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Pirelli Armstrong Tire Corp., Retiree Medical Benefits Trust v. Walgreen Co.

February 18, 2010

PIRELLI ARMSTRONG TIRE CORPORATION, RETIREE MEDICAL BENEFITS TRUST INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
WALGREEN CO., DEFENDANT.



The opinion of the court was delivered by: Virginia M. Kendall United States District Court Judge Northern District of Illinois

Judge Virginia M. Kendall

MEMORANDUM OPINION & ORDER

Plaintiff Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust ("Pirelli") filed a class-action complaint against Defendant Walgreen Company ("Walgreens"), individually and on behalf of all others similarly situated, alleging unjust enrichment (Count I) and violation of thirty-five state consumer protection statutes (Count II). After the Court dismissed Pirelli's original complaint, Pirelli filed its First Amended Class Action Complaint ("Amended Complaint"). Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) ("Rule 12(b)(6)" and "Rule 9(b)"), Walgreens moves this Court to dismiss Pirelli's Amended Complaint. For the reasons stated below, the Court grants Walgreens' Motion to Dismiss.

BACKGROUND

The following facts are taken from Pirelli's Amended Complaint and are accepted as true for the purposes of deciding this Motion to Dismiss. See Moranski v. GMC, 433 F.3d 537, 539 (7th Cir. 2005). Pirelli is a voluntary employee benefits association maintained under the Employment Retirement Income Security Act, 29 U.S.C. §§ 1132, et seq., that provides health and medical benefits to participants and their beneficiaries. Amend. Compl. ¶ 5. Walgreens is an Illinois corporation that operates approximately 7,000 retail pharmacies. Amend. Compl. ¶ 6. As a third-party payor ("TPP"), Pirelli reimburses pharmacies like Walgreens for prescription drugs purchased by plan participants and their beneficiaries. Amend. Compl. ¶ 1. Pirelli alleges that Walgreens engaged in an unlawful scheme to overcharge TPPs when dispensing generic versions of ranitidine HCI ("ranitidine") and fluoxetine hydrochloride ("fluoxetine"). Amend. Compl. ¶ 1.

I. Pirelli's Allegations Retained from Original Complaint

When a generic drug is found to be bioequivalent to a brand-name drug, the FDA assigns it an "AB" rating, and it can be used interchangeably with the brand-name drug. Amend. Compl. ¶¶ 8, 10. Because of the differences in form and administration schedules between capsules and tablets, however, pharmacists may never substitute a capsule version of a drug with the tablet form, or vice versa. Amend. Compl. ¶ 11. Between 2001 and 2005, Walgreens filled prescriptions for the tablet form of certain drugs with the capsule form and filled prescriptions for the capsule form with the tablet form. Amend. Compl. ¶ 1. As a result of these substitutions, Pirelli and other TPPs reimbursed Walgreens two to four times more than they would have if the prescriptions were filled as written. Amend. Compl. ¶ 1.

This reimbursement rate is the primary source of dispute between Pirelli and Walgreens. Individuals with private insurance through a TPP like Pirelli only pay a flat or percentage "co-pay" for prescription drugs and the remainder is paid by the TPP. Amend. Compl. ¶ 12. While pharmacies determine what price they charge insured customers, the reimbursement rate is generally established by pharmacy benefit managers ("PBMs") acting on behalf of TPPs. Amend. Compl. ¶ 13. The reimbursement rate almost universally consists of the ingredient cost portion and the dispensing fee. Amend. Compl. ¶ 14. The ingredient cost for most generic drugs is based on a Maximum Allowable Cost ("MAC") determined by a TPP or PBM as the most they will reimburse the pharmacy for that drug. Amend. Compl. ¶ 15. The MAC is determined by gathering the prices of each manufacturer's version of a generic drug and using a formula based on Average Wholesale Price ("AWP"). Amend. Compl ¶ 17. The AWP, published by drug manufacturers, is the standard benchmark for reimbursement of brand-name drugs, but it is only used to determine the reimbursement rate of generic drugs when there is no MAC price available. Amend. Compl ¶ 17.Pharmacies tend to earn greater profits selling generic drugs that are priced based on AWP as opposed to those subject to MAC limitations. Amend. Compl. ¶ 18.

During the relevant period, Pirelli's PBM established the reimbursement rate for generic drugs at AWP-14% plus a $2.50 dispensing fee or MAC plus a $2.50 dispensing fee, whichever was applicable, for certain plan beneficiaries, and AWP-35% plus a $1.90 dispensing fee or MAC plus a $1.90 dispensing fee, whichever was applicable, for other plan beneficiaries. Amend. Compl. ¶ 20. Ranitidine is usually manufactured and marketed in tablet form, while fluoxetine is generally manufactured and marketed in capsule form. Amend. Compl. ¶¶ 21, 23. Because ranitidine capsules and fluoxetine tablets were produced by so few manufactures and rarely prescribed, MACs were not adopted for these drugs in those respective forms. Amend Compl. ¶¶ 22, 24. Absent a MAC, reimbursement for the drugs in these forms generally involves the application of an AWP-based formula, resulting in a higher reimbursement rate. Amend Compl. ¶¶ 22, 24.

Pirelli alleges that Walgreens' corporate policy was to systematically change prescriptions written for dosage forms that were subject to MAC reimbursement limits, enabling Walgreens to evade the MACs and take advantage of the pricing differential between the tablet and capsule forms. Amend. Compl. ¶ 26. Pirelli claims that Walgreens pharmaceutical distribution system was set up so that it was difficult to fill prescriptions in dosage forms that were subject to MACs. Amend. Compl. ¶ 27. In support of its allegation, Pirelli cites to testimony by a former Walgreens pharmacist in a qui tam action ("the qui tam case") claiming that: 1) Walgreens personnel filled orders for ranitidine tablets with capsules; 2) Walgreens' pharmaceutical dispensing computer system allowed pharmacists to switch dosage forms; and 3) pharmacists regularly did this without obtaining the legally required physician's authorization. Amend. Compl. ¶ 27(citing United States of America ex rel. Bernard Lisitza v. Walgreen Co., No. 03-C-744 (N.D. Ill.)).

Pirelli claims that on several occasions it reimbursed Walgreens for the more expensive dosage form when the less expensive form was available. Amend. Compl. ¶ 35. One Pirelli member's prescription history from November 2001 to May 2005 shows that the reimbursement rate charged to Pirelli by Walgreens for ranitidine was at least $68.79, while Pirelli paid no more than $14.97 to other pharmacies. Amend. Compl. ¶ 35. Although the reimbursement rate paid by Pirelli to Walgreens was substantially higher for ranitidine, the individual patient's co-payment remained constant, ranging from $8-$10 during the period in question. Amend. Compl. ¶ 35. On June 4, 2008, the qui tam case was unsealed and Pirelli learned of Walgreens practice of switching dosage forms. Amend. Comp. ¶ 37. Ten months later, Pirelli filed its initial class action complaint against Walgreens in this case. Walgreens filed a timely Motion to Dismiss pursuant to Rule 12(b)(6) and Rule 9(b). The Court dismissed Pirelli's original complaint without prejudice for failure to state a claim on which relief could be granted, finding that the consumer fraud allegations failed to meet the heightened pleading requirements of Rule 9(b) and that the unjust enrichment claim could not survive without an underlying fraud claim. On September 29, 2009, Pirelli filed an Amended Complaint with a series of exhibits appended.

II. Additional Facts in Pirelli's Amended Complaint

Pirelli has reproduced most of its original complaint in its Amended Complaint, making a few notable changes. The Amended Complaint drops all allegations with respect to selegiline, instead stating claims based solely on Walgreens' conduct with respect to fluoxetine and ranitidine. Amend. Compl. ¶ 1. The Amended Complaint also explains that pharmacies like Walgreens make a greater profit on generic drugs priced based on AWPs than generics priced based on MACs because MACs are determined based on actual prices in the marketplace, while AWPs are benchmark prices that often bear no resemblance to prices in the marketplace. Amend. Compl. ¶ 17.

The Amended Complaint then provides some additional details about transactions by Pirelli members during the Class Period. Exhibit A to the Amended Complaint contains a table setting out a series of transactions by Pirelli members at various Walgreens locations. Amend. Compl. Ex. A. For each transaction, Pirelli provides (1) the member ID, (2) the fill date, (3) the drug dispensed, (4) the quantity, (5) the co-pay by the Pirelli member, (6) the portion paid by Pirelli, and (7) the location of the Walgreens where the transaction took place. Amend. Compl. Ex. A. The Amended Complaint then adds two additional examples of Pirelli's members' transactions during the Class Period. One member's transactions from July 1, 2000 through December 15, 2003 show that a Walgreens in River Ridge, Louisiana charged Pirelli at least $42.80 and as much as $74.81 for a set quantity of ranitidine while other pharmacies charged Pirelli between $0.75 and $49.13. Amend. Compl. ΒΆ 35. Another member's transactions between July 25, 2000 and December 30, 2002 show that a Walgreens in Des Moines, Iowa charged Pirelli $51.44 for a set quantity of ranitidine, while other pharmacies charged no more than $14.37 for the same quantity. Amend. ...


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