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September 30, 1982


The opinion of the court was delivered by: William T. Hart, District Judge.


Plaintiffs Paul Feldman (d/b/a Norwood Pharmacy), Doretti Pharmacy, Inc., and Talcott Pharmacy, Inc. ("plaintiffs"), are owners and operators of retail pharmacies in Illinois. Each has participated in the prepaid prescription drug programs which are the focus of this lawsuit. The Fourth Amended Complaint names as defendants Health Care Service Corp., Aetna Life Insurance, Metropolitan Life Insurance, Paid Prescriptions Corp., and Pharmaceutical Card Systems, Inc. ("defendants"), individually as issuers, underwriters or administrators of prescription drug insurance programs in Illinois. (For convenience, the defendants are hereinafter sometimes referred to as the "insurer(s)").

The action has been brought under 15 U.S.C. § 1, 2, 15, and 28 U.S.C. § 2201, and the Court has jurisdiction pursuant to 28 U.S.C. § 1337(a). Plaintiffs brought suit as a class action, naming a defendant and plaintiff class, and demanded a jury trial. A motion for class certification as to both the plaintiff and defendant class was denied on November 23, 1981. The action is now before the Court on the motion of defendants for summary judgment.*fn1


The prepaid prescription drug programs*fn2 (often called "provider agreements") at issue in this case consist of two separate agreements. The first agreement is between the insurer and the insured. This agreement allows an insured to obtain prescription drugs from either a "participating" or "nonparticipating" pharmacy (these terms are defined below). If the insured obtains the drug from a participating pharmacy, he pays to the pharmacy a co-payment or deductible (if one exists), and after being billed by the pharmacy, the insurer pays the balance of the cost of the prescription. If, on the other hand, an insured chooses a nonparticipating pharmacy, he must pay the full retail price of the drug "up front" and must file a claim with the insurer for reimbursement. The reimbursement formula varies, but does not exceed the amount that would be reimbursed to a participating pharmacy. In general, it is more convenient and less expensive for the insured to obtain the drug from a participating pharmacy than from a nonparticipating pharmacy.

The second agreement is between the insurer and the individual pharmacy. Each agreement contains three price components: (1) the deductible or co-payment, which is collected by the pharmacy from the insured; (2) the ingredient cost, which equals or exceeds the pharmacy acquisition cost of the drug and is paid directly to the pharmacy by the insurer; and (3) the dispensing fee. This latter amount, which is intended to reflect a reasonable profit for the pharmacy, varies and is intended to reflect market prices. It too is paid directly to the pharmacy by the insurer.

The terms of the plan and the amounts of the three price components are set by the insurer. The agreement is submitted by the insurer to the pharmacy on a "take it or leave it" basis: the pharmacy may "take it" and become a "participating" pharmacy; or it may "leave it" and remain a "nonparticipating" pharmacy. While the agreement allows the participating pharmacy to discount the co-payment or deductible collected from the insured, it prohibits the pharmacy from charging the insured more than the fixed co-payment or deductible. A pharmacy is free to sign multiple agreements with several insurers.

Plaintiffs' Complaints

Plaintiffs filed their original complaint on June 30, 1978. The first of their several claims alleged an agreement, combination or conspiracy among the defendants to "fix, lower, stabilize and maintain the retail prices of prescription drugs and professional pharmaceutical services," in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiffs also alleged a combination or conspiracy between the defendants and "large retail pharmacy chains in the state of Illinois" to monopolize by setting prices and fees below the level "at which small independent pharmacies can profitably conduct business," allegedly in violation of Sections 1 and 2 of the Sherman Act. This complaint did not identify any of the "large retail chains" referred to, nor did it name any "large retail pharmacy chains" as defendants.

On March 20, 1980, plaintiffs were granted leave to file an amended complaint so as to allow them to delete the allegations of a horizontal conspiracy in the original complaint and to allege the theory of a per se violation of Section 1 of the Sherman Act. The amended complaint as filed on March 31, 1980 added Osco Drugs and Walgreen Drugs as new defendants, added claims under the Robinson Patman Act, and contained a new plaintiff class definition.

On October 6, 1980, this Court granted defendants' motion to strike the amended complaint, holding that the leave granted to file an amended complaint was not intended to allow the type of amendments that were made by plaintiffs.

Thereafter, on October 16, 1980, plaintiffs moved for leave to file their second amended complaint. On October 23, 1980, plaintiffs moved for leave to file their third amended complaint. On November 4, 1980, plaintiffs' motions for leave to file their second, third, and fourth amended complaints were entered and continued to November 12, 1980.

Finally, on November 12, 1980, plaintiffs were given leave to file instanter a two count Fourth Amended Complaint ("the Complaint"). Count I of the Complaint alleges that defendants' prepaid prescription programs constitute per se illegal price-fixing, or alternatively are unreasonable restraints of trade, injuring plaintiffs and their class of participating pharmacies in violation of Section I of the Sherman Act. The gravamen of Count I is that defendants' alleged "practices have set pharmacy prices and fees at a level below the usual and customary fees and prices charged by small, independent pharmacies" (Paragraph 19, Complaint), and that as a result plaintiffs have been "forced to sell their professional services and goods at artificially low prices" (Paragraph 22(c), Complaint).

Summary Judgment

Defendants now move for summary judgment, contending that the pleadings filed and the ample discovery taken to date, combined with recent legal developments, establish that there are no genuine issues as to any material facts, and that as a matter of law they are entitled to summary judgment on both counts.

Plaintiffs oppose the summary judgment motion, arguing that there do exist genuine issues of fact and law to be resolved at trial. Plaintiffs allege that the Complaint and record establish a prima facie case of a per se violation under the Sherman Act. In support of their position, plaintiffs allege three alternative theories of per se liability.

First, they claim that the agreements between the pharmacies and the insurers constitute a form of resale price maintenance. Under this theory, plaintiffs contend that the actual drug purchaser is the consumer, that the seller is the pharmacy, and that the defendants have fixed the price of the pharmacy — consumer transaction (Count I).

Second, plaintiffs claim that the provider agreements are illegal group buying or group agency agreements to fix the sale price of pharmaceuticals. Under this theory, plaintiffs contend that defendants, their policyholders and the consumers have agreed to purchase prescription drugs at a uniform price (Count I).

Under a third theory of per se liability, plaintiffs allege that defendants conspired with large chain store pharmacies to monopolize the relevant retail market by ...

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