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Eastern District Of Pennsylvania Grants Defendants’ Motion To Dismiss Allegations Of Tying Discounted Drug Prices With Third-Party Administrator Use
03/11/2025On February 26, 2025, Judge Mia Perez of the United States District Court for the Eastern District of Pennsylvania granted defendants’ motion to dismiss plaintiff’s Sherman Act and Clayton Act claims, though the plaintiff had already conceded the Clayton Act claim during briefing. Brandywine Hospital, LLC v. CVS Health Corp., et al., No. 2:23-cv-01458-MRP (E.D. Pa. Feb. 26, 2025).
On April 17, 2024, plaintiff filed a class action against defendants alleging an illegal tying arrangement in violation of Sherman Act §§ 1 and 2 and Clayton Act § 3 related to the 340B Drug Pricing Program (“340B Program”), established by the Veterans Health Care Act of 1992. The 340B Program allows certain eligible healthcare providers (“Covered Entities”) to purchase outpatient drugs at significantly lower prices. Covered Entities contract with pharmacies (“Contract Pharmacies”) to distribute these discounted drugs and rely on third-party administrators (“TPAs”) to manage compliance and administration.
A tying arrangement occurs when a seller makes the sale of one product (the tying product) contingent on the purchase of another distinct product (the tied product). Tying arrangement claims can be analyzed under a per se or rule of reason standard. Plaintiff, a Covered Entity, alleged that defendants conditioned access to 340B Program savings on Covered Entities’ use of Wellpartner, a TPA wholly owned by defendants. According to plaintiff, Covered Entities could choose any TPA for defendant-related prescriptions prior to defendants’ 2017 acquisition of Wellpartner but were required to use Wellpartner thereafter. Plaintiff contended that this constituted an illegal tying arrangement in violation of Sherman Act §§ 1 and 2 and Clayton Act § 3, which restrained competition, excluded other TPAs, and forced payment of inflated prices for Wellpartner services, among others.
Plaintiff identified the relevant tying product market as the “CVS Contract Pharmacy Market” and the tied product market as the “TPA Services Market.” The court found the tying product market to be too narrow, as it only included defendant Contract Pharmacies and excluded other Contract Pharmacies capable of serving Covered Entities. The court noted that single brand product markets are generally disfavored unless exceptional market conditions exist, which plaintiff failed to demonstrate (as nothing prohibits Covered Entities from contracting with non-defendant pharmacies to fill prescriptions under the 340B Program). Consequently, the court concluded that plaintiffs’ per se tying claim failed as a matter of law.
The court then also analyzed plaintiff’s claims under the rule of reason standard, which requires allegations that the tying arrangement caused competitive harm to the whole of the tied market. Plaintiff alleged that defendants’ conduct led to artificially high prices for Wellpartner’s TPA services and removed Covered Entities’ TPA choice when working with defendants’ pharmacies. However, the court determined that plaintiff’s allegations were limited to a subset of the TPA Services Market involving only defendant Contract Pharmacies, rather than the broader TPA Services Market including all TPA services provided to Covered Entities by all Contract Pharmacies. According to the court, plaintiff’s conclusory allegations of supracompetitive prices in a small subset of the tied product market, here defendant Contract Pharmacies, were insufficient under the rule of reason. Therefore, the court also dismissed plaintiff’s rule of reason claim.
As such, the court dismissed plaintiff’s Sherman Act claim without prejudice, permitting plaintiff to refile to address the pleading deficiencies. Plaintiff’s Clayton Act claim was dismissed with prejudice, as plaintiff previously admitted it should be dismissed.
