Doe One v. CVS Health Corporation

Background

Five plaintiffs, proceeding under pseudonyms, brought a proposed class action under Section 1557 of the Affordable Care Act. They receive prescription-drug coverage through employer-sponsored health plans and use medications that treat HIV/AIDS. Two plaintiffs died, and executors of their estates were substituted. The employers that sponsored the plans were previously defendants but were no longer parties by the time of this order.

The plaintiffs alleged that the defendants’ prescription-drug program classified HIV/AIDS medications as specialty medications. To obtain lower in-network prices, plaintiffs had to receive those medications from Caremark California Specialty Pharmacy, either through home delivery or delivery to a CVS pharmacy for pickup. Obtaining the medications from a non-CVS community pharmacy allegedly required plaintiffs to pay more out of pocket or the full price.

Plaintiffs alleged that the program denied them meaningful access to their prescription-drug benefits because the mail and CVS pickup options did not provide the same privacy, convenience, reliability, service, or pharmacist support available at community pharmacies. The complaint described delivery problems, long distances to CVS pharmacies, prescription errors, privacy concerns when medication names were announced publicly, long wait times, and a lack of specialized HIV/AIDS knowledge among some CVS representatives.

The defendants were five CVS-related entities: Caremark, L.L.C.; Caremark PCS Health, L.L.C.; CVS Pharmacy, Inc.; Garfield Beach CVS, L.L.C.; and Caremark California Specialty Pharmacy, L.L.C. The opinion described CVS Pharmacy, Inc. as the parent of the other named defendants. CVS Health Corporation, the parent company of all defendants, had previously been voluntarily dismissed from the case.

Motion to dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plausibly state a legal claim. They argued that the plaintiffs had not plausibly alleged that the pharmacy-benefit-manager defendants received federal financial assistance or that the pharmacy defendants were responsible for the challenged conduct. In the defendants’ view, no single defendant both received federal funding and controlled the program.

The plaintiffs also argued that the defendants had waived an argument about whether the program qualified as a “health program or activity” under Section 1557 because they had not raised that argument in their first motion to dismiss. The court decided to address the argument, concluding that the issue was closely connected to the federal-funding issue and that two defendants had not previously filed a Rule 12 motion because they were added later.

Section 1557 and federal funding

Section 1557 bars discrimination in a health program or activity when any part of that program or activity receives federal financial assistance. The court explained that the statute and its implementing regulation use broad language. The regulation covers all operations of entities principally engaged in providing health care when those entities receive federal financial assistance.

The court concluded that the plaintiffs plausibly alleged that the CVS pharmacy defendants operated health programs or activities covered by Section 1557. It reasoned that the complaint described the defendants as an integrated enterprise whose entities collectively designed and implemented the challenged prescription-benefit program. The court stated that corporate form was not dispositive for determining the scope of Section 1557 in this case.

The complaint alleged that CVS Pharmacy, Inc. received federal financial assistance through Medicare Part D and that Garfield Beach CVS received federal financial assistance through the Medicaid 340B program. The court also relied on allegations that the defendants functioned together in administering pharmacy benefits and providing prescription drugs.

The court further held that the plaintiffs plausibly alleged federal-funding coverage under theories recognized in cases involving the civil-rights statutes incorporated into Section 1557. Under those theories, an entity that does not directly receive federal money may still be covered if it can accept or reject the funding or exercises controlling authority over a federally funded program. The court found that the complaint plausibly alleged that Caremark, L.L.C. controlled important parts of the program, including the specialty-drug list, the designation of community pharmacies as out of network, cost-sharing decisions, and the use of Caremark California Specialty Pharmacy.

Disposition

The court found that the Second Amended Complaint plausibly alleged that each defendant engaged in a health program or activity, any part of which received federal financial assistance, as required for the Section 1557 claim. The court therefore denied the defendants’ motion to dismiss and stated that the plaintiffs’ claims could proceed based on the allegations in the complaint. This order did not decide whether the defendants ultimately discriminated against the plaintiffs or whether the plaintiffs would succeed on the merits. The order disposed of Docket No. 184.