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DMS Pharmaceutical Group v. County of Cook

December 29, 2003


Appeal from the Circuit Court of Cook County. Nos. 02 CH 1619 & 02 CH 11229 Honorable Nancy J. Arnold, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice O'malley


Plaintiff, DMS Pharmaceutical Group, Inc., filed a three-count complaint for declaratory and injunctive relief, a motion for a temporary restraining order and a preliminary injunction against defendant, the County of Cook (the County). Plaintiff alleged that the County violated state law and its own competitive bidding ordinance by using requests for information (RFI) and requests for proposals (RFP) to award a contract to supply prescription medication and other pharmaceuticals to the County. The County filed a motion to dismiss plaintiff's complaint arguing that it was not subject to the competitive bidding laws due to its status as a home rule entity under the Illinois Constitution and that the contract at issue was not adapted to competitive bidding.

The trial court granted the County's motion to dismiss on count I and plaintiff voluntarily dismissed counts II and III against the County. Plaintiff filed this timely appeal (No. 1-02-1347) arguing that the trial court erred by dismissing count I and urging this court to reverse the trial court and remand this case for further proceedings.

Plaintiff subsequently brought a separate suit for declaratory and injunctive relief in the circuit court against the County claiming that the County's Board of Commissioners (the Board) improperly delegated its power to expend taxpayer funds for the purchase of pharmaceuticals to the County's comptroller. The parties filed cross-motions for summary judgment and the trial court entered judgment on the merits in favor of the County and against plaintiff.

Plaintiff filed a subsequent timely appeal (No. 1-02-3436) alleging that the trial court erred by not entering declaratory and injunctive relief against the County and by impermissibly depriving it of any remedy. Plaintiff also argues that the trial court erred by not finding that the County unconstitutionally delegated its power to the comptroller and effectuated an unconstitutional change of government.

This court, sua sponte, moved to consolidate the two cases because each appeal is based on related actions of the County. For the reasons that follow we affirm the judgment of the trial court in appeal numbers 1-02-1347 and 1-02-3436.


Appeal Number 1-02-1347

Plaintiff brought the action referenced in appeal number 1-02-1347 against the County challenging its methods for selecting a prime vendor to supply its pharmaceutical needs. In 1999, a task force appointed by the Cook County Bureau of Health Services (CCBHS) determined that the County should pursue a prime-vendor contract for the purchase of its prescription medications. The CCBHS is responsible for hospital facilities operated by the County, and it was estimated that a prime-vendor contract would cost the County approximately $220 million over a three-year period. These facilities include Stroger Hospital of Cook County, Oak Forest Hospital of Cook County, Provident Hospital of Cook County, Cermak Health Services of Cook County, the Ambulatory and Community Health Network of Cook County, the C.O.R.E. Center and the Cook County department of health. Plaintiff had been a vendor of pharmaceuticals to the County for about five years prior to the RFP.

Count I of plaintiff's complaint *fn1 contends that section 5-36006 of the Illinois Counties Code (55 ILCS 5/5-36006 (West 2000)) (the Code) and section 10-18 of the Cook County Appropriations and Bidding Ordinance (the Ordinance) (Cook County Appropriations and Bidding Ordinance §§ 10-18, 10-19 (1994)), require the County to submit contracts for supplies in excess of $10,000 through competitive bidding. Instead of submitting the contract for competitive bidding, the County issued an RFI and an RFP to certain vendors, including plaintiff, to develop a plan to meet the County's needs relative to pharmaceuticals. Several proposals were submitted to the County, including a proposal from plaintiff. On November 28, 2001, at the conclusion of the RFP process, the CCBHS and the finance committee *fn2 recommended that the the County negotiate a prospective contract with McKesson Pharmaceuticals (McKesson), plaintiff's competitor.

Section 5-36006 of the Code provides in pertinent part:

"The purchases of and contracts for supplies, materials, equipment and contractual services *** shall be based on competitive bids. If the amount involved is estimated to exceed $10,000, sealed bids shall be solicited by public notice ***." 55 ILCS 5/5-36006 (West 2000).

Section 10-18 of the Ordinance provides in pertinent part: "Purchases of contracts and supplies, materials, equipment, and contractual services *** shall be based on competitive bids." Cook County Appropriations and Bidding Ordinance § 10-18 (1994).

On January 23, 2002, plaintiff filed a verified complaint for declaratory and injunctive relief and motions for a temporary restraining order and a preliminary injunction. Plaintiff claimed that use of the RFP process was a violation of state and County law.

The County responds that plaintiff's recitation of the applicable facts in its brief is "woefully inadequate." On June 28, 2002, the County executed a three-year contract with McKesson, a single wholesaler of pharmaceutical products, for the procurement of prescription medications and services for the CCBHS. Prior to this contract, the County had purchased its pharmaceuticals through a series of contracts, which the CCBHS determined was inefficient, caused unacceptable delays in receiving medications and was very costly to the taxpayers.

The County's execution of the contract with McKesson was the culmination of a long, involved process in which the County attempted to address the problems relating to the timely delivery of critically needed medication and the unacceptably expensive delivery of pharmaceuticals. The County procures pharmaceuticals to serve the medical needs of approximately 500,000 low income and indigent citizens of Cook County. After several years of procuring its pharmaceuticals through the competitive bidding of multiple contracts, it became apparent that the old system was seriously flawed and unworkable.

Some of the issues plaguing the County were: frequent stock outages of necessary prescription medications, the recurring need to purchase large quantities of pharmaceuticals on an emergency basis to meet the day-to-day needs for critical drugs, excessive delays between the placement of orders and the delivery of pharmaceuticals to the CCBHS, the need to keep large stores of pharmaceuticals on hand in CCBHS pharmacies to assure availability, which resulted in huge fronting costs and spoilage, patient safety concerns resulting from drug shortages, the need to reduce the costs associated with delivery and an expanding clerical staff, and the crucial need to integrate a computerized system of tracking and ordering necessary pharmaceuticals on a 24-hour basis.

The CCBHS formed a committee to address and resolve the problems consisting of the directors of the four CCBHS pharmacies, the CCBHS's chief financial officer, hospital administrators and physicians (the CCBHS committee). The CCBHS committee studied some of the largest public health facilities in the nation, such as those in New York City, Houston, Denver, Los Angeles, Fort Worth, Dallas, San Francisco and the Veterans Administration in Chicago. The research revealed that the study subjects all used prime vendor arrangements, same-day electronic ordering, immediate product delivery services, group purchasing arrangements, instant stock delivery, alternative product choices and reductions in inventory. The CCBHS committee determined that similar systemic changes in the County's procurement system would greatly exceed the savings that would be expected from simply purchasing its pharmaceuticals at the lowest possible price.

In July, 2000, the CCBHS committee prepared and issued an RFI to ascertain ideas interest and the potential capabilities of various wholesalers and purchasing organizations, including plaintiff. In May 2001, an RFP was issued and was intended as an administrative mechanism to identify prospective vendors that the CCBHS would consider recommending to the Board for the possible negotiation of a contract. The RFP indicated that the estimated amount of the contract was approximately $217 million over a three-year period. The RFP also had language stating that awarding the contract was subject to the approval and consideration of the Board, which may accept or reject any proposed contract in its sole discretion. Additionally, as this was not an invitation to bid, specific dollar amounts were not required and a contract to a specific proposer was not granted after the proposals were reviewed.

Relative to the review process, the County maintains that it evaluated the ability of the proposers to meet the changing needs of the County. Such factors included the proposer's size, breadth of experience, logistical capabilities, group purchasing arrangements, software competence, and overall corporate and financial breadth to consistently deliver a program which meets the unique size, mission and needs of the County. The "varied and changing needs," as the County puts it, reflect the County's role as the Midwest Region's Primary Response Center for medical emergency responses in the face of toxic or bio-chemical emergencies or attacks and the County's role as a provider of medical services to the indigent.

The County then reviewed the proposals and selected McKesson as the vendor with which it would contract *fn3 and decided not to negotiate with plaintiff. The County listed the following reasons why it chose to deal with McKesson and not plaintiff: McKesson has gross sales of over $1 billion, compared to plaintiff's gross sales of $35 million. McKesson services 5,000 institutions, while plaintiff services eight hospitals. McKesson has a sophisticated computer ordering and tracking system, plaintiff does not. McKesson distributes products nationwide and has multiple distribution centers and can guarantee next-day delivery from a variety of warehouses. Plaintiff has only one warehouse and, in the County's experience with plaintiff, has been plagued by an inability to deliver critical goods, not in days, but weeks. McKesson has the ability to fill 98% of drug needs within a 24-hour span and can deliver products on a seven-day basis. Plaintiff declined to provide Sunday deliveries and offered limited Saturday deliveries. McKesson has several thousand employees while plaintiff has 24. Plaintiff represented to the County that it served one other hospital in Cook County, but it declined to reveal the identity of the institution. McKesson identified and provided the names of contact persons for the institutions it serves, including the University of Chicago, University of Illinois at Chicago Hospital, Trinity Hospital, Christ Hospital and Ravenswood Hospital, all of which are located in Cook County.

On January 23, 2002, plaintiff filed its first lawsuit against the County, which the trial court dismissed pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 2000)). Plaintiff now appeals to this court, contending that the trial court erred in dismissing its complaint against the county because: (1) no legislative act authorized the County's violation of its own competitive bidding ordinance; (2) the County could not ignore its mandatory bidding ordinance in awarding the contract to McKesson; and (3) the contract does not fall within the professional services exception to the bidding ordinance. The County claims that: (1) it has no duty to competitively bid contracts for the delivery of pharmaceutical products; (2) American Health Care Providers, Inc. v. County of Cook, 265 Ill. ...

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