Opinion
Case No. 5:18-cv-171
2019-02-14
HIGH MOUNTAIN CORPORATION, d/b/a Rutland Pharmacy, Plaintiff, v. MVP HEALTH CARE, INC., Defendant.
David R. Cooper, Heather Z. Cooper, Esq., Facey Goss & McPhee P.C., Rutland, VT, Kenneth D. McArthur, Jr., Esq., Pro Hac Vice, Boies Schiller Flexner LLP, Washington, DC, Michael I. Endler, Esq., Pro Hac Vice, Boies, Schiller & Flexner LLP, Albany, NY, for Plaintiff. Alexandra E. Edelman, Esq., Gary F. Karnedy, Esq., Primmer Piper Eggleston & Cramer PC, Burlington, VT, Christopher G. Bond, Esq., Primmer Piper Eggleston & Cramer P.C., Manchester, NH, Cynthia Neidl, Esq., Pro Hac Vice, Henry M. Greenberg, Esq., Pro Hac Vice, Greenberg Traurig, LLP, Albany, NY, for Defendant.
David R. Cooper, Heather Z. Cooper, Esq., Facey Goss & McPhee P.C., Rutland, VT, Kenneth D. McArthur, Jr., Esq., Pro Hac Vice, Boies Schiller Flexner LLP, Washington, DC, Michael I. Endler, Esq., Pro Hac Vice, Boies, Schiller & Flexner LLP, Albany, NY, for Plaintiff.
Alexandra E. Edelman, Esq., Gary F. Karnedy, Esq., Primmer Piper Eggleston & Cramer PC, Burlington, VT, Christopher G. Bond, Esq., Primmer Piper Eggleston & Cramer P.C., Manchester, NH, Cynthia Neidl, Esq., Pro Hac Vice, Henry M. Greenberg, Esq., Pro Hac Vice, Greenberg Traurig, LLP, Albany, NY, for Defendant.
ORDER
Geoffrey W. Crawford, Chief Judge
This case concerns a dispute over the eligibility of a retail pharmacy to receive reimbursement for filling customers' prescriptions on terms consistent with those offered by MVP Health Care to mail order pharmacies. Plaintiff High Mountain Corporation ("HMC") owns and operates the Rutland Pharmacy in Rutland, Vermont. Defendant MVP Health Care, Inc. ("MVP") is a health insurer. HMC claims that MVP has engaged in conduct that violates 8 V.S.A. § 4089j. (Doc. 1 ¶ 84.) The court has subject matter jurisdiction through diversity of citizenship.
MVP has filed a Rule 12(b)(1) motion to dismiss on four grounds: (1) non-justiciability; (2) Burford abstention; (3) primary jurisdiction before a state administrative agency; and (4) failure to exhaust administrative remedies. (Doc. 7.) HMC opposes the motion (Doc. 16) and MVP filed its reply on January 22, 2019 (Doc. 17).
FACTS
In ruling on a motion to dismiss, the court relies upon the facts alleged in the complaint. The court's task is made easier in this case by the inclusion of a substantial body of correspondence and documentation on which both parties rely. Although the parties differ in their interpretation of the facts, the events themselves are neither complicated nor in dispute.
The Rutland Pharmacy has operated since 1982 as a retail pharmacy. It fills prescriptions and provides other pharmacy services to its customers. (Doc. 1 ¶ 8.) It is an independent pharmacy which is not owned or operated by a public corporation. Its owners operate three other pharmacies in southern Vermont. (Id. ¶¶ 7, 16.)
MVP is a health insurance company that offers multiple plans within Vermont. It insures thousands of Vermont residents. (Id. ¶¶ 10–11.) Since January 1, 2015, MVP has contracted with CVS Caremark, which serves as its pharmacy benefit manager or "PBM." (Id. ¶ 35.) CVS Caremark is operated by CVS Health Corporation ("CVS"). (Id. ¶ 26.) In addition to its retail locations, CVS operates four mail order pharmacies. (Id. ¶ 27.) Plaintiff alleges that CVS uses CVS Caremark to direct business away from retail pharmacies like the Rutland Pharmacy and to its own mail order pharmacies. (Id. ¶ 31.)
The Vermont legislature enacted 8 V.S.A. § 4089j in 2004. This statute requires health insurers and pharmacy benefit managers doing business in Vermont to "permit a retail pharmacist ... to fill prescriptions in the same manner and at the same level of reimbursement as they are filled by mail order pharmacies with respect to the quantity of drugs or days' supply of drugs dispensed under each prescription." Id. § 4089j(b). Section 4089j is similar in purpose to "Any Willing Provider" ("AWP") laws enacted in many states. These statutes limit the ability of health maintenance organizations and insurance companies to restrict participation and reimbursement to select providers. See Kentucky Ass'n of Health Plans, Inc. v. Miller , 538 U.S. 329, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003) (ERISA savings clause shields state AWP legislation from federal pre-emption).
According to the complaint, MVP seeks to evade the requirements of § 4089j by defining certain drugs as "specialty drugs," steering its beneficiaries to CVS's captive mail order pharmacies for prescription services, and by rejecting claims for "specialty drugs" submitted by Rutland Pharmacy and other Vermont independent pharmacies. (Doc. 1 ¶ 42.) CVS Caremark denied claims for these specialty drugs submitted by the Rutland Pharmacy. (Id. ¶¶ 45, 82.) HMC alleges that it lost revenues in excess of $100,000 in 2018 as a result of these practices. (Id. ¶ 82.)
The terms "specialty drugs" and "specialty pharmacy" do not appear in Vermont legislation. They refer generally to prescription drugs which are more expensive and may require more complex service and support from the pharmacist. (See Doc. 1 ¶ 67.) The Rutland Pharmacy is accredited as a provider of "specialty pharmacy services" by the Accreditation Commission for Health Care. (Id. ¶ 71; see also Doc. 1-17.) The Accreditation Commission for Health Care is a non-governmental organization which provides accreditation services for a variety of health care specialties.
In early 2018, Jeffrey Hochberg, a director of HMC, contacted MVP to find out why it was rejecting Rutland Pharmacy claims for specialty drugs. (Id. ¶ 46.) He learned that as of January 1, 2018, MVP required its beneficiaries to use "CVS Caremark Specialty Pharmacy" to fill such prescriptions, and that CVS filled all such prescriptions through a CVS mail order pharmacy located in Massachusetts. (Id. ¶ 48.) In April 2018, Mr. Hochberg learned that HMC would have to join the CVS Caremark network of "certified" specialty pharmacies in order to receive reimbursement for specialty drug prescriptions. (Id. ¶ 49; see also Doc. 1-3.) HMC submitted an application to CVS Caremark requesting such certification on May 7, 2018. (Doc. 1 ¶ 50.)
In June 2018, CVS Caremark notified Mr. Hochberg that HMC would have to sign confidentiality agreements as part of the application process. (Id. ¶ 52.) Mr. Hochberg questioned aspects of the confidentiality agreements as well as the other requirements for joining the CVS Caremark specialty pharmacy network. (Id. ¶ 54; see also Doc. 1-11.) Despite a series of communications between July and September 2018, the parties were unable to reach agreement about the confidentiality agreements or the other requirements for joining the CVS Caremark network. (Id. ¶¶ 55–61.) HMC filed this lawsuit in October 2018.
ANALYSIS
I. Rule 12(b)(1) Standard
"A district court properly dismisses an action under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction if the court ‘lacks the statutory or constitutional power to adjudicate it ....’ " Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.À.R.L. , 790 F.3d 411, 417 (2d Cir. 2015) (quoting Makarova v. United States , 201 F.3d 110, 113 (2d Cir. 2000) ). Where, as here, a Rule 12(b)(1) motion is "facial"—i.e., "based solely on the allegations of the complaint or the complaint and exhibits attached to it"—the plaintiff has no evidentiary burden in opposing the motion. Carter v. HealthPort Technologies, LLC , 822 F.3d 47, 56 (2d Cir. 2016). In ruling on a facial Rule 12(b)(1) motion, the court must accept as true all material allegations of the complaint and must construe the complaint in favor of the plaintiff. See id. This court has analyzed motions to dismiss based on abstention under Rule 12(b)(1). See Vereline v. Woodsville Guar. Sav. Bank , No. 5:15-cv-00176, 2015 WL 9216684, at *2 (D. Vt. Dec. 16, 2015).
II. Justiciability or Ripeness Doctrines
" ‘Ripeness’ is a term that has been used to describe two overlapping threshold criteria for the exercise of a federal court's jurisdiction." In re Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig. , 725 F.3d 65, 109 (2d Cir. 2013) (quoting Simmonds v. INS , 326 F.3d 351, 356–57 (2d Cir. 2003) ). The first requirement—called "constitutional ripeness"—is drawn from Article III limitations on judicial power and "prevents a federal court from entangling itself in abstract disagreements over matters that are premature for review because the injury is merely speculative and may never occur." Id. at 109–10 (quoting Ross v. Bank of Am., N.A. (USA) , 524 F.3d 217, 226 (2d Cir. 2008) ). The second requirement—"prudential ripeness"—" ‘constitutes an important exception to the usual rule that where jurisdiction exists a federal court must exercise it,’ and allows a court to determine ‘that the case will be better decided later.’ " Id. at 110 (quoting Simmonds , 326 F.3d at 357 ).
The continuing vitality of the "prudential ripeness" doctrine is apparently open for debate. See Susan B. Anthony List v. Driehaus , 573 U.S. 149, 167, 134 S.Ct. 2334, 189 L.Ed.2d 246 (2014) (request to deem claims nonjusticiable on prudential ripeness grounds was "in some tension with our recent reaffirmation of the principle that a federal court's obligation to hear and decide cases within its jurisdiction is virtually unflagging." (internal quotation marks omitted)). To the extent that the doctrine is still available, it does not favor dismissal in this case for the reasons described below.
MVP seeks dismissal under both ripeness doctrines. The court considers MVP's arguments below, with attention to "both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration." Nat'l Org. for Marriage, Inc. v. Walsh , 714 F.3d 682, 691 & n.7 (2d Cir. 2013) (quoting N.Y. Civil Liberties Union v. Grandeau , 528 F.3d 122, 131–32 (2d Cir. 2008) ). The "fitness" prong of the inquiry requires "a weighing of the sensitivity of the issues presented and whether there exists a need for further factual development." Murphy v. New Milford Zoning Comm'n , 402 F.3d 342, 347 (2d Cir. 2005). The "hardship" prong requires the court to "gauge the risk and severity of injury to a party that will result if the exercise of jurisdiction is declined." Id.
A. Constitutional Ripeness
MVP argues that HMC's claim that it has been excluded from reimbursement in violation of 8 V.S.A. § 4089j violates the constitutional ripeness requirement. In MVP's view, the claim is not appropriate for consideration by the court because HMC has not completed the application process. According to MVP, only after signing the confidentiality agreement and continuing to suffer the rejection of its claims would HMC have a claim that satisfies both the constitutional and the prudential aspects of the ripeness doctrine. HMC responds that its claim is not premature because MVP through Caremark CVS has already denied its claims in violation of § 4089j.
Although it makes no finding at this time regarding whether § 4089j was violated, the court agrees with HMC that the claim is ready for decision. The contention that HMC has failed to complete its application is an argument about the reason for the parties' dispute. In MVP's view, HMC and its representative Mr. Hochman have acted unreasonably in failing to take a few simple steps to comply with CVS Caremark's practice of qualifying the pharmacies to whom it furnishes specialty drugs. HMC has a different version of the facts and portrays the application process as a thinly-veiled effort to exclude independent pharmacies from the lucrative specialty drug market. In the context of a motion to dismiss, the court cannot choose MVP's version as correct and require completion of the application process as a condition of hearing the case. To the contrary, the court is required within reasonable limits to accept the plaintiff's version as true for purposes of the motion to dismiss. In this version, the application is a pretext or excuse concealing MVP's true intent of directing as much pharmacy business as possible to its own mail order pharmacies.
Having allegedly lost as much as $100,000 in prescription business in 2018, HMC has a dispute that is ripe in the sense of being appropriate for hearing. It meets the constitutional requirement of a case or controversy because the complaint identifies actual harm that has already occurred. The case lost any hypothetical quality when CVS Caremark denied the first claim for reimbursement. At that point, the dispute became "definite and concrete, touching the legal relations of parties having adverse legal interests." In re Motors Liquidation Co. , 829 F.3d 135, 168 (2d Cir. 2016) (quoting Aetna Life Ins. Co. v. Haworth , 300 U.S. 227, 240–41, 57 S.Ct. 461, 81 L.Ed. 617 (1937) ). That the reasons for MVP's actions may be entirely reasonable or lawful is a defense to the merits, not a reason to dismiss the case.
B. Prudential Ripeness
The case also meets the prudential ripeness requirements. MVP asserts that the court will be in a better position to decide the applicability of § 4089j "after Plaintiff completes the required application process, and a determination is made on that application." (Doc. 8 at 13.) The court rejects that argument for the reasons stated above.
MVP also argues that it would be better to decide the case after the development of a more complete administrative record. (Id. at 12–13.) (A similar argument appears regarding MVP's claim that HMC has not exhausted its administrative remedies.) But MVP does not identify with any specificity what administrative proceeding it contemplates. As described below, the Vermont Department of Financial Regulation ("DFR") has broad authority to regulate the insurance business within Vermont, so HMC could presumably ask DFR to use its regulatory powers to investigate or penalize MVP. Such action, however, would be far different than the sort of quasi-judicial proceeding that resolves a private dispute.
The doctrines of exhaustion and prudential ripeness are related. As the Second Circuit has held, failure to exhaust administrative remedies can weigh in favor of invoking the prudential ripeness doctrine. Am. Sav. Bank FSB v. UBS Fin. Servs., Inc. , 347 F.3d 436, 440 (2d Cir. 2003).
MVP correctly observes that the Commissioner of Financial Regulation administers the DFR and exercises broad authority over banking, securities, and insurance, including health insurance. This administrative authority includes authority to conduct investigations by subpoena, 8 V.S.A. § 13(a), to impose penalties and order restitution for violations of Title 8, id. § 13(d), to engage in rulemaking, id. § 15, to collect fees and expenses, id. § 19, and, in the area of health insurance, to regulate policy forms and premiums, id. § 4062. The Commissioner also exercises authority over licensure of insurance companies to do business within the state. Id. § 3301 et seq.
Within that broad authority to regulate the insurance business in Vermont, the Commissioner has the power to make rules, deny approval of policies, and in other ways take steps to enforce § 4089j. The DFR did so in May 2005 when it issued HCA Bulletin 114 advising the health insurance community ("all affected parties") of the enactment of § 4089j. (Doc. 1-1.) It in no way diminishes the regulatory authority of the Commissioner to point out that among its many areas of competency in the field of insurance regulation, jurisdiction over disputes between insurers and pharmacies or other providers of services appears to be absent. One likely reason for the omission is that the resolution of private disputes is commonly carried out in the court system.
DFR was at that time called the Department of Banking, Insurance, Securities, and Health Care Administration. The court refers to the Department as the DFR for simplicity.
There are a variety of legal claims that originate as administrative claims. These must be filed in the first instance with the agency. Claims for social security disability benefits and for Medicare benefits are examples of such claims in the federal system. See 42 U.S.C. § 405(g) (authorizing judicial review of any "final decision of the Commissioner of Social Security"); id. § 1395ff(b)(1)(A) (similar process for judicial review of administrative Medicare benefits determinations). In Vermont, the workers compensation statutes provide another example. See 21 V.S.A. § 670 (authorizing judicial review of administrative determinations in workers compensation cases).
The dispute in this case is not like a workers compensation claim or other case that must begin with an administrative claim. There are processes for state court review of the orders of the Commissioner of Financial Regulation. 8 V.S.A. §§ 16, 4088. But there is no such order in this case, nor would the court expect there to be any such order adjudicating HMC's private claim.
DFR does have a process for individual insureds (consumers) to register complaints related to insurance. See Dep't of Fin. Regulation, https://dfr.vermont.gov/consumers/file-complaint/insurance ("DFR Insurance Complaint Portal") (last visited Feb. 12, 2019). But that complaint process is explicitly "not an adjudicatory process." DFR Insurance Complaint Form (July 2015), https://dfr.vermont.gov/sites/finreg/files/doc_library/dfr-insurance-complaint-form.pdf And MVP has identified no administrative tribunal that hears claims by a provider against an insurer. See DFR Insurance Complaint Portal (note for healthcare providers indicates that "[t]his is an insurance consumer complaint process only").
In summary, there is no quasi-judicial administrative process for HMC to exhaust regarding its claim. Of course, it is conceivable that DFR might elect to use its regulatory powers to investigate or penalize MVP for the alleged violation of § 4089j. But the court is unpersuaded that factual development in that context would be necessary before engaging in factual development in the litigation process. Moreover, even if DFR elected to become involved in this dispute, it is unclear that DFR could completely redress HMC's alleged injuries. Because there is no established administrative claims process, there is no need to wait for the development of an administrative record. Waiting is highly unlikely to result in an improved record or more information. The parties appear to be an impasse in their efforts to resolve their dispute and, at least from HMC's perspective, require an answer about their obligations under § 4089j.
III. Burford Abstention
For very similar reasons, the court declines to abstain from hearing this case under the abstention doctrine articulated in Burford v. Sun Oil Co. , 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Burford abstention "is concerned with protecting complex state administrative processes from undue federal interference." New Orleans Pub. Serv., Inc. v. Council of New Orleans , 491 U.S. 350, 362, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989). Under the Burford abstention doctrine:
Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar; or (2) where the exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.
Liberty Mut. Ins. Co. v. Hurlbut , 585 F.3d 639, 649–50 (2d Cir. 2009) (quoting New Orleans Pub. Serv., Inc. , 491 U.S. at 361, 109 S.Ct. 2506 ). The court evaluates three factors to determine whether Burford abstention is appropriate: "(1) the degree of specificity of the state regulatory scheme; (2) the need to give one or another debatable construction to a state statute; and (3) whether the subject matter of the litigation is traditionally one of state concern." Id. at 650 (quoting Hachamovitch v. DeBuono , 159 F.3d 687, 697 (2d Cir. 1998) ).
The determining factor in this case is the first one. Notably, the mere existence of a complex state regulatory scheme is insufficient to satisfy the first factor. Sullivan v. Saint-Gobain Performance Plastics Corp. , 226 F. Supp. 3d 288, 294–95 (D. Vt. 2016). "[T]he focus is ‘on the extent to which the federal claim requires the federal court to meddle in a complex state scheme.’ " Id. (quoting Hachamovitch , 159 F.3d at 697 ).
Here, MVP can identify no administrative process that will be hampered by this lawsuit. The Vermont legislature has already chosen a policy answer to the dilemma presented by the consolidation of the delivery of medication in the hands of a few national pharmacy benefit managers. That choice was to adopt a version of the "any willing provider" laws that have been adopted in many states. This case does not concern the future direction of health policy, which is a highly complex problem best left in the hands of the executive and legislative branches. Rather, in the traditional manner in which courts operate, the question is whether to enforce a policy choice which has already been made through legislation.
Stated another way, the first Burford factor is not satisfied just because HMC's claim is premised on an alleged violation of § 4089j. The court is not "meddling" in any Vermont scheme by adjudicating this diversity action alleging a violation of that provision of Vermont state law. Indeed, "[t]he essence of diversity jurisdiction is that a federal court enforces State law and State policy." Nat'l Equip. Rental, Ltd. v. Reagin , 338 F.2d 759, 762 (2d Cir. 1964) (quoting Angel v. Bullington , 330 U.S. 183, 191, 67 S.Ct. 657, 91 L.Ed. 832 (1947) ).
This conclusion illustrates why the remaining two factors also do not favor Burford abstention here. The subject matter of this litigation involves the regulation of insurance, which has been recognized as an area of state concern. Mathias v. Lennon , 474 F. Supp. 949, 955 (S.D.N.Y. 1979) ("Burford abstention has been applied in numerous areas of state concern, including regulation of insurance." (footnote omitted)). But, as in Sullivan , nothing about this litigation will "disrupt" DFR's efforts to establish or apply policy. Sullivan , 226 F. Supp. 3d at 297. MVP articulates no circumstance under which any interpretation of § 4089j necessary for this litigation would be "dangerous to the success of state policies." Bethphage Lutheran Serv., Inc. v. Weicker , 965 F.2d 1239, 1243 (2d Cir. 1992).
IV. Primary Jurisdiction
The court also declines to step aside on grounds of primary jurisdiction. The doctrine of primary jurisdiction applies "whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body." Ellis v. Tribune Television Co. , 443 F.3d 71, 81 (2d Cir. 2006) (quoting United States v. W. Pac. R.R. Co. , 352 U.S. 59, 64, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956) ). There is no fixed formula for applying the doctrine of primary jurisdiction, but courts typically consider four factors:
(1) whether the question at issue is within the conventional experience of judges or whether it involves technical or policy considerations within the agency's particular field of expertise;
(2) whether the question at issue is particularly within the agency's discretion;
(3) whether there exists a substantial danger of inconsistent rulings; and
(4) whether a prior application to the agency has been made.
Schiller v. Tower Semiconductor Ltd. , 449 F.3d 286, 295 (2d Cir. 2006) (quoting Ellis , 443 F.3d at 82–83 ). "The court must also balance the advantages of applying the doctrine against the potential costs resulting from complications and delay in the administrative proceedings." Nat'l Commc'ns Ass'n, Inc. v. Am. Tel. & Tel. Co. , 46 F.3d 220, 223 (2d Cir. 1995).
Here, no rulemaking or other administrative action is underway or on the face of things appears particularly likely. The legislature has enacted a measure which requires parity between mail order and local pharmacies. The DFR issued administrative guidance in HCA Bulletin 114. There is no "claim tribunal" to which the parties can submit their dispute for resolution by an administrative judge. There is no other forum for this dispute than the state courts (and the federal court exercising diversity jurisdiction).
MVP relies on Meau v. Sentry Casualty Co. , No. 5:15-cv-67, 2016 WL 4491626 (D. Vt. Aug. 25, 2016). That case involved an injured former employee's claim against her former employer's workers compensation carrier. This court recognized that the questions at issue were within the conventional expertise of judges but concluded that the doctrine of primary jurisdiction applied and favored a stay, in part because a prior application was ongoing in that case. Id. at *5. Here, in contrast, there is no such ongoing proceeding before the DFR.
V. Fundamental Issue of Vermont Insurance Regulation
Finally, MVP argues that this action "raises a fundamental issue of the Vermont DFR's regulation of insurance that is best left to the state agency that is charged with its enforcement." (Doc. 8 at 21.) From the court's perspective, it was the Vermont legislature, not the administrative agency, which addressed the fundamental issue. That issue was resolved in general terms when § 4089j was enacted. This case presents interstitial issues of statutory interpretation, including consideration of the guidance provided by the agency in HCA Bulletin 114, which are commonly the province of the courts. It also presents an issue not raised in the motion to dismiss about the availability of a private civil remedy which has proven troublesome in other cases enforcing "any willing provider" statutes. But these are not reasons to step down in favor of an unidentified administrative proceeding.
CONCLUSION
MVP's motion to dismiss (Doc. 7) is DENIED.