New York City Transit Authority v. Express Scripts, Inc.

Background

In 2015, New York City Transit Authority (NYCTA) hired Express Scripts, Inc. to manage prescription drug benefits for employees, retirees, and dependents. During the contract term, NYCTA’s spending on compound drugs increased substantially. NYCTA later sued Express Scripts for breach of contract, alleging failures involving suspicious compound-drug claims and approval of claims for non-FDA-approved drugs.

Express Scripts moved for summary judgment under Rule 56, which permits judgment before trial when the evidence shows no genuine dispute over a fact that could affect the result. It also moved under evidence rules and Daubert to exclude the opinions and testimony of NYCTA’s expert, Susan A. Hayes.

Summary-judgment ruling

The court held that the contract was ambiguous—that is, reasonably open to more than one interpretation—about several of Express Scripts’s duties. Section 4.2 required Express Scripts to process claims in a prudent and expert manner and to investigate and review claims. The court concluded that this language did not clearly rule out a duty to identify and respond to clear signs of fraud. Summary judgment was therefore denied as to Count 2 on that theory.

The court reached a similar conclusion concerning Section 4.16, which required Express Scripts to select, monitor, and retain network pharmacies with due diligence. The court denied summary judgment as to Count 4 because the contract did not clearly exclude a duty to respond to evidence that network pharmacies were involved in large-scale fraud.

The court also rejected Express Scripts’s argument concerning Section 4.7. That provision addressed recovery of overpayments and liability for unrecovered overpayments caused by a breach of the contract. The court found ambiguity about whether the provision could cover excess payments resulting from Express Scripts’s failure to meet its contractual standard of care. Summary judgment was therefore denied on that ground as to Count 5. Section 4.1 did not create independent duties, but it established a standard of care that could apply when Express Scripts performed other contractual duties; summary judgment was denied as to Count 1 on the argument that Section 4.1 could not support a breach claim.

The court granted summary judgment as to Count 3. NYCTA did not respond to Express Scripts’s arguments concerning Section 4.14, and the court deemed that claim abandoned. The court also concluded on the merits that Section 4.14’s requirements concerning personnel and an internal audit program did not impose a duty to review third-party compound-drug claims for fraud or proactively report such fraud to NYCTA.

NYCTA discontinued Count 6, its claim under Section 4.35 concerning Employer Group Waiver Plan beneficiaries. The court therefore granted summary judgment as to that claim.

The court rejected Express Scripts’s argument that NYCTA needed proof that every compound-drug claim was actually fraudulent. The court stated that NYCTA instead needed evidence that Express Scripts failed to perform its contractual duties prudently, monitor pharmacies with due diligence, pursue overpayments, or meet the contractual standard of care. The court found that a reasonable jury could find a breach based on NYCTA’s evidence.

The court also found a genuine factual dispute about causation. NYCTA presented evidence from which a reasonable jury could conclude that it might have blocked certain pharmacies and prescribers or taken other steps earlier if Express Scripts had alerted it sooner to signs of large-scale fraud.

NYCTA had not provided the detailed damages computation required by Rule 26. But the court declined to exclude its compensatory-damages evidence under Rule 37. It found that exclusion would be an unusually severe sanction, that the damages evidence was important to NYCTA’s case, and that Express Scripts had access to the underlying claims data. The court also concluded that NYCTA’s summary charts provided a sufficiently stable foundation for a reasonable estimate of damages.

For the non-compound drug claims in Counts 2 and 5, Express Scripts argued that expert testimony was necessary to determine which drugs lacked FDA approval. The court denied summary judgment, reasoning that the issue could be resolved by comparing a list of FDA-approved drugs with a list of drugs for which Express Scripts processed claims.

Expert-testimony ruling

The court denied Express Scripts’s motion to exclude Hayes’s testimony in its entirety. Hayes offered opinions about the care and diligence expected of a pharmacy benefits manager, the conduct required to monitor and investigate pharmacy networks, and financial incentives created by the contract’s pricing model.

The court found Hayes qualified to testify about pharmacy-benefits-management industry practices based on her professional experience, industry accreditation, and doctoral studies related to pharmaceutical-industry fraud. The court treated Express Scripts’s challenges to her methods, data, and factual characterization as issues for cross-examination and the weight of the testimony rather than reasons to exclude it.

The court also held that Hayes’s opinion about financial incentives addressed the incentives created by the pricing model, not Express Scripts’s actual motive. It was relevant because it could make more or less likely NYCTA’s allegation that Express Scripts failed to monitor the network diligently.

Disposition and next steps

The court concluded that Express Scripts’s motion for summary judgment was GRANTED IN PART and DENIED IN PART. It was denied as to NYCTA’s compound-drug claims in Counts 1, 2, 4, and 5, and as to NYCTA’s non-compound drug claims in Counts 2 and 5. It was granted as to Counts 3 and 6. Express Scripts’s motion to exclude Hayes’s testimony was DENIED.

The court directed any party seeking to keep materials sealed or redacted to explain, document by document, why continued restriction was consistent with the presumption of public access. It also ordered the parties to submit a proposed joint pretrial order and related materials and directed them to confer about settlement.