Robert D. Mabe, Inc. v. OPTUMRX

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF PENNSYLVANIA

ROBERT D. MABE, INC., d/b/a :

Ashville Apothecary and

Circleville Apothecary, et al., :

Plaintiffs : CIVIL ACTION NO. 3:17-1102

v. : (JUDGE MANNION)

OPTUM RX, Successor by :

Merger to Catamaran Corp.,

:

Defendant

:

MEMORANDUM

Pending before the court is the non-arbitrable plaintiffs’1 motion to

compel discovery. (Doc. 97). Upon review, the motion will be DENIED.

Moreover, defendant’s counsel has brought to the court’s attention a related

discovery dispute which, although not attached to a pending motion, will be

decided by the court herein. (Doc. 186).

1 The non-arbitrable plaintiffs are (1) Redner’s Market, Inc., d/b/a

Redner’s Pharmacy #21, 22, 23, and Redner’s Pharmacy; (2) Rx Shops, Inc.,

d/b/a Hometown Pharmacy; (3) Kuler Drugs, LLC, d/b/a Med Depot

Pharmacy; (4) S & R Drug, Co., (S-Corp) d/b/a S&R Drug Co.; (5) Pine Street

Pharmacy d/b/a Stacy’s Family Pharmacy; and (6) Wells Pharmacy (Sole

Prop.), d/b/a Wells Pharmacy.

I. LEGAL STANDARD

Rule 37 of the Federal Rules of Civil Procedure governs motions to

compel discovery. Under Rule 37(a), a party may file a motion to compel

discovery when the opposing party fails to respond or provides incomplete

or evasive answers to properly propounded document requests or

interrogatories. See Fed.R.Civ.P. 37(a)(3)(B)(iii-iv).

In requesting discovery, Federal Rule of Civil Procedure 26(b)(1)

provides:

Parties may obtain discovery regarding any nonprivileged matter

that is relevant to any party’s claim or defense and proportional

to the needs of the case, considering the importance of the

issues at stake in the action, the amount in controversy, the

parties’ relative access to relevant information, the parties’

resources, the importance of the discovery in resolving the

issues, and whether the burden or expense of the proposed

discovery outweighs its likely benefit. Information within this

scope of discovery need not be admissible in evidence to be

discoverable.

A matter is relevant if “it has any tendency to make a fact more or less

probable than it would be without the evidence; and, the fact is of

consequence in determining the action.” Fed.R.Evid. 401. “To determine the

scope of discoverable information under Rule 26(b)(1), the Court looks

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initially to the pleadings. Hoffman v. Champion Power Equip., Inc., 2017 WL

2535954, at *1 (M.D. Pa. June 12, 2017) (citing Trask v. Olin Corp., 298

F.R.D. 244, 263 (W.D. Pa. 2014)).

Because Rule 26(b)(1) provides for a broad scope of discovery, courts

often apply liberal treatment to discovery rules. See Clements v. N.Y. Cent.

Mut. Fire Ins. Co., 300 F.R.D. 225, 226 (M.D.Pa. 2014) (citation omitted).

Nevertheless, even relevant discovery may be limited under certain

circumstances. In this regard, the 2015 amendment to Fed.R.Civ.P. 26

reinforces the shared obligation of the parties, counsel, and the court “to

consider the proportionality of all discovery and consider it in resolving

discovery disputes.” The Advisory Committee notes explain:

A party claiming undue burden or expense ordinarily has far

better information – perhaps the only information – with respect

to that part of the determination. A party claiming that a request

is important to resolve the issues should be able to explain the

ways in which the underlying information bears on the issues as

that party understands them. The court’s responsibility, using all

the information provided by the parties, is to consider these and

all other factors in reaching a case-specific determination of the

appropriate scope of discovery.

Fed.R.Civ.P. 26 cmt. (2015).

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The scope and conduct of discovery are within the sound discretion of

the trial court. In re Cendant Corp. Sec. Litig., 343 F.3d 658, 661-62 (3d Cir.

2003); see also McConnell v. Canadian Pacific Realty Co., 280 F.R.D. 188,

192 (M.D. Pa. 2011) (“Rulings regarding the proper scope of discovery, and

the extent to which discovery may be compelled, are matters consigned to

the Court’s discretion and judgment.”). Brown v. Camp Hill, 2017 WL

3868501, at *1 (M.D. Pa. Sept. 5, 2017). Thus, a court’s decisions regarding

the conduct of discovery, and whether to compel disclosure of certain

information, will be disturbed only upon a showing of an abuse of discretion.

Marroquin-Manriquez v. I.N.S., 699 F.2d 129, 134 (3d Cir. 1983).

II. PLAINTIFFS’ MOTION TO COMPEL

The background of the instant action has been set forth in a number of

prior rulings. Suffice it to say that the moving plaintiffs are independent

pharmacies challenging the reimbursements they receive from defendant

and other pharmacy benefit managers (“PBMs”). Plaintiffs allege that

defendant’s low Maximum Allowable Cost (“MAC”) payments for generic

prescription drugs breached their contracts and violated state laws regulating

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MAC prices. Specifically, plaintiffs allege that defendant has multiple MAC

lists and MAC prices which it uses to reimburse mail order pharmacies and

large chains such as CVS and Walgreens at higher “maximums” than the

“maximum” it claims to pay plaintiffs, and that defendant charges a “spread”

to health plans for prescriptions while it reimburses plaintiffs below their

acquisition cost.

In the course of this action, plaintiffs have served various discovery

requests upon defendant and, in the instant motion to compel, indicate that

the parties are at an impasse regarding two critical areas of discovery. 2 The

2 Plaintiffs’ motion also discusses a third area of discovery wherein

plaintiffs seek documents and information pertaining to co-pay clawbacks

(i.e., what happens when the co-pay is greater than the MAC price set by

defendant), and DIR fees (direct and indirect remuneration fees). Plaintiffs

provide that Supplemental Interrogatories 14-16 and Supplemental

Requests for Production 24-26 deal with these clawbacks and DIR fees, but

that the defendant has failed to provide any response whatsoever to the

supplemental interrogatories or supplemental requests for production. It

appears from the record that the parties are in the process of resolving these

matters on their own. (Doc. 117, n. 11 (filed under seal); Doc. 195, Ex. A

(filed under seal)). As such, the court need not address these requests at

this time. Plaintiffs undoubtedly will bring it to the court’s attention if further

intervention is needed on these matters.

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first area seeks information showing how much defendant pays mail order

and large chain pharmacies for the same prescriptions filled for the same

health plans as plaintiffs. Under this category, plaintiffs seek to compel

responses to the following interrogatories:

5. During the period in question, have you at any time

maintained more than one MAC list for any single plaintiff

pharmacy? If so, how many, and how many MAC lists did you or

do you have that reimburse(d) the same Plaintiff pharmacy

different MAC prices for the same drug? Produce all documents,

including all MAC lists for the time period in question, relating to

your answers.3

6. During the period in question, did you have more

than one MAC list in effect for the same health insurance plan,

at the same time, depending on which pharmacy (including mail

order) filled the prescription? If so, please explain why there were

different MAC lists in effect during the same time period for the

same plan for different pharmacies.4

3 Although defendant objected to this interrogatory on a number of

grounds, without waiver of any objections, defendant responded “No, Optum

does not maintain more than one MAC list for a given individual pharmacy.

Rather, Optum maintains MAC lists for groups of pharmacies. At any given

time there may be more than one MAC list that specifies the MAC prices

payable under a specific health plan.” As defendant has responded to this

interrogatory by indicating that it does not maintain more than one MAC list

for any single plaintiff pharmacy, the court finds no further response is

necessary to this interrogatory.

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7. During the period in question, did you reimburse any

other pharmacy participating in the same health insurance plan

as any plaintiff pharmacy at a higher price than you paid the

plaintiff for the same generic drug filled at the same time and in

the same quantity and dosage? If so, please identify all such

transactions, indicating the name of the pharmacy, the date and

amount of the payment and explain why any other pharmacy was

reimbursed at a higher price. Produce all documents, including

all MAC lists for the time period in question relating to your

answers.

8. During the period in question, did you reimburse any

mail order pharmacy participating in the same insurance plan as

any plaintiff pharmacy at a higher price than what you paid

plaintiff for identical generic drugs (with identical

quantities/dosages) filled at the same time? If so, explain why

any mail order pharmacy was reimbursed at a higher rate and

produce all documents relating to your answer.

Related to this area, plaintiffs seek responses to the following

document requests:

4 Again, defendant objected to this interrogatory on a number of

grounds. Without waiver of the objections, Optum provided, “Yes, the MAC

list in effect for individual health insurance plans and applicable to a particular

pharmacy vary according to a number of different factors, including, but not

limited to the pharmacy or group of pharmacies’ purchasing power, sales

volume, membership in a Pharmacy Services Administration Organizations

(“PSAOs”), and/or number of locations.” Again, the court finds no further

response is necessary.

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1. All documents relating to your answers to Interrogatories.

18. All documents evidencing your methodology for

establishing MAC pricing for independent pharmacies.5

20. All documents evidencing the number of different MAC lists

used by Catamaran from 2013 through present.

The second area of discovery in dispute seeks information showing

how much defendant is paid by health plans for the prescriptions filled by

plaintiffs, as well as defendant’s contracts with the plan sponsors governing

such payments. Specifically, plaintiffs seek responses to the following

interrogatories:

9. For each generic prescription filled by a plaintiff pharmacy,

describe how you are compensated by the plan sponsor and

produce all documents relating to that compensation scheme.

10. For the period in question, describe in detail how Optum

Rx charges a pharmacy’s claims back to Optum Rx’s clients. The

description should include, but not be limited to AWP discounts,

dispensing fees, transaction fees and any rebates associated

with the contract between the client and Optum Rx. Produce all

documents relating to your answer.

5 Plaintiffs’ motion reflects Request 18 as reading “All documents

evidencing your methodology in establishing MAC pricing for large chain

pharmacies such as CVS and Walgreens.” However, the documentation

provided by plaintiffs’ counsel, reflects the wording as set forth herein.

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With respect to requests for production in this area, plaintiffs are seeking:

1. All documents relating to your answers to Interrogatories.

6. The portions of your agreements with plan sponsors which

specify how you are paid for the generic prescriptions filled by

Plaintiff Pharmacies.

Defendant objected to the above interrogatories and requests for production

on a number of grounds, including that the information sought is irrelevant,

the information is confidential and proprietary and production of the

information is disproportionate to the needs of the case.

In considering plaintiffs’ motion, the party requesting discovery bears

the initial burden of proving that the discovery is relevant. In their second

amended complaint, plaintiffs have alleged that defendant breached their

contracts and violated state laws by having multiple MAC lists and prices in

which it reimburses mail order pharmacies and large chain pharmacies at

higher “maximums” than the “maximum” it pays plaintiffs and that defendant

charges a “spread” to health plans for prescriptions while it reimburses

plaintiffs below their acquisition costs. Plaintiffs argue that information

relating to defendant’s establishment of different MAC prices for the same

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drug in the same insurance plan, the amounts paid to defendant by health

plans for prescriptions filled by plaintiffs and amounts defendant paid large

chain and its own mail order pharmacies for the same drugs sold by plaintiff

under the same health plans, and why defendant paid these pharmacies

different reimbursement prices are relevant to their claims. In response,

defendant challenges plaintiffs’ ability to state a legal claim and therefore

challenges the relevancy of plaintiffs’ discovery requests.

Initially, a challenge to the legal sufficiency of the plaintiffs’ claims is

more appropriate for a dispositive motion. For purposes of the instant motion,

the court focuses on the issues of relevance and proportionality as related to

the claims set forth in plaintiffs’ second amended complaint. Moreover,

through various discussions during telephonic discovery dispute

conferences and rulings of the court in both this matter and the related

Lakeview6 matter, the court has indicated that information of the type

requested by plaintiffs is relevant to the claims they raise. The court will not

belabor the point herein.

6 Lakeview v. Catamaran Corp., Civil Action No. 3:15-290.

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As the court has determined that the discovery requested by plaintiffs

is relevant, the burden shifts to defendant to demonstrate why the discovery

request does not fall within the broad scope of discovery or is otherwise

privileged or improper. Floyd v. Olshefski, 2016 WL 738819 at *1 (M.D.Pa.

Feb. 22, 2016 (citations omitted). Here, defendant argues that it should not

be compelled to produce the requested information because it is

disproportionate to the needs of the case. More importantly for purposes of

this decision, defendant argues that the information plaintiffs seek is highly

confidential and proprietary. To this extent, defendant argues that its

contracts with health plan customers (“Customer Contracts”) and with large

chains, including, but not limited to, CVS and Walgreens (“Pharmacy

Agreements”) are subject to confidentiality clauses (Doc. 117, Ex. G, ¶¶6,

13), and that the “pricing information and the financial data, formulas,

methods and processes contained in the Customer Contracts and Pharmacy

Agreements, including that relating to the determination of [defendant’s]

pricing for services rendered to its customers, the amount it receives from its

customers and the reimbursements paid to network pharmacies” is

proprietary. (Id., ¶¶9-11).” According to defendant’s materials, “[t]his

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information is unique in the industry and required substantial time, effort,

funding and expertise to develop. (Id., ¶9).” Defendant argues that disclosure

of the pricing information and contracts would harm defendant in that the

information contains “extensive financial data, business processes and

methods, as well as Catamaran’s marketing and other business strategies,

as well as performance goals.” (Lakeview, Doc. 39, Vesledahl Decl. ¶4, Doc.

117, Ex. G, ¶7). Defendant’s materials provide that disclosure of such

“commercially sensitive and confidential information” could damage

defendant’s business and give plaintiffs an unfair competitive advantage in

future negotiations. In addition, defendant argues that plaintiffs’ counsel

represents several hundred pharmacies beyond the non-arbitrable plaintiffs

in this case and disclosure of the information may unfairly influence counsel’s

litigation strategy in other proceedings outside of this litigation.

Defendant raised these same arguments in Lakeview in relation to its

motion to quash subpoenas served by Lakeview on three of defendant’s

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clients.7 In considering defendant’s arguments in Lakeview, this court

ultimately concluded that the Customer Contracts and information requested

would contain extensive data beyond the scope of what is at issue in these

matters.8 Further, the court found that to allow Lakeview to acquire the

Customer Contracts and information would potentially allow Lakeview to

access Catamaran’s business strategy, marketing goals, profit margins,

pricing goals, etc. and utilize that information beyond the scope of the

pending litigation.

As did Lakeview, plaintiffs here argue that there would be no harm in

disclosing the requested information to them because they are not in

7 In that case, Lakeview conceded the confidential nature of the

contracts but argued that the information contained in the contracts would be

subject to the protective order entered by the court.

8 In Lakeview, plaintiff sought all contracts with defendant in effect

between 2012 and present; all documents relating to amounts paid to

defendant for all generic drug prescriptions filled between 7/1/2012 and

present by Lakeview Pharmacy; and all documents relating to amounts paid

to defendant for all generic drug prescriptions filled between 7/1/2012 and

present by Lakeview LTC Pharmacy. In other words, plaintiff in Lakeview

was seeking contracts and information relating only to the second area of

discovery at issue here. However, defendant argues that the same

considerations would apply to the contracts and pricing information in the

first area of discovery at issue in this case.

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competition with defendant and therefore they could not gain any competitive

advantage through knowledge of the terms of the Customer Contracts, the

Pharmacy Agreements or any information related thereto. Moreover,

plaintiffs argue that they are subject to the court’s protective order (Doc. 21)

and any harm to defendant is predicated on plaintiff’s violation of the

protective order which is a “more ominous restriction than [defendant’s]

competitors are under when they sign an NDA to participate in the PBM bid

process.” (Doc. 135, citing Wilkinson Aff., at ¶73).

In considering the information before the court, as did Lakeview, the

plaintiffs here have alleged in their second amended complaint that they are,

in fact, in competition with defendant (Doc. 36, ¶496). As discussed

previously, courts have routinely recognized that “disclosure [of confidential

information] to a competitor is more harmful than to a noncompetitor.”

American Standard, Inc. v. Pfizer, Inc., 828 F.2d 734, 741 (Fed. Cir. 1987)

(citing Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288, 293 (D.Del.

1985)). Moreover, as this court found in Lakeview, the mere presence of a

protective order does not by itself require disclosure of any kind, and courts

have routinely found that a protective order is insufficient protection against

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unnecessary disclosure of confidential information to the requesting party.

(Lakeview, Doc. 86 (quoting Micro Motion, Inc. v. Kane Steel Co., Inc., 894

F.2d 1318, 1325 (Fed. Cir. 1990) (“[I]t would be divorced from reality to

believe that either party here would serve as the champion of its competitor

. . . to maintain the confidentiality designation or to limit public disclosure . .

. during trial.”)). Because plaintiffs are admittedly in competition with

defendant and because plaintiffs’ counsel in this case is involved in other

litigation and arbitration matters with defendant involving hundreds of

pharmacies, the court, once again, finds that the protective order issued in

this case is insufficient to protect against the competitive advantage that

would be afforded plaintiffs if the court were to allow the requested discovery.

As such, the plaintiffs’ motion to compel discovery will be denied.9

9 Because the court finds that the information sought is confidential and

proprietary and therefore need not be produced, the court need not consider

the proportionality factors related to the requests.

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III. DEFENDANT’S DISCOVERY REQUEST

On April 9, 2020, defendant’s counsel filed correspondence with the

court which indicates that it also has discovery requests outstanding related

to certain allegations set forth in plaintiffs’ second amended complaint that

need the court’s attention. The allegations at issue include:

501. Catamaran’s reimbursements have been typically

significantly less than other PBMs.

504. Based on modern technology—which Catamaran

possessed at all times relevant to this claim—PBMs are able to

make MAC price adjustments within 30 hours (“the lag time”) of

a price change. During the lag time, a PBM will typically (1)

receive electronic files containing AWP pricing information from

a source like Medi-Span or First DataBank; (2) unzip the files and

resolve any attendant errors with the pricing source; and (3) load

the new prices into its computer system.

509. The polling data is consistent with Plaintiffs’ experience with

Catamaran and its failure to update its MAC prices—when there

is a price increase—with a speed that is commercially

reasonable. For years, Catamaran has had the ability to update

its MAC prices every seven days, but chose not to do so when

prices increased.

511. A seven-day update requirement has been commercially

reasonable for years. Yet, before 2016, Catamaran often did not

even update prices for generics within seven weeks of an

increase in wholesale price.

512. Good faith and commercial reasonableness require that, in

setting reimbursement rates for Plaintiffs, Catamaran (1)

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consistently and timely review its MAC prices, update them at

least every seven days and no more than seven days after

relevant increases in drug prices; (2) refrain from reimbursing

Plaintiffs below their acquisition costs; and (3) set its MAC prices

by using actual wholesale prices available to retail pharmacies.

520. Good faith and commercial reasonableness require that, in

exercising its discretion to set reimbursement rates for Plaintiffs,

Catamaran (1) consistently and timely review its MAC prices,

updating them at least every seven days and no more than seven

days after relevant increases in drug prices; (2) refrain from

reimbursing Plaintiffs below their acquisition costs; and (3) set its

MAC prices by using actual wholesale prices available to retail

pharmacies.

542. Plaintiffs’ MAC appeals are disproportionately directed at

Catamaran, as opposed to other PBMs with whom they contract,

because Catamaran’s reimbursement rates are typically worse.

551. The economic damage done by Catamaran’s failure to

retroactively reimburse following a successful MAC pricing

appeal is exacerbated by the fact that it has routinely taken

weeks to decide the appeal, during which time the drug price is

likely to have experienced substantial fluctuation detrimental to

Plaintiffs. Catamaran’s average response time has been longer

than other large PBMs (typically 5-7 days) that received MAC

appeals from Plaintiffs.

(Doc. 36).

Based upon these allegations, which challenge defendant’s actions in

relation to other PBMs and in terms of commercial reasonableness,

defendant requested certain discovery from plaintiffs, including: (1) plaintiffs’

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contracts with PBMs other than defendant; (2) all MAC pricing lists utilized

by PBMs other than Optum; (3) communications with those PBMs relating to

the rates paid by those PBMs, MAC pricing, and notifications of changes in

MAC pricing reimbursement rates; (4) all MAC pricing appeals submitted to

other PBMs; (5) all plan data or plan rate sheets related to any contract with

other PBMs; and (6) all documents reflecting any fees charged plaintiffs by

other PBMs other than defendant for claims processing. Plaintiffs have

challenged these discovery requests as irrelevant under Fed.R.Civ.P.

26(b)(1). Further, plaintiffs argue that the requests require the production of

proprietary and confidential documents protected by non-disclosure

agreements with other entities.

With respect to defendant’s requests for discovery, plaintiffs have

placed at issue defendant’s actions with respect to MAC pricing and MAC

appeals as compared to other PBMs and commercially reasonable

standards. Defendant provides that evidence of reimbursements paid by

other PBMs for the same drugs that form the basis of plaintiffs’ claims is

probative of whether defendant’s reimbursement rates are commercially

reasonably or “typically worse” than other PBMs as alleged by plaintiffs and,

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further, that discovery relating to the processes used by other PBMs to

adjudicate MAC appeals, including the frequency and result of appeals

submitted by plaintiffs to other PBMs and the period of time other PBMs take

to modify MAC prices after a MAC appeal or a change in the price of a

generic drug are probative of the commercial reasonableness of defendant’s

actions and essential to permit defendant to defend against the allegations

of the second amended complaint. The court agrees and finds that the

information requested by defendant is relevant.

To the extent plaintiffs argue that the information sought by defendant

is confidential and proprietary, defendants respond that the bulk of the non-

arbitrable plaintiffs have not identified the PBMs with whom they contract and

that none of the non-arbitrable plaintiffs have produced any of the contracts

or portions of contracts that purportedly contain a confidentiality provision. In

fact, defendant provides that plaintiffs have not searched their contracts with

other PBMs to confirm that all such contracts even contain a confidentiality

clause. Defendant’s materials provide that one or more of plaintiffs’ contracts

with other PBMs contain a mechanism to request the PBM’s consent to

disclosure of information, but plaintiffs have refused to seek such consent

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arguing that doing so would be disproportionate to the benefit of discovery.

Plaintiffs respond that they agreed to produce the information sought by

defendants relating to the amounts defendant’s competitors pay plaintiffs for

prescriptions they fill for different health plans, subject to the confidentiality

obligations imposed by their agreements with the PBMs, provided that

defendant discloses the information sought in plaintiffs’ first area of disputed

discovery above relating to what it paid to large chain drug stores and to

defendant’s own mail order pharmacy. The court has now ruled that

defendant is not obligated to provide the information sought by plaintiffs.

Moreover, because it is unclear whether plaintiffs’ contracts with other PBMs

contain confidentiality agreements and whether said PBMs would consent to

disclosure of the information defendant seeks, plaintiffs are to identify for

defendant each of the PBMs with which they contracted during the relevant

time, whether the contracts with the identified PBMs contain confidentiality

clauses and, if they do, whether those contracts contain a mechanism by

which to request the PBMs’ consent to disclosure of the information. To the

extent that the contracts with other PBMs contain confidentiality clauses and

do not provide a mechanism by which to request the PBMs’ consent to

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disclosure of the information, the confidential information need not be

provided for the same reasons applicable to defendant. To the extent that

the contracts do not contain confidentiality clauses, the non-confidential

information is to be provided to defendant. To the extent that the contracts

contain confidentiality clauses, but also contain a mechanism by which

plaintiffs can request the PBMs’ consent to disclosure of the information,

plaintiffs are to seek such consent and provide defendant with the

appropriate response.

In light of the foregoing, an appropriate order shall issue.

s/ Malachy E. Mannion

MALACHY E. MANNION

United States District Judge

DATE: July 28, 2020

17-1102-01

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