Pharmacies’ Antitrust Suit Fails Because They Could Not Prove a Monopoly Existed

Two small pharmacies sued a pharmacy benefits manager for antitrust violations, alleging that the benefits manager had conspired with Walgreens to drive the small pharmacies from the benefits manager’s network and therefore harm their business. The district court ruled in favor of the benefits manager. After appealing, the 7th Circuit found that the pharmacies had not alleged that either the benefits manager or Walgreens had monopoly power in the relevant markets as required under Section 2 of the Sherman Act, and it, therefore, affirmed the decision of the district court.

Prime Therapeutics LLC is a pharmacy benefits manager. Sharif Pharmacy, Inc. and J&S Community Pharmacy, Inc. were both members of the Prime pharmacy network. Under Medicare, Medicaid, and private health insurance plans, patients had significant financial incentives to buy their prescription drugs from pharmacies within the network. Prime eventually terminated both Sharif and J&S from the network after audits uncovered irregularities in invoicing for prescription drugs.

Both Sharif and J&S filed suits against Prime, alleging violations of the Sherman Antitrust Act. Three customers who had to temporarily move their prescriptions to less convenient pharmacies also joined the suits. Both Sharif and J&S alleged that Prime’s decision to audit their pharmacies was pretextual, in an effort to eject competing pharmacies from the network after Prime entered into a joint venture with Walgreens in 2016. Sharif and J&S noted that Prime sent letters to both pharmacies’ customers saying that Sharif and J&S would no longer accept their insurance and recommending that customers have their prescriptions filled at a nearby Walgreens. Prime also retained funds from both pharmacies as a result of the audits. The district courts both ruled in favor of Prime, and Sharif and J&S appealed. The 7th Circuit consolidated then consolidated the appeals.

The appellate panel began by noting that, while the appeal was pending, J&S obtained reinstatement in the Prime network. J&S then moved to dismiss its appeal voluntarily under Federal Rule of Appellate Procedure 42(b). The panel granted that motion, and therefore J&S was no longer asserting any claims in the suit. The panel then found that the customer-plaintiffs in the J&S suit lacked standing to sue for damages under Illinois Brick Co. v. Illinois, and the relief they sought would duplicate any relief that J&S could have sought on its own behalf. The panel, therefore, affirmed the dismissal of the J&S suit.

Next, the panel turned to the Sharif suit. The panel noted that Sharif alleged a variant on a claim for exclusive dealing and/or refusal to deal, arguing that Prime preferred to deal with Walgreens rather than Sharif. The panel then stated that, to prevail, Sharif needed to allege that Prime and/or Walgreens either had or were dangerously likely to obtain monopoly power in a relevant market. The panel then found that Sharif had not plausibly alleged that either Prime or Walgreens had or threatened to gain monopoly power in a relevant geographic market. The panel stated that Sharif’s assertion that Prime and Walgreens merely sought to increase their market shares did not come close to satisfying the requirement of actual or threatened monopoly power.

Finally, the panel determined that Sharif also failed to plead a proper product market. The panel stated that Sharif had not pled facts sufficient to support an inference that Prime and Walgreens had the requisite market power within a viable product market for retail prescription drugs. The panel, therefore, affirmed the decisions of the district courts.

You can view the full decision here.

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