Physician Specialty Pharmacy, LLC v. Prime Therapeutics, LLC

Background

Physician Specialty Pharmacy, LLC (PSP) is a specialty pharmacy located in Florida that had a substantial number of customers in Alabama. Prime Therapeutics, LLC (Prime) is a pharmacy benefits manager that manages prescription-drug benefits for Blue Cross and Blue Shield of Alabama. PSP had filled prescription claims for Prime’s beneficiaries for several years.

In December 2015, Prime began auditing PSP’s claims for payment and refused to pay PSP for prescriptions it dispensed to Prime members while the audits were conducted. Prime terminated PSP from its pharmacy network on May 16, 2016. In April 2017, Prime announced AllianceRx, a joint venture with Walgreens providing specialty and mail-order pharmacy services.

PSP filed this action in April 2018. Counts 1 through 15 asserted claims under Minnesota and Florida law. Count 16 asserted antitrust claims under Sections 1 and 2 of the Sherman Act and Sections 3 and 7 of the Clayton Act.

Prior proceedings and objections

The court had previously granted Prime’s motion to dismiss the antitrust claim for failure to state a claim and deferred the question of whether to exercise supplemental jurisdiction over the state-law claims. PSP then filed a Second Amended Complaint, and Prime again moved to dismiss the antitrust claim and asked the court to decline supplemental jurisdiction over the state-law claims.

A magistrate judge recommended dismissing the antitrust claim, declining supplemental jurisdiction over the state-law claims, and denying PSP another opportunity to amend. PSP objected, arguing that it adequately pleaded a claim under Section 7 of the Clayton Act, that the court should apply a different antitrust standard, and that it should be allowed to clarify the relevant markets.

Court’s analysis

The court conducted a de novo review, meaning it independently reviewed the challenged portions of the record. It concluded that Prime’s motion addressed all of PSP’s alleged antitrust violations, including the Section 7 claim.

As to Section 7, the court agreed that PSP had not shown the required connection between its alleged injury and the alleged Prime-Walgreens merger or agreement at the pharmacy-services level. The court found that PSP’s alleged injury resulted from Prime’s decision, as a pharmacy benefits manager, to terminate PSP from Prime’s network—not from an allegedly improper agreement involving pharmacy services.

The court also agreed that the alleged arrangement was vertical rather than horizontal. Prime operated as a pharmacy benefits manager, while the pharmacy-services providers operated at a different market level. The court therefore held that applying the antitrust “rule of reason” was not error.

The court further held that PSP defined the relevant market too narrowly by limiting it to commercially insured patients and excluding patients covered by government programs such as Medicare and Medicaid. It found that PSP had not pleaded sufficient facts to establish special circumstances justifying that narrower market definition. The court therefore adopted the magistrate judge’s analysis in its entirety.

Disposition

Judge Michael J. Davis overruled PSP’s objections and adopted the Report and Recommendation. The court granted Prime’s motion to dismiss the Second Amended Complaint as follows:

- Counts 1 through 15 were dismissed without prejudice for lack of supplemental jurisdiction. - Count 16 was dismissed with prejudice.

The court denied PSP’s motion in limine to exclude a settlement-demand letter as moot. It directed that judgment be entered accordingly.