Last Thursday, a federal judge dismissed a lawsuit brought by pharmacies alleging that Express Scripts, Inc. (ESI) used prescription data to forcibly switch patients from their retail pharmacies to ESI’s own mail-based pharmacies. The judge ruled that ESI used the patient data appropriately under the agreements with the pharmacies.
Pharmacies brought claims against ESI for (1) attempted monopolization, (2) unfair competition, (3) breach of contract, (4) breach of implied covenant of good faith and fair dealing, (5) interference with prospective economic advantage, (6) violation of the uniform trade secrets act, and (7) fraud. The core of all the claims was ESI’s conduct of collecting and using prescription data to boost its mail-order operations.
The judge, however, held that the conduct was not prohibited and in fact was expressly allowed under the terms of the agreement with the pharmacies.
ESI’s agreement with the pharmacies (including pharmacy manual, collectively “Agreement”) states that ESI is the owner of all information it obtains through the administration and processing of any and all pharmacy claims submitted by pharmacies. The agreement also identifies ESI’s “mail service dispensing” and provides that pharmacies shall cooperate in coordinating pharmacy benefits.
Breach of contract claim
Pharmacies asserted numerous HIPAA violations when ESI used the patient data to switch those patients to mail order. The complaint alleged that patients did not authorize a switch to mail order, but only learned that their prescriptions were switched to mail order when they attempted to refill the prescriptions at local pharmacies. Pharmacies argued that ESI has breached the Agreement, which provides that the parties shall comply with all applicable laws.
The judge dismissed this claim holding that no private cause of action exists under HIPAA, even under a contract claim.
2. Breach of implied covenant of good faith and fair dealing
Pharmacies alleged that ESI breached its duty of good faith and fair dealing owed by using the patient information supplied pursuant to contracts’ requirements in order to take customers away and move them into ESI’s mail order pharmacy.
The court dismissed the claim holding that the agreement with the pharmacies permitted ESI to fill mail order prescriptions through its own mail order pharmacy.
3. Attempted Monopolization
Pharmacies alleged that ESI’s conduct eliminated competition by barring pharmacies from competing for refills and prohibiting patients from purchasing their refills from local pharmacies. Pharmacies claimed that ESI ensured that only its mail order could refill patients’ prescriptions by switching patients to mandatory mail order. Pharmacies pointed to the fact that ESI has quintupled its mail order revenues and quadrupled the number of prescriptions they fill via mail order in just 4 years.
The Court dismissed the claim holding that pharmacies failed to plead enough facts to establish this claim. It also found “nothing inherently anticompetitive in [pharmacies] purported inability to compete with ESI for refills.”
Pharmacies argued that ESI’s omission of the information that ESI intended to switch patients to its mail-order service constituted fraud by omission. The court dismissed holding that pharmacies failed to properly allege fraud.
5. Tortious Interference
The Court held that pharmacies did “not allege any unauthorized actions by Defendants that caused Plaintiffs harm. Rather, as outlined, Defendants’ actions were sanctioned by the parties’ agreements, particularly the Provider Manual’s provisions giving ESI ownership over the customer information.”
6. Unfair Competition and Uniform Trade Secrets Act
Pharmacies alleged that customer information is a protectable trade secret. And ESI used pharmacies confidential information “to compete unfairly with Plaintiffs.” The court dismissed holding that customer lists and customer information do not constitute protectable trade secrets. Moreover, as the court previously held, ESI was the owner of and had the right to use this information in the manner alleged.
It is unclear whether the pharmacies plan to appeal the decision. Considering a long string of negative cases holding for PBMs in similar contractual disputes, it seems unlikely.