JOHN A. ROSS, District Judge.
This matter is before the Court on Defendant Express Script ("ESI")'s Motion for Partial Summary Judgment (Doc. No. 192) and Plaintiffs HM Compounding Services, LLC and HMX Services, LLC (collectively "HMC")'s Motion to Strike Portions of John Gavin's Declaration Submitted by Defendant (Doc. No. 312). The motions are fully briefed and ready for disposition. Oral argument on Defendant's motion was held on November 18, 2016.
Plaintiff HM Compounding Services, LLC, is an independent compounding pharmacy that provides customized medications to patients. Plaintiff HMX Services, LLC, is HM Compounding Services, LLC's New Jersey affiliated pharmacy. ESI is a pharmacy benefit manager ("PBM"). PBMs administer the prescription pharmaceutical portion of health care benefit programs, which are typically purchased by a plan sponsor. HMC was a member of ESI's pharmacy provider network pursuant to a Pharmacy Provider Agreement ("Provider Agreement") and Network Provider Manual ("Provider Manual") (collectively the "Agreement").
As a condition for membership in ESI's pharmacy network, compounding pharmacies are required to undergo a credentialing/recredentialing process. In May 2014, HMC underwent a recredentialing process. On July 31, 2014, ESI informed HMC by letter that the Agreement would terminate effective September 1, 2014. The stated reason for HMC's termination was that during the credentialing process, it misrepresented that it never waived or reduced member copayments. On August 4 and 5, 2014, HMC responded in writing to ESI, questioning the factual basis of its termination and requesting an appeal hearing; ESI did not reverse its decision after receiving HMC's letters.
HMC brought this action on September 10, 2014 in the Supreme Court of the State of New York, County of Nassau, seeking to enjoin the termination. On September 12, 2014, ESI removed the case to the United States District Court for the Eastern District of New York. On October 27, 2014, the New York District Court severed HMC's claims against ESI and transferred them to this Court. On December 1, 2014, HMC filed its First Amended Complaint ("FAC") asserting various statutory and common law claims against ESI (Doc. No. 126). ESI moved to dismiss the FAC for failure to state a claim (Doc. No. 129) and, on July 9, 2015, the Court granted ESI's motion in part and dismissed HMC's claims under ERISA and New Jersey's Any Willing Provider Laws (Counts III, IV and VI); in all other respects ESI's motion was denied (Doc. No. 183).
On August 18, 2015, ESI moved for partial summary judgment on the grounds that HMC's remaining claims
The Court stayed briefing on ESI's motion and granted the parties 90 days to conduct phased discovery on the issues raised in the motion (Doc. No. 208). On November 18, 2015, HMC's counsel moved to withdraw and requested the Court stay discovery and all pending deadlines for 60 days to allow HMC to retain new counsel (Doc. No. 211). The Court granted counsel's motion to withdraw and stayed discovery and all pending deadlines for 30 days, up to and including December 18, 2015 (Doc. No. 215). New counsel filed notices of appearance on behalf of HMC on December 3, 2015 and requested the Court lift the stay of discovery. The Court granted HMC's request on December 8, 2015 (Doc. No. 224) and subsequently extended the initial discovery deadline until February 26, 2016, and the stay on briefing ESI's pending motion for partial summary judgment until March 28, 2016 (Doc. No. 227).
On February 12, 2016, HMC filed a motion to compel ESI to produce certain documents (Doc. No. 235). HMC filed a motion for relief pursuant to Rule 56(d) on March 3, 2016, asking the Court to deny ESI's motion for partial summary judgment as premature and expand discovery to include third party discovery on all of HMC's claims. Alternatively, HMC asked the Court to indefinitely stay briefing on ESI's partial summary judgment motion so the parties could continue to conduct discovery (Doc. No. 259). Following a status conference with counsel on March 24, 2016, the Court ordered HMC to submit a proposed plan for completion of discovery by March 30, 2016 (Doc. No. 274). After consideration of HMC's discovery plan, the Court granted HMC's motion to compel in part and extended the discovery deadline for 30 days, up to and including June 6, 2016 (Doc. No. 285). Per the Court's order, HMC was required to respond to ESI's motion for partial summary judgment by July 6, 2016 (id.). On HMC's motion, the deadline for discovery was extended to July 6, 2016, and the deadline to respond to ESI's motion was extended to July 25, 2016 (Doc. No. 287), and then to August 1, 2016 (Doc. No. 291). ESI was granted until September 29, 2016, to reply (Doc. No. 309).
Summary judgment is appropriate when no genuine issue of material fact exists in the case and the movant is entitled to judgment as a matter of law.
In support of its summary judgment motion, ESI submits the declaration of John Gavin, its Senior Manager of Investigations in Fraud, Waste and Abuse Services (Declaration of John Gavin ("Gavin Decl."), Doc. No. 196). HMC moves to strike portions of Gavin's declaration as containing inadmissible hearsay, legal conclusions, and improper opinion testimony. Prior to addressing the merits of ESI's motion for partial summary judgment, the Court examines briefly the motion to strike.
Affidavits in support of summary judgment must be made on personal knowledge and contain admissible evidence. Fed. R. Civ. P. 56(c)(4). When an affidavit contains a statement made without personal knowledge, consisting of hearsay, or purporting to state legal conclusions as fact, the statement may not be used to support or defeat a motion for summary judgment.
The Court is presumed to consider only evidence found to be properly admissible.
The following facts are undisputed or uncontroverted, except where indicated, and set forth in the light most favorable to HMC:
As part of a re-credentialing process, HMC submitted an updated Provider Certification questionnaire to ESI on May 23, 2014, certifying that each answer given was "true and correct"; agreeing to notify ESI if a change in the information provided would make any part of the Provider Certification "untrue or inaccurate"; and agreeing that failure to provide true and accurate information would be a breach of the Provider Agreement that could lead to immediate termination. (Defendant's Statement of Uncontroverted Material Facts ("SOF"), Doc. No. 195 at ¶¶ 7, 9-11)
Based on the responses provided by HMC, ESI identified HMC for investigative review.
In June 2014, ESI requested proof of copayment collection from HMC for 21 prescriptions dispensed between February and April of 2014 (SOF at ¶ 16); in July 2014, ESI requested proof of copayment collection for an additional 56 prescriptions dispensed by HMC during the same time period (
According to HMC's Chief Marketing Officer, it was HMC's (unwritten) policy to charge the appropriate copayment according to the member's plan and use its "best efforts" to collect copayments (Deposition of Spencer Malkin ("Malkin Depo."), Doc. No. 330-1 at 307:12-308:5). More specifically, when HMC dispensed prescriptions by home delivery or mail, an invoice was sent with the prescription and an account receivable was created. Even if a member was in arrears, HMC continued to fill prescriptions (
Section 2.4 of the Provider Agreement concerns collection of copayments. Section 2.4.a provides that HMC
With regard to collection of co-payments, both the January and July 2014 Provider Manuals state that "[HMC]
Section 4.2.a of the Provider Agreement permits ESI to terminate HMC without cause upon at least thirty (30) days written notice, or longer if required by law. In the event a party defaults in the performance of any of its obligations under the Provider Agreement, under Section 4.2.b, the non-defaulting party may give written notice to the defaulting party of such breach. If the defaulting party has not cured such breach to the reasonable satisfaction of the nondefaulting party within thirty (30) days after receiving such notice, then the non-defaulting party shall have the right to immediately terminate the Agreement upon expiration of the 30-day cure period. Notwithstanding Section 4.2.b, Section 4.2.c provides that ESI shall have the right to immediately terminate the Agreement in the event that:
Likewise, the Provider Manual gives ESI the right to immediately terminate the Agreement in the event that "(iv) HMC fails to comply with [ESI]'s policies and procedures including, but not limited to, the Provider Manual . . .; (v) any representation to [ESI] or any response to a question set forth on the Provider Certification is untrue or becomes untrue; . . . (x) [HMC] breaches any of its representations and warranties set forth in this Agreement or any other document provided to [ESI] . . ."
Section 2.9 of the Provider Manual provides that "the Sponsor is ultimately the decision maker regarding coverage of Compound Prescriptions, including specific compound ingredients. . . Network Providers may not circumvent Sponsor's benefit design and coverage of compounded prescriptions or compound ingredients, including, but not limited to, resubmitting rejected compound prescription ingredients as individual, non-compounded items."
The Provider Manual also includes a New Jersey Addendum which states that "the Provider Agreement is hereby amended, as required by and consistent with law, so that the following rules and requirements are included and shall apply with respect to those services provided to Members . . . In the event there is a conflict between the terms and conditions set forth in this Addendum and the terms and conditions set forth in the Provider Agreement (including the Provider Manual), the terms and conditions set forth in this Addendum shall control." (Doc. No. 303-5 at 46-52)
Section 6.a. of the Addendum provides that if the Provider Agreement is terminated, "[ESI] shall give [HMC] at least ninety (90) days prior written notice. In the event of termination, [HMC] has the right, within ten (10) days of receipt of notice, to request a hearing.
Section 6.b. provides that HMC has the following rights upon receipt of the termination notice: "(i) the right to obtain a reason for the termination in writing from [ESI] if the reason is not otherwise stated in the termination notice; (ii) the right to request a hearing, and any exceptions to that right; and (iii) the right to obtain the procedures for exercising either right. These rights, as applicable to [HMC], shall be as described in N.J.A.C. 11:24-15.2(b)(1), 11:24-3.5." (
ESI argues that its motion ultimately raises one issue, which is dispositive of nearly all of HMC's remaining claims, namely, whether it had a contractual right to terminate HMC from its provider network. ESI has asserted multiple grounds for terminating the Agreement based on HMC's breaches of the Agreement as well as its circumvention of benefit design. ESI further argues that termination consistent with the Agreement breaks the requisite causal link between the alleged antitrust conduct and the injury alleged by HMC.
Under Missouri law, a breach of contract claim requires a plaintiff to allege: (1) a valid and enforceable contract; (2) the rights of the plaintiff and the obligations of the defendant under the contract; (3) breach of the contract by the defendant; and (4) damages.
Not every breach of contract provides a party with a cause of action; only material breaches are actionable for damages.
ESI argues it had the right to immediately terminate the Agreement based on its uncontroverted evidence that HMC did not collect copayments. ESI relies on Section 2.4.a of the Agreement, which requires that HMC "shall collect from Members. . .the applicable copayment" and clearly states that "[c]opayments may not be waived or discounted . . ." Relying on
In
HMC argues that because Question 29 of the Provider Certification did not ask whether HMC collects all copayments, its answer was based on its reasonable understanding of the question posed. HMC notes that ESI's own published guidance instructs pharmacies to "make every effort to collect" copayments (Plaintiffs' Statement of Additional Material Facts, Doc. No. 303 at 17, ¶ 65), not that pharmacies must collect all copayments. HMC also maintains its understanding that its collection policy, which included charging all required copays to customers, was fully compliant with ESI's policy that pharmacies should use "best efforts" to collect copayments. HMC argues that the fact it did not receive payment for all copayments charged to customers does not establish grounds for termination. Moreover, the Agreement does not define "waiver" or "discount" of copayments.
At oral argument, ESI attempted to distinguish
In further support of its contractual right to terminate the Agreement, ESI identifies a number of other misrepresentations made by HMC on the Provider Certification questionnaire concerning state licensure, the use of non-FDA approved compounds, and the use of pre-printed prescription forms. ESI contends that HMC's answers to these questions were untruthful and a basis for immediate termination. HMC responds that there are multiple reasonable interpretations of these questions that must be resolved by a jury and are not appropriate for summary judgment. The Court agrees that there are factual disputes that require determination by a jury.
Question 24 on the Provider Certification asked: "Do you or your pharmacy(ies) deliver prescriptions to out-of-state customers? If Yes, identify states where you plan to service customers and provide corresponding out-of-state pharmacy licenses." HMC answered "yes" and listed eight states. Elsewhere in the Provider Certification, HMC was asked whether it shipped prescriptions to other states. HMC responded "Yes" and identified 14 states to which it shipped prescriptions. During discovery, however, HMC admitted shipping to over twenty (20) additional states not listed, as well as to the District of Columbia. The Court cannot conclude as a matter of law that HMC's response was untrue. Question 24 asked only where HMC planned to ship; it did not ask HMC to identify every state where it has ever delivered a prescription, regardless of the circumstances, including whether the state requires a license. Indeed, ESI acknowledges the fact that certain states permit out-of-state pharmacies to ship prescriptions to customers within their borders as an accommodation, so long as it was on a de minimis basis. (Klein Depo. at 70:3-71:12) Whether HMC's response to this question establishes a misrepresentation is open to interpretation and thus a jury question.
Question 28 of the Provider Certification asked
Question 30 of the Provider Certification asked: "Do you or your pharmacy(ies) use or provide pre-printed prescription forms for any of your compound preparations? If yes, please provide examples of any prescription forms." HMC answered "no," but later acknowledged that it used or provided prescription documents listing common formulas. The term "pre-printed prescription form" is not defined in the Provider Certification questionnaire. Moreover, the Provider Manual only restricts pre-printed forms that include a controlled substance. The Court cannot conclude on the evidence of record that HMC's response was untrue; all prescription forms contain some amount of preprinted matter. Again, this is a jury question.
Lastly, ESI contends HMC violated Section 2.9 of the Provider Manual by "split-filling," that is, taking a prescription and breaking it up into smaller quantities to evade a prior authorization requirement. This, according to ESI, constitutes circumvention of a plan sponsor's benefit design, which is expressly prohibited by the Agreement. It is undisputed that on June 1, 2014, ESI's client, the Pension, Hospitalization and Benefits Plan ("PHBP") of the International Brotherhood of Electrical Workers, stopped covering compound prescription claims in excess of $300 per claim, without prior plan approval (SOF at ¶ 26). Prior to June 1, 2014, HMC submitted prescription drug claims for PHBP-covered patients based on a 30-day supply (
Having determined that there are numerous factual disputes as to whether HMC materially breached its Agreement with ESI, the Court is unable to conclude as a matter of law that ESI had a contractual right to terminate HMC from its provider network. ESI's motion for partial summary judgment will, therefore, be denied. Because the issue of materiality is a threshold and potentially dispositive issue, the Court believes it is in the interest of orderly process and judicial economy to proceed on the contract based claims and allow a jury to finally determine whether there was in fact a material breach. When ESI filed its motion, the Court allowed phased discovery to proceed as it related to the issues raised therein. The Court made a determination at that time that HMC's contract based claims should be addressed before its antitrust claims would be considered. Although the parties have extensively briefed whether HMC has established the requisite antitrust injury and proximate causation to sustain their antitrust claims against ESI, the Court continues to believe it is necessary and appropriate to reserve ruling and reach a determination on whether ESI had a contractual right to terminate HMC from its provider network before allowing broad based anti-trust discovery, including third-party discovery, to go forward.
Accordingly,