i) full and complete pharmacy records and charts are prepared and maintained by the Pharmacy in compliance with all Federal and state laws, rules and regulations and applicable standards of accrediting agencies of [the Hospital]; (ii) all pharmacy patient records and charts conform to good pharmacy practice so as to permit patient care and quality review; and (iii) there are accurate, daily records of all services and items provided by the Pharmacy to [the Hospital] patients.

( Id. § 1.1).

The Agreement also placed on MMM certain specific responsibilities with respect to the Pharmacy inventory. First, MMM had to purchase the inventory left over from CPS. ( Id. § 1.5(a)). Second, MMM had to “order and maintain an inventory of Drugs on behalf of [the Hospital] appropriate for the operation of the Pharmacy and to meet the requirements of [the Hospital]'s Medical Staff, including all Drugs as specified by [the Hospital]'s Pharmacy and Therapeutics Committee and Medical Staff.” ( Id. § 1.5(b)). Third, MMM was required to “order the above referenced inventory of Drugs using the Purchasing Alliance for Clinical Therapeutics (PACT) purchasing portfolio and [the Hospital] shall retain any rebates received in relation to Drugs purchased by MMM on behalf of [the Hospital].” ( Id. § 1.5(c)).

In exchange For MMM's services, the Hospital agreed to pay MMM a monthly fee and to cover the salary and benefits MMM paid to its employees. ( ...