State ex rel. Lopez v. Caremarkpcs Health, L.L.C.

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STATE OF HAWAI'I, EX REL. ANNE E. LOPEZ, ATTORNEY GENERAL; Plaintiff, v. CAREMARKPCS HEALTH, L.L.C., EXPRESS SCRIPTS, INC., OPTUMRX, INC., Defendants.

Civ. No. 23-00464 LEK-RT

United States District Court, D. Hawaii

October 30, 2024

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT

LESLIE E. KOBAYASHI SENIOR U.S. DISTRICT JUDGE

On January 5, 2024, Defendants CaremarkPCS Health, L.L.C. (“Caremark”), Express Scripts, Inc. (“Express Scripts”), and OptumRx, Inc. (“OptumRx” and collectively “Defendants”) filed their Motion to Dismiss Plaintiff's First Amended Complaint (“Motion”). [Dkt. no. 57.] Plaintiff State of Hawai'i (“the State”), by and through Anne E Lopez, Attorney General, filed its memorandum in opposition on April 19, 2024, and Defendants filed their reply on April 26, 2024. [Dkt. nos. 81, 82.] This matter came on for hearing on July 12, 2024. The Defendants' Motion is hereby granted in part and denied in part for the reasons set forth below. The State's First Amended Complaint, originally filed on November 6, 2023 in state court is dismissed, but the State is granted leave to file a second amended complaint.

BACKGROUND

The State filed its original Complaint in the State of Hawai'i Circuit Court of the First Circuit (“the state court”) on October 4, 2023. See Notice of Removal of Civil Action Under 28 U.S.C. §§ 1442(a)(1) and 1446, filed 11/17/23 (dkt. no. 1) (“Notice of Removal”), Declaration of C. Michael Heihre (“Heihre Removal Decl.”), Exh. E (copies of filings in the state court) at PageID.730-74 (Complaint). The State filed its First Amended Complaint on November 6 2023 (“Amended Complaint”). See Heihre Removal Decl., Exh. A (Amended Complaint).^[1]

Express Scripts removed the action based on the federal-officer-removal statute, Title 28 United States Code Section 1442(a)(1). See Notice of Removal at ¶¶ 16-18. Caremark filed a Supplemental Notice of Removal on November 17, 2023. [Dkt. no. 8.] Caremark also invoked federal-officer removal. [Id. at ¶ 4.] The State filed a Motion to Remand on November 29, 2023, and the Motion to Remand was denied in an order issued on May 1, 2024 (“5/1 Order”). [Dkt. nos. 29, 85.^[2]

I. Allegations of the Amended Complaint

The State alleges that, “[f]rom 2014 to 2020, prescription drug prices increased by 33%, outpacing inflation and price increases for any other medical commodity or service,” and making “life-saving medications unaffordable for many Americans - particularly seniors.” [Amended Complaint at ¶¶ 3435.] “In 2020, it was estimated that high out-of-pocket costs for drugs would cause 1.1 million premature deaths of seniors in the Medicare program over the next decade, and lead to an additional $177.4 billion in avoidable Medicare medical costs.” [Id. at ¶ 37.]

The State cites insulin as an example and alleges:

In 1999, Humalog (insulin) was affordably priced at $21. Twenty years later, the price had increased by more than 1000% to $332. Due to unprecedented pressure on [pharmacy benefit managers (“PBMs”)] and insulin manufacturers, insulin costs are finally starting to decrease. For example, on April 3, 2019, Express Scripts announced the launch of its Patient Assurance Program, which Express Scripts claims will “ensure eligible people with diabetes in participating plans pay no more than $25 for a 30-day supply of insulin.” Unfortunately, PBMs have not provided this same type of broad relief for the high cost of drugs other than insulin. Further, PBMs have not provided restitution for the prior years' worth of overpayments and their promise to offer insulin at reduced prices is not indefinite.

[Id. at ¶ 38 (footnotes omitted).]

The State alleges that, although PBMs are administrators hired by third-party payers for the benefit of consumers, PBMs have developed a business model that maximizes PBM profits through inflated prices for brand-name prescription drugs. [Id. at ¶¶ 5-7.] PBMs “create[e] drug formularies — a list of prescription drugs covered by health plans tiered according to consumers' cost-share obligations (e.g., tier 1 drugs require a $5 co-payment, tier 2 drugs require a $10 copayment).” [Id. at ¶ 5.] Drug manufacturers pay rebates and fees to PBMs to obtain preferred placement on the drug formularies. The price that consumers or insurers are charged includes the rebates and fees, but consumers are not aware of this. [Id. at ¶¶ 8-10.] PBMs typically retain a portion of the rebates. [Id. at ¶ 13.] PBMs will “exclude one or more drugs used to treat the same condition from a PBM formulary to intensify competition among manufacturers.” [Id. at ¶ 15.] Drug manufacturers typically increase a drug's wholesale acquisition cost (“WAC”), also known as the “list price” or “sticker price,” so that the rebate does not decrease the manufacturer's target revenue. [Id. at ¶ 16.] The State alleges that,

since 2014, there has been a fundamental shift in payments from prescription drug manufacturers to PBMs. Manufacturer payments to PBMs and other intermediaries have risen by over 16% per annum and now constitute 40% or more of brand-name prescription drug costs. In 2013, the manufacturer Sanofi offered rebates for insulin products between 2% and 4% for preferred placement on CVS Caremark's formulary. By contrast, in 2018, Sanofi's rebates for insulin products were as high as 56% for preferred formulary placement.

[Id. at ¶ 17 (footnotes omitted).]

The State contends PBMs' practice of using rebates and fees to manipulate the price of prescription drugs harms consumers by: 1) increasing consumers' out-of-pocket payments, which are tied to a drug's WAC; 2) increasing the likelihood that consumers will change medications “for reasons other than a drug's efficacy, side effects, or clinical outcome,” which can be particularly harmful because some drugs are more effective for some patients than other drugs made to treat the same condition; and 3) artificially inflated drug prices affect persons other than patients who are served by a PBM, e.g., uninsured patients must pay the high list prices that results from the PBM's practices. [Id. at ¶ 20.]

“Defendants collectively manage 80% of prescription drug benefits for more than 220 million Americans. As such, placement on their formularies is a significant bargaining chip when negotiating drug rebates.” [Id. at ¶ 14.] Defendants are all registered to do business in Hawai'i and provide PBM services in Hawai'i. See id. at ¶¶ 23, 26, 29. The State investigated PBM involvement, but Caremark and OptumRx only produced data regarding insulin products. Express Scripts produced data regarding insulin products and one other product. [Id. at ¶ 18.] The State therefore used insulin as a case study in its investigation, [id., ] but the State's lawsuit is not limited to insulin and other diabetes medication, [id. at ¶ 22].

The specific statements that the State bases its claims upon are quoted in paragraphs 67 to 69 of the Amended Complaint. See id. at pgs. 18-20 & n.28-44. In general, these statements fall into the following categories:

a. Misrepresenting that the Defendants function to lower the cost of prescription drugs;

b. Misrepresenting that rebates and other payments from manufacturers lower the cost of prescription drugs;

c. Misrepresenting that rebates and other payments from manufacturers do not inflate the WAC price for brand-name prescription drugs;

d. Misrepresenting that formulary decisions are evidence and/or value based; e. Failing to disclose that the cost share payments insured consumers pay for brandname prescription drugs are tied to inflated WAC prices rather than the prices that Defendants and/or third-party payers actually pay for prescription drugs;

f. Failing to disclose that the Defendants financially benefit from inflated WAC prices, which allow them to negotiate substantial rebates and other payments from manufacturers for brand-name prescription drugs;

g. Failing to disclose that the Defendants financially benefit from preferring and/or excluding certain prescription drugs in their formularies; and h. Failing to disclose that formulary exclusions are not based on the best clinical interests of the patient.

See id. at ¶¶ 137.a-137.h. The State alleges this conduct is ongoing, and Defendants' misrepresentations and omissions are material and likely to mislead consumers and third-party payers. [Id. at ¶¶ 138-39.]

The State brings this action pursuant to Hawai'i Revised Statutes Section 480-2 to prevent unfair or deceptive acts or practices (“UDAP”) and unfair methods of competition in trade or commerce ("UMOC"). [Id. at ¶ 21.] The State brings the following claims: a deceptive acts and practices claim under Section 480-2 ("Count I"); an unfair acts and practices claim under Section 480-2 ("Count II"); a UMOC claim under Section 480-2 ("Count III"); and a claim, pursuant to Section 480-2 and Hawai'i Revised Statutes Section 480-14, for treble damages suffered by the State itself (“Count IV”).

II. The Motion

Defendants argue all of the claims in the State's Amended Complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) because the State fails to plead a claim upon which relief can be granted. [Motion at 3.] Defendants seek dismissal with prejudice. [Motion, Mem. in Supp. at 25.]

Defendants argue the State's claims fail as a matter of law because Defendants do not interact with the consumers; the State has not alleged, and cannot allege, that Defendants' statements about their rebate-negotiation practices are likely to mislead consumers when they purchase insulin or other prescription drugs; the State has not, and cannot, allege that Defendants engaged in unfair or deceptive acts or practices in Defe...