NORTH JACKSON PHARMACY, INC. et al v. EXPRESS SCRIPTS INC et al

Filing 55

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE C. DARNELL JONES, II ON 1/18/2017. 1/18/2017 ENTERED AND COPIES MAILED AND E-MAILED. (SEE PAPER # 282 IN 06-MD-1782) (ems)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
In re PHARMACY BENEFIT MANAGERS
ANTITRUST LITIGATION
_______________________________________
BRADY ENTERPRISES, INC., et al.
Plaintiffs,
v.
MEDCO HEALTH SOLUTIONS, INC.
Defendant.
_______________________________________
NORTH JACKSON PHARMACY, INC. and
C&C INC., d/b/a/ BIG C DISCOUNT DRUGS,
Plaintiffs,
v.
CAREMARK RX INC., et al,
Defendants.
_______________________________________
NORTH JACKSON PHARMACY, INC.,
Plaintiff,
v.
EXPRESS SCRIPTS, INC., et al,
Defendants.
_______________________________________

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Civil Action No. 06-1782

Civil Action No. 03-4730

Civil Action No. 06-4305

Civil Action No. 06-4114

NORTH JACKSON PHARMACY, INC.,

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Plaintiff,
v.
MEDCO HEALTH SOLUTIONS INC.
Defendant.

Civil Action No. 06-4115

MEMORANDUM
C. Darnell Jones, II J.
I.

January 18, 2017

Introduction

This long pending multidistrict litigation involves antitrust claims brought by several
Plaintiffs against companies engaged in the business of providing pharmaceutical benefits
management services. 1 In the various suits, Plaintiffs allege that Defendants engaged in one or
more price fixing conspiracies that resulted in reducing the amounts reimbursed to independent
pharmacies for prescriptions they filled for participants of the drug benefit plans administered by
the Defendants. In Civil Action 06-4305 (hereinafter “the lead case” or “Caremark”), Plaintiffs
North Jackson Pharmacy, Inc. (“North Jackson”) and C&C Inc., d/b/a/ Big C Discount Drugs
(“Big C”) (collectively “Plaintiffs”) allege antitrust claims on behalf of a class of independent
pharmacies 2 (“IPs”) against Defendants Caremark Inc. (n/k/a/ Caremark, L.L.C.) and related
entities (collectively “Caremark”). Plaintiffs allege two illegal conspiracies to control the prices
1

The lead case, assigned Civil Action No. 06-4305 in this District, was originally filed in
2003 in the United States District Court for the Northern District of Alabama, and the operative
Second Amended Class Action Complaint (“SAC”) was filed on June 22, 2004. The Judicial
Panel on Multidistrict Litigation consolidated the above captioned cases for pre-trial proceedings
in the United States District Court for the Eastern District of Pennsylvania in 2006. The MDL
was previously assigned to two other judges. (See Judicial Panel on Multidistrict Litigation
MDL 1782 Transfer Order dated August 24, 2006 (attached hereto as App’x A).)
2
Plaintiffs define “independent pharmacies” as having five or fewer locations. “Chain
pharmacies” are defined as having six or more locations. (SAC ¶ 1.)
2

paid to IPs in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, namely that: (1)
Caremark and other Pharmacy Benefit Managers (“PBMs”) conspired with their clients — health
plans run by employers, labor unions, health insurers and health maintenance organizations — to
fix prices paid to IPs; and (2) Caremark conspired with other PBMs including Express Scripts,
Advance PCS 3 and Medco in a horizontal price fixing scheme to set reimbursement rates at
unconscionable and punitively low levels.
Presently awaiting decision in the lead case are a Motion for class certification pursuant
to Fed. R. Civ. P. 23, and a Motion by Caremark to exclude Plaintiffs’ expert evidence.
Presently awaiting decision in Civil Action 06-4114 (“Express Scripts”), a class action brought
by North Jackson against Express Scripts, Inc. (“Express Scripts”) and Civil Action 06-4115
(“Medco”), a class action brought by North Jackson against Medco Health Solutions, Inc.
(“Medco”), is a Motion to decertify a class that was certified before the case became part of the
MDL. Presently awaiting decision in Civil Action 03-4730 (“Brady”) is a class certification
Motion similar to that pending in Caremark. For the following reasons, Caremark’s Motion to
exclude expert evidence shall be granted, Plaintiffs’ Motions for class certification in the lead
case and in Brady shall be denied, and the class previously certified in Express Scripts and
Medco shall be decertified.

3

After this action was initially filed in the United States District Court for the Northern
District of Alabama, AdvancePCS was acquired by Caremark. See In re Pharmacy Benefit
Managers Antitrust Litig., 582 F.3d 432, 434 n.1, 437 (3d Cir. 2009) (noting acquisition occurred
in March 2004).
3

II.

The Class Certification Record in Caremark4
a.

Background

North Jackson is an IP in Jackson County, Alabama owned by Bryan Hicks. (See No. 064305, ECF 1, SAC ¶ 9; see also 06-MD-1782, ECF 248-2, Declaration of Bryan Hicks (“Hicks
Decl.”) ¶ 1-2 5; ECF 261-3, Hicks June 29, 2005 Dep. at 1.) Big C is an IP in Jackson County,
Alabama owned in part by Dexter Cordes. (See SAC ¶ 10; ECF 261-4, Cordes June 28, 2005
Dep. at 1.) Plaintiffs seek to represent a class of “[a]ll independent pharmacies within the
boundaries of the United States who contracted with any of the named Defendants, . . . to
dispense and sell prescription drugs for any client payors” during the period of 1993 to the
present (the ‘Class Period’).” (SAC ¶ 35.) According to a declaration provided by Gregory
Madsen, Caremark’s Senior Vice President, Retail Services, in 2006 there were about 25,000
pharmacies that Caremark considered to be IPs. (ECF 261-5, Madsen Decl. ¶ 12.) IPs are
dispersed throughout the United States, including in both large urban settings and rural areas.
(See id. ¶ 15.) Some IPs may have significant buying power, while others may not, depending
on the competitive conditions of each particular market. (See id. ¶¶ 13, 15.)
PBMs like Caremark contract with entities that sponsor prescription drug benefit
programs such as employers, labor unions, health insurance plans, and health maintenance
organizations (collectively “Plan Sponsors”) to act as a third-party administrator for the Plan
Sponsors’ programs. (See ECF 260-2, Aug. 2005 FTC Study Pharmacy Benefit Managers:

4

An Order entered on January 27, 2012 permitted Plaintiffs in Caremark to conduct
additional class certification discovery and submit an amended Motion for class certification.
(See ECF 171.) That Order also provided that, for the sake of efficiency and judicial economy,
the class certification motions filed in the other MDL cases would be held under advisement
while discovery proceeded in the lead case.
5
Unless otherwise noted, all other ECF citations are to 06-MD-1782, the master MDL
file for this litigation.
4

Ownership of Mail-Order Pharmacies, at 1-3 (“2005 FTC Study”).) To fulfil their contracts
with Plan Sponsors, PBMs contract with pharmacies in order to build networks of retail
pharmacies that can provide the Plan Sponsors’ enrollees with convenient access to
prescriptions. (See id. at 1.)
Plaintiffs allege two distinct antitrust conspiracies under Section 1 of the Sherman Act
wherein Caremark conspired to reimburse IPs at a lower rate than what it paid to Chain
Pharmacies. First, Plaintiffs allege that Defendants are agents for their clients, the health plans,
in fixing prices to IPs (the “Plan Sponsor Conspiracy”). (See SAC ¶¶ 66, 71; ECF 248 at 1
(“First, Plaintiffs allege that Caremark and other PBMs reached an unlawful agreement with their
client payors.”).) Plaintiffs allege that various health plans acted through Defendants in a
horizontal conspiracy to lower the prices that they paid to IPs for prescription dispensing
services. 6 (See SAC ¶ 71.) Second, Plaintiffs allege that PBMs conspired with one another in a

6

See also SAC ¶ 5d (“[Caremark acts] as a conduit for the Client Payors to engage in
horizontal restraint of trade by removing the need and existence for any market whereby they
must compete in order to secure the services of pharmacists to service their insured. The
removal of this market and the conferring of the aggregate power to negotiate these services
upon [Caremark] and other PBMs amounts to horizontal price fixing as it allows for the
stabilization and repression of the fees pharmacists would be able to charge in a free and open
market.”)
After the case was filed in Alabama, it was transferred to the Northern District of Illinois.
(See No. 04-cv-05674 (N.D. Ill.) On August 12, 2005, that Court issued an order holding that
the Plan Sponsor conspiracy claim was subject to rule of reason analysis. See North Jackson
Pharmacy, Inc. v. Caremark Rx, Inc., 385 F. Supp. 2d 740 (N.D. Ill. 2005) (“the Illinois
Opinion”). There has not yet been a judicial determination whether the inter-PBM conspiracy is
to be adjudicated under the per se rule, the rule of reason or a quick-look analysis. For purposes
of the pending motions only, it is assumed that the per se rule applies to that claim. Accordingly,
the discussion infra related to product and geographic market definitions and market power
refers only to the rule of reason claim.
It should be noted that in the introduction to their certification submission, Plaintiffs
assert that “[b]oth conspiracies involve horizontal arrangements subject to per se analysis, not
evaluation under the rule of reason.” (ECF 248 at 1 (emphasis added).) They go on to argue at
length that the Illinois Opinion, issued before the case became part of the MDL, erroneously
determined that the rule of reason applied to the Caremark-Plan Sponsor conspiracy claim (see
5

“horizontal price fixing scheme[]” to “set[] reimbursement rates for Plaintiffs at unconscionable
and punitively low levels which are far below the level that would exist in a true competitive
market and, further, below any measure of Plaintiffs’ costs including their variable, marginal,
and/or actual costs,” and by engaging in certain other conduct (the “PBM Conspiracy”). (Id. at
¶¶ 75-76; ECF 248 at 1 (“Second, Plaintiffs allege that Caremark conspired with other PBMs
including Express Scripts, Advance PCS and Medco in violation of Section 1.”).)
Plaintiffs allege that Caremark violated the antitrust laws through the following practices:
Fixing and artificially depressing the prices to be paid to
independent pharmacies for prescription drugs;
Accepting “kickbacks” such as rebates, discounts, and other
undisclosed incentives from drug manufacturers in return for placing the

ECF 248 at 16-22) and assert that “the Court should reject any attempt by Caremark to justify its
agreements to fix prices.” (Id. at 22.) The determination that the rule of reason and not the per
se rule applied to the Plan Sponsor conspiracy claim is the law of the case, and Plaintiffs fail to
couch their argument in terms that acknowledge that significance. This failure is somewhat odd
considering that law of the case issues have previously arisen in the MDL with Plaintiffs
successfully asserting before the United States Court of Appeals for the Third Circuit that the
prior transferor judge erred in failing to grant law of case status to a ruling issued by a transferee
judge. See In re Pharmacy Benefit Managers Antitrust Litig., 582 F.3d 432, 439 (3d Cir. 2009)
(stating that the ‘“[l]aw of the case rules have developed “to maintain consistency and avoid
reconsideration of matters once decided during the course of a single continuing lawsuit.”’”
(quoting Casey v. Planned Parenthood of Se. Pa., 14 F.3d 848, 856 (3d Cir. 1994) (quoting 18
Charles A. Wright, Arthur R. Miller, Edward Cooper, Federal Practice and Procedure § 4478 at
788 (2d ed.1981))).
Under law of the case doctrine, the discretion of a court to revisit its own ruling or that of
a coordinate court is limited to “extraordinary circumstances” (1) where new evidence is
available, (2) where a supervening new law has been announced, (3) where there is a need to
clarify or correct an earlier, ambiguous ruling, or (4) where an unambiguous ruling might lead to
an unjust result. In re Pharmacy Benefit Managers Antitrust Litig., 582 F.3d at 439 (internal
quotations and citations omitted). Because Plaintiffs cite to no new evidence or change in the
law, the Illinois Opinion’s discussion of why the per se rule should not apply to the Plan Sponsor
conspiracy claim is unambiguous, and the result that the rule of reason should apply thereto is
not unjust, there is no cause to revisit the ruling. Moreover, to the extent that Plaintiffs argue
that the ruling was incorrect, we fully agree with the Illinois Opinion’s reasons for determining
that the conspiracy alleged between Caremark and the Plan Sponsors should be governed under
the rule of reason. See Illinois Opinion, 385 F. Supp. 2d at 749 (because “the bundle of services
provided by Caremark reflects a cooperative arrangement between Caremark and the Plan
Sponsors that has efficiency-enhancing potential” rule of reason analysis was appropriate).
6

manufacturer’s drugs on Caremark’s formulary and “pushing” these drugs on
physicians and pharmacists regardless of whether the drug is the least expensive
and most therapeutically effective drug available and using these undisclosed
kickbacks to set anticompetitive prices for drugs filled through their in-house mail
order pharmacies;
Conspiring and using their combined monopolistic market power
to force unconscionable reimbursement rates on “member pharmacies” with the
specific intent to manipulate prices. These reimbursement rates are far below the
rates that would apply in a true competitive market. Additionally, Caremark and
other PBMs unilaterally change the reimbursement rates without negotiating with
the member pharmacies and force this new rate upon them;
Acting as a conduit for the Client Payors to engage in horizontal
restraint of trade by removing the need and existence for any market whereby
they must compete in order to secure the services of pharmacists to service their
insured. The removal of this market and conferring of the aggregate power to
negotiate these services upon Caremark and other PBMs amounts to horizontal
price fixing as it allows for the stabilization and repression of the fees pharmacists
would be able to charge in a free and open market;
Diverting health plan members to its mail order business and to its
parent company, CVS, by prohibiting retail pharmacies from providing more than
a 30-day supply of drugs, while allowing its own mail order pharmacies to
provide 90-day supplies, through direct prohibitions on certain network
pharmacies preventing them from dispensing refill and follow-up prescriptions,
and by undercutting the copay the network pharmacy is required to charge for
each 30-day refill;
Removing the physician and pharmacist from their vital role in the
health care equation. Caremark “pushes” its formulary drugs on health plan
members, by-passing the physician and the pharmacist, regardless of whether the
formulary drug is the cheapest or most therapeutic drug in that class;
Requiring pharmacists to contact the prescribing physician and
patient if a non-formulary drug was prescribed, and encourage a change to a
formulary drug and to provide the prescribing physician with a list of alternative
formulary drugs;
Requiring member pharmacies to use and pay for common
software systems to process claims that are designed to maintain the detrimental
pricing schemes; and
Imposing unreasonable and unnecessary additional costs on
member pharmacies, including charging them a fee for each claim processed and
a fee when the pharmacy seeks information from Caremark.
(ECF 181 at 4-5; SAC ¶ 5.)
The Federal Trade Commission in the 2005 FTC Study explained the mechanics of how
PBM reimbursement to retail pharmacies operates. (2005 FTC Study at 1-5.) PBMs contract

7

with entities that provide prescription drug benefits to their enrollees, such as employers, labor
union plans, and other entities, to manage those entities’ prescription drug coverage benefits.
(Id. at 2.) PBMs then establish networks of retail pharmacies to fill prescriptions for the Plan
Sponsors’ members. (Id. at 3.) Retail pharmacies receive revenue from the consumer in the
form of co-payments collected at the point of sale and from the PBM in the form of
reimbursements of the dispensed drug’s ingredient cost plus any dispensing fee associated with
filling the prescription, less the copayment (“the Reimbursement Rate”). (Id. at 4.)
As found in the Illinois Opinion, PBM administration of prescription drug benefit
programs achieves a number of efficiencies. See id., 385 F. Supp. 2d at 749 (stating “the
arrangement between Plan Sponsors and Caremark clearly has efficiency-enhancing potential.
Caremark specializes in various functions of benefit plan administration and is likely able to
achieve economies of scale in the performance of those functions that would otherwise be
unavailable to Plan Sponsors. And the creation of retail pharmacy networks, which necessarily
involves the setting of reimbursement rates, undoubtedly contributes to the success of that larger
endeavor. What is more, there is a real question whether, on the other side of the coin, the
arrangement actually has any countervailing anticompetitive consequences.”)

Unlike Plan

Sponsors, PBMs are able to specialize in handling a variety of administrative functions involved
in running prescription drug benefit programs, such as processing claims, maintaining patient
records, creating and managing formularies, and negotiating discounts or rebates with drug
manufacturers. Id. (see also Madsen Decl. ¶8; 2005 FTC Study at 1-2.) PBMs thus allow for
collective reimbursement rate negotiations, avoiding the unworkable situation where each Plan
Sponsor would need to negotiate separately with each pharmacy, an alternative that even the
named Plaintiffs recognized would be inefficient and unmanageable. (Cordes Dep. at 328:5-8

8

(testifying that Big C does not have sufficient personnel to negotiate individually with each Plan
Sponsor); Hicks Dep. at 446:14-448:3 (testifying similarly).)
Pharmacies contract with numerous PBMs and Plan Sponsors, and it is not unusual for a
pharmacy to contract with more than 100 different PBMs and Plan Sponsors. (Madsen Decl. ¶
14.) Pharmacies often also participate in multiple networks offered by a single PBM. (See Hicks
Dep. at 87:21-89:18 (testifying that North Jackson is a member of 10 or 20 PBM networks, with
some managed by the same PBM).) The networks may offer differing reimbursement rates, but
the rate for each network is generally expressed according to the industry practice described in
the 2005 FTC Study. (Hicks Dep. at 92:8-12; Cordes Dep. at 157:14-23, 175:4-14 (noting same
PBM can have multiple networks, with differing reimbursement rates); see also Def. App’x A
and B (summarizing different rates from North Jackson’s and Big C’s network agreements).)
Caremark generally offers three kinds of pharmacy networks: (1) “access networks,” which
enable members to fill prescriptions at a pharmacy but do not specify particular rates; (2)
“pricing networks,” which provide for specified reimbursement rates and dispensing fees; and
(3) “custom pharmacy pricing networks,” which are tailored to a Plan Sponsor’s particularized
requirements. (Madsen Decl. ¶¶ 4-6.) Reimbursement rates and dispensing fees differ from one
custom network to another and also within a custom network. (See id.) Caremark solicits a
pharmacy’s participation in any network that Caremark believes the pharmacy would be
interested in joining, including any and all custom networks that have been established to serve
clients in the pharmacy’s local geographic area. (Id. ¶ 10.) The pharmacy can join all, none, or
some of the networks that it is invited to join. (Id.)
According to Big C’s Jeff Stewart, approximately 75% of Big C’s prescription drug
business comes from third-party payors. (ECF 181-3, Aug. 28, 2015 Decl. of Jeff Stewart at ¶

9

3.) Medicaid accounts for approximately 20%, Express Scripts accounts for 10%, and all other
third-party payors account for 54% of his business. (Id.) In 2004, Big C’s average revenue per
prescription dispensed was $47.00. (Id. ¶ 5.) Stewart asserts that the number of prescriptions
dispensed by Big C has increased, due largely to picking up additional customers after another
independent pharmacy in his area closed. (Id. ¶ 7.) He asserts that this other business failed due
to low reimbursement rates and that Caremark continues to pay low reimbursement rates and
divert plan members to mail order service. (Id. ¶¶ 7-8.) According to North Jackson’s owner
Bryan Hicks, Express Scripts accounts for approximately 25% of all prescriptions dispensed.
(ECF 250-1, Aug. 28, 2015 Decl. of Bryan Hicks at ¶ 3.) His approximate overhead per
prescription filled is $5.00. (Id. ¶ 4.) Hicks has attempted to negotiate reimbursement rates with
Caremark and other PBMs, but his counteroffers were refused or ignored. (Id. ¶ 6.) He asserts
that Caremark’s reimbursement rate is far below that of the Alabama and Tennessee Medicaid
agencies. (Id. ¶ 8.) For example, the Alabama Medicaid rate includes a dispensing fee 3 – 3½
times that paid by Caremark. (Id.) He has experienced a steady and dramatic decline in his
gross margin on third-party payors, going from 8.94% in 1999 to 5.48% in 2015. His current
gross profit per prescription is $2.07, down from $6.18 in 1999. His average revenue per
prescription dispensed in 2004 was approximately $34.00 (Id. ¶ 9.) While he too has picked up
additional customers due to other independent pharmacies closing, he asserts that his reduced
profit is due to low reimbursement rates, and Caremark diverting customers to mail order. (Id.
¶¶ 11-12.)

10

b.

Expert Submissions
1.

Dr. Charles D. Cowan

To support their Motion, Plaintiffs submit multiple expert reports authored by Charles D.
Cowan, Ph.D. and Paul J. Seguin, Ph.D. 7 (Id.) Dr. Cowan attempts to examine the allegations in
the complaints “and consider whether it is possible to test the claims made by plaintiffs.”
Having determined that it is possible, he proposes several tests that can be conducted that are
specific to the allegations, lays out a proposed methodology for doing so, and proposes develop
methods for calculation of damages. (Id. at 2.) He offers several hypotheses that he asserts “can
be tested.” 8 (Id.) The report does not conduct the tests since, Cowan claims, it would not be

7

Dr. Cowan is Managing Partner of Analytic FocuSLLC, a company headquartered in
Birmingham, Alabama that provides litigation support and expert witness services including the
measurement and mitigation of risk for financial intermediaries. (ECF 181-2, March 15, 2006
Expert Report of Charles D. Cowan (“2006 Cowan Report”) at 1.) He is an adjunct professor in
the School of Business and the School of Public Health at the University of Alabama Birmingham. Dr. Cowan’s background covers 40 years of research and study in the areas of
statistics, economics, and their application to business problems. His firm conducts research for
legal matters, including litigation support and expert witness services when requested. His work
focuses on measurement of risk for financial intermediaries. His area of practice also includes
support of Federal and State agencies needing economic and financial analysis to pursue their
missions. Prior to founding Analytic Focus, he served as Chief Statistician for the Federal
Deposit Insurance Corporation, Director for Price Waterhouse where he headed the Financial
Services Group in the Quantitative Methods Division, and 12 years of service at the U.S. Bureau
of the Census where he was responsible for the evaluation of the Decennial Census and held the
title of Chief of the Survey Design Branch. He also previously served as a professor in the
Business School at UAB, as a research professor at the University of Illinois, and in other
academic and professional positions.
8

His hypotheses are:

1) dispensing fees paid to plaintiffs are significantly less than fees paid to larger
pharmacies
2) ingredient fees paid to plaintiffs are significantly less than fees paid to larger
pharmacies
3) net returns (dispensing fees + ingredient fees - charges and addons [sic]) are
significantly less than fees paid to larger pharmacies
4) variability between prices paid to plaintiffs by PBMs for services is less than
11

“possible to do so without information from the defendants.” (Id. at 3.) Instead, he merely
“presents the tests I believe will be helpful in determining whether the claims of the plaintiffs
hold.” (Id. at 4.)
By way of historical background, Cowan notes that, until the mid-1980s, most pharmacy
benefits were offered through indemnity plans whereby the consumer paid the cash price for
drugs then sought partial reimbursement — usually 80% — from their health plan. (Id. at 7.) He
asserts that the long term impact of PBMs has been to drive a very large number of IPs out of
business. In the 1970s and 1980s, the number of pharmacies in the United States was fairly
stable or rising, but after 1992, the number started to decline rapidly, at a time when small
businesses in other sectors of the economy were “booming.” (Id.) Conversely, the number of
chain outlets, mass merchandize outlets and supermarket outlets for pharmaceuticals, and their
sales volumes, grew each year. (Id. at 8.) IPs lost market share to these other outlets in every
year after 1993. (Id. at 9.) Over this time, mail order pharmacy sales grew as well, but only the
sales by IPs declined. (Id. at 10; Chart 3.) Cowan notes that,
If other sources were loosing [sic] share to mail order, then it would be harder to
variability in prices paid to larger pharmacies in the insured market for services
5) levels and variability between prices paid to plaintiffs by PBMs for services is
less than levels and variability in prices paid to larger pharmacies in an open
market for services - a comparison between pricing by all pharmacies in sales to
the uninsured versus pricing by all pharmacies in sales to the insured
6) contracts for independent pharmacists rejected by the PBMs are equal in value
to contracts accepted by PBMs from larger pharmacies (PBMs acting against selfinterest)
7) simultaneous choices by PBMs of Average Wholesale Prices (AWPs) to use
from a set of AWP rates favor PBMs rather than their clients, the payors, and
simultaneously hurt independent pharmacies out of proportion to large
pharmacies
8) RxHub can be used to share pricing information between PBMs through
standard analytical techniques.
(2006 Cowan Report at 2.)
12

argue that the independent pharmacists were hit differentially. Chain stores and
supermarkets were actually picking up market share in pharmacy sales while the
share for independents declined. The share for supermarkets and mass
merchandisers remained relatively flat.
(Id.) He opines that,
The conclusion to be drawn from these charts is that the independent stores
suffered relative to the chain stores in the time period that the PBMs emerged and
grew as the intermediary controlling force for pharmaceutical sales. During this
period we know that the number of chain and other stores grew, and that sales of
pharmaceuticals grew tremendously. Finally, we know that independents rely
more on sales of pharmaceuticals than do chain stores.
(Id. at 13.)
After reciting the Plaintiffs claims — noted above and contained in SAC ¶ 5 — Cowan
opines that the claims “have the effect of price-fixing, eliminating competition, indirect collusion
among the PBMs, and an attempt to drive independent pharmacies out of the market.” (Id. at
24.) He states that, other than the copay, “all other fees are determined contractually with each
pharmaceutical company, in one or more contracts that each pharmacy has with each PBM.
These values differ from contract to contract.” (Id. at 25.) Cowan opines that “[w]hen there are
more sellers and there is unequal strength between the sellers, relative market power is a major
determinant of pricing. If there is a well-defined relationship between market power and the fees
charged, then it should be possible to determine what fees would be in a market where prices are
not artificially depressed.” (Id.)
On the cost side of the equation, he notes that Plaintiffs do not claim that
reimbursement rates are always below the marginal cost, nor has the claim ever
been that reimbursement rates are below average cost. The claim is that the
reimbursement rates are too low, that sometimes they are below the marginal cost,
and that they are differentially low for independent pharmacists. Under these
claims, independent pharmacists are harmed if their reimbursements are below
what they should have been in a truly competitive market. The harm is reduced
revenue.

13

(Id. at 27.) Cowan offers several criteria to determine whether IPs are being treated differentially
after other factors, such as size, are accounted for. (Id.)
First, he proposes to determine if the average of “dispensing fee contract values falls
below the bounds established in determining the size to fee relationship,” opining that this would
indicate that prices have been fixed and fees paid to IPs are artificially low. (Id. at 34.) He
proposes that, if there is no natural variability in the contract values between IPs and PBMs — in
other words all contracts with the PBMs vary much less than they do for the PBMs’ contracts
with pharmacies with six or more stores — then there is also an indication of price collusion.
(Id. at 35.) He has specifically refused to specify the form of the regression tests that may be
used to study these criteria since he did not have access to data that would tell him what forms to
run. 9 (Id. at 37.)

9

Cowan does, however, opine that the following possibilities of analyses need to be
considered:
a)
Analysis of covariance - permits the use of continuous and categorical
explanatory variables
b)
Discriminant function analysis - a system of regressions with specific
characteristics designed to cluster members of the population (e.g. independent
pharmacists in the South vs. chains in the South vs. independent pharmacist in the
West vs. chains in the West, etc.)
c)
Multivariate Analysis of Covariance - multiple simultaneous predictions
using analysis of covariance (e.g. one for each drug in one large regression),
d)
SUR - Seemingly unrelated regression - used to run separate regressions
and then relate the error terms, an alternative to simultaneous equations
e)
Canonical correlations - multiple dependent variables on the right hand
side of the equation with the same set of explanatory variables on the left t hand
side
f)
Hierarchical linear models (known in econometrics as variable parameter
regressions) - allows the parameters in the regression to vary as random variables
that are a function of other common predictor variables.
(2006 Cowan Report at 38.)
14

Second, he proposes to specify a regression to examine reimbursement rates and
dispensing fees and then allow the coefficients in the model to vary according to drug type. He
opines that the goal of the analysis “is to discover, after accounting for all other available
information, whether there is a pattern of practice that compensates independent pharmacist
below the rate one would expect.”

(Id. at 39.)

In so doing he would hold constant the

pharmacies’ network distinctions, the varying rates of reimbursement for different drug types,
market concentration, and other factors. (Id.)
Finally, Dr. Cowan opines that his proposed testing methodology “leads to a method for
computing damages.” (Id. at 50.) He proposed eight different ways in which damages can be
measured. First, he would calculate the
average difference between independent pharmacy dispensing fees and the
average predicted based on the model described based on size of pharmacy.
Multiply this difference times all prescriptions processed by a PBM in the last
four years. This calculation can be done at a more refined level for generics,
brand drugs, each PBM individually, and by other factors important to
understanding the difference between paid and predicted.
(Id.) Dr. Cowan asserts that, if tests show that IPs “are making less than would be expected
given the number of stores, then the coefficient d [i.e., some particular drug such as Nexium] will
be negative and a measure of the dollar loss for independent pharmacists on each sale of
Nexium. If we multiply “d” times the total sales, we have a measure of damages just from sales
for this type of drug. We can repeat this calculation for each type of drug and sum to obtain a
total estimate of damages for artificially low dispensing fees.” (Id.) To calculate the damages
resulting from different reimbursement rates, he proposes using the same calculation, except that
the coefficient would measure the difference in the percent of the average wholesale price
(“AWP”) offered to IPs versus chains. He would then apply this gap in AWP to sales to obtain
total damages.
15

Second, to test whether ingredient fees paid to IPs are significantly less than fees paid to
larger pharmacies, he would calculate the average difference between IP ingredient fees and the
average predicted based on the model described based on size of pharmacy. He would then
multiply this difference times all prescriptions processed by a PBM in the last four years,
specifying that this calculation could be done at a more refined level for generics, brand drugs,
each PBM individually, and by other factors important to understanding the difference between
paid and predicted. (Id. at 51.) Third, to test whether “net returns,” defined as dispensing fees
plus ingredient fees minus charges, are significantly less than fees paid to larger pharmacies, Dr.
Cowan would calculate the average difference between IP total compensation and the average
predicted by his model, multiplied by all prescriptions processed. (Id.) Fourth, he would
examine the variability between prices paid to IPs by PBMs for services since, he asserts, “if
independents were able to compete fairly, then their variability of compensation would be
higher, and in turn then would be compensated at a higher level too.” (Id.) He would use a
formula to find the increase in fees resulting from increased variation and apply the increase to
all prescriptions written in the last four years. (Id.) Fifth, he would examine the average IP price
and average non-independent price paid by uninsured consumers and compare that ratio to a
similarly calculated ratio for insured customers. He opines that on a “level playing field” the
ratios would be equal, but if IPs are unable to compete fairly, the “insureds” ratio would be less
than the “uninsureds” ratio. The product of the ratios multiplied by the IPs’ revenue would equal
the damages resulting from the lack of a level playing field. (Id. at 52.) Sixth, Dr. Cowan
proposes that, for IPs rejected for participation by PBMs, he would compute the average revenue
ratio as the revenue that would have been received for rejected contracts and multiply this ratio
by the total revenue for the IPs to obtain “corrected” revenue. (Id.) Seventh, since PBMs choose

16

AWPs from a set of AWP rates that favor PBMs rather than their third party payor clients, and
which also hurt IPs out of proportion to large pharmacies, Dr. Cowan proposed to use “average
AWPs (since real AWP is unknown as they are multiple estimates of same value). Compute fees
based on average AWP instead of chosen AWP and compute difference on each transaction sum of differences is damages.” (Id. at 53-54.) Finally, he proposes using the same method
described in his fourth alternative, but substituting pricing information from RxHUB. (Id. at 54.)
2.

Dr. Paul J. Seguin

Paul Seguin, Ph.D., submitted a report for the Plaintiffs entitled “Antitrust Violations by
Pharmacy Benefit Managers” on September 23, 2014 (“2014 Seguin Report”), in which he
outlines “not only how Cowan’s tests were feasibly empirically implemented, but how these tests
provide evidence of anti-competitive behavior, provide an estimate of damages and demonstrate
injury to identifiable class members.” (Id. at 1.) Specifically, Seguin focuses on the first three
tests proposed by Dr. Cowan: (1) dispensing fees, (2) ingredient fees, and (3) net returns paid to
Plaintiffs, each of which he opines are significantly less than those of larger pharmacies. (Id. at
3.)
Using Caremark data that was unavailable to Dr. Cowan, Dr. Seguin opines he is able to
identify that IPs received reimbursements that “were both economically importantly and
statistically reliably different than those received by pharmacies that are members of a chain for
both years for which data was provided — 2005 and 2008. Specifically, IPs received, on
average $1.73 less per non-generic (or “brand-name”) prescription filled.” (Id. at 1.) Seguin
calculates that the aggregate damages suffered by the putative Class for those two years is
$23,011,622. (Id.) He asserts he can apply the same methodology to all years deemed relevant
and for other PBMs, as well as allocate damages among each class member. (Id.) Using data

17

from 2002-2012 to update Cowan’s analysis of IP market share, Seguin opines, consistent with
Cowan’s findings, that the trend of a reduced market share for IP’s continued during this period.
He interprets this evidence as being consistent with Plaintiffs’ hypothesis that PBMs’ anticompetitive practices have a detrimental effect on the competition for the dispensing and sale of
prescription drugs that has manifested itself as an elimination of the growth of IPs while their
Chain counterparts continue to grow. (Id.)
Dr. Seguin was provided with transactional data from Caremark containing all nongeneric prescriptions filled for customers who had a prescription plan managed by a PBM for the
two calendar years of 2005 and 2008. In total, 78,543,701 records were provided. (2014 Seguin
Report at 3.) He used data on the total reimbursements received by pharmacies for filling a
particular prescription and the quantity of drugs filled for that prescription.

(Id.)

He

supplemented these data by creating a set of additional variables that, he opines, capture the
locational-specific economic and competitive environment.

He used 2000 Census data to

calculate income — in the form of the median incomes for each ZIP, and populations for each
ZIP. (Id. at 4.) He further calculated the number of pharmacies in a ZIP — specifically the
number of storefronts, not just the number of different chains — and the number of pharmacies
within a chain. (Id.) He then created an indicator variable representing whether or not the
number of pharmacies within a chain was five or fewer, assigning a value of “1” if a particular
pharmacy’s name has five or fewer unique addresses associated with it and a value of “0” if a
pharmacy’s name has greater than five unique addresses. (Id.)

18

Next, Dr. Seguin estimated a regression model 10 using data on prescriptions for Lipitor,
where there were 1,745,461 prescriptions filled across all pharmacies in 2005 for Caremark PBM
members. (Id.) Using ordinary-least squares estimation, he determined that for this drug-year
combination reimbursement to pharmacy chains was, on average, $6.42 plus $2.73 per pill
dispensed. 11 (Id. at 5.) However, for pharmacies with five or fewer outlets, the result was $5.42
plus $2.73. (Id. at 6.) The $1.00 difference is a function of changing the indicator variable from
“1” to “0.” (Id. at 5.) Using his estimate of δ as -$1.00 — or, more precisely, $0.99985 —
Seguin calculates aggregate damages incurred by IP class members for Lipitor in 2005 by
multiplying the per-fill damages estimate of $1.00 by the number of Lipitor prescriptions filled
by all IPs, 300,148, resulting in damages of $300,103.45 for that drug-year combination. (Id. at
6.) He opines that he can further calculate the damages incurred by each class member by
multiplying the drug-year specific damage number (-$1.00) by the number of Lipitor
prescriptions filled by each Pharmacy Name for that year. (Id.)

Dr. Seguin’s model is expressed as the equation: 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝛼 + 𝛿 𝐼 𝑁𝑁𝑁𝑁𝑁 +
𝛽 𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄 + 𝜀, where NPCFF is the indicator variable for the Number of Pharmacies within a Chain
is Five or Fewer. He states that, since the indicator variable NPCFF takes on values of either zero or
one, the above equation can be re-written as:
𝛼 + 𝛽 𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄 + 𝜀, 𝑖𝑖 𝑁𝑁𝑁 > 5
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = �
.
(𝛼 + 𝛿) + 𝛽 𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄 + 𝜀, 𝑖𝑖 𝑁𝑁𝑁 ≤ 5
(Id. at 4.)
11
Dr. Seguin opines that,
10

Using ordinary-least squares estimation, the estimates of α, β and δ are $6.43,
$2.73 and -$1.00. The t-statistic associated with the estimate of 𝛿 is -25.5.
Common measures of suitability confirm that the model is appropriate as R2 =
.761, so over three-quarters of the total variation in Reimbursement is explained
by the two variables and the F-statistic, that measures that the joint-significance of
the two variables exceeds 2.7 million.
(Id. at 5.)
19

Dr. Seguin also opines that he can similarly calculate damages across all non-generic
prescriptions filled in 2005 that were filled at least 120 times by:
a)

running such regressions for each non-generic drug name, and

b)
multiplying the estimate of the reimbursement differential coefficient, δ, by the
number of fills for that formulation in 2005 by Independent Pharmacists and then
c)
summing the damages across all 608 different drugs filled at least 120 times in
2005. This can be expressed mathematically as:
608

� �^
δ

where:
i.
ii.

𝑑𝑑𝑑𝑑=1

^
δ

𝑑𝑑𝑑𝑑

𝑑𝑑𝑑𝑑

𝑥 𝐹𝐹𝐹𝐹𝐹 (𝑁𝑁𝑁𝑁𝑁 = 1)

𝑑𝑑𝑑𝑑 �

is the estimate of δ from a regression for that particular drug for 2005 (e.g.,

-$1 for Lipitor), and
𝐹𝐹𝐹𝐹𝐹 (𝑁𝑁𝑁𝑁𝑁 = 1) 𝑑𝑑𝑑𝑑 is the number of times that prescription drug was filled
by an IP in 2005 (e.g., 300,148 for Lipitor).

Dr. Seguin states that this sum, across all non-generic drugs filled at least 120 times for
Caremark PBM members in 2005 equals $12,308,601. Damages for the non-generic drug names
filled for Caremark PBM members in 2008 equal $10,703,061. Damages across the two years
aggregate to $23,011,622. (Id. at 6-7.)
Dr. Seguin then set out to test the “robustness” of his findings. He opines that his finding
is robust for a number of alternative statistical specifications including, but not limited to, (a)
adding variables for income, population, and number of pharmacies in a ZIP; (b) including the
natural logs (ln) of these three variables that control for cross-sectional differences in the
competitive environment facing each individual pharmacy; (c) estimation via weighted-leastsquares using (the inverse of) numerous combinations of the dependent variables listed above;
(d) estimating models where the slopes varied with NPCFF which represents a direct test of

20

Cowan’s test asking whether “ingredient fees paid to plaintiffs are significantly less than fees
paid to larger pharmacies.” (Id. at 7-8.)
Dr. Seguin has also reviewed data on market share to support Dr. Cowan’s conclusions
that market share for IPs fell and the share for chain pharmacies grew. He finds that the chain
group had an increase in the relative number of outlets of 19.2% over the period from 2002 to
2012, or a compounded annualized growth rate (“CAGR”) of 1.8%. For the same period, the
data indicate that the market share of IPs fell with a CAGR of -0.15%. (Id. at 10.) Seguin opines
that the decline in the number of IP outlets over this period “strongly suggests that the common
harm or ‘suffering’ by Independent Pharmacies due to discriminatory reimbursement by PBMs
endures.” (Id. at 11.)
Finally, Dr. Seguin opines that, although he currently lacks the data to do so, he can
feasibly empirically test for the presence of other anti-trust behavior identified by Dr. Cowan,
namely, Cowan’s hypotheses pertaining to (1) mail order pharmacies; (2) uninsured clients; and
(3) the market for pharmacist services. (Id. at 11.) For the allegation that the PBMs’ control of
their own mail order pharmacy operations diverts high profit refill and maintenance prescriptions
from retail pharmacies, Seguin opines that he can “test for the presence of this behavior.”
Specifically, he contends that “this hypothesis would be confirmed if I could demonstrate that
IP’s disproportionately filled prescriptions with a Quantity of one month or less, or, equivalently,
whether ‘multi-month’ prescriptions were disproportionally filled by mail order pharmacies.”
(Id. at 12.) For Cowan’s hypothesis testing for discrimination in reimbursement for prescriptions
filled for uninsured clients, Dr. Seguin opines that the “data fields would be identical to those
provided in the most recent data run provided to us by defendants (especially Quantity and
Reimbursement). Upon receipt of the data, statistical analyses similar to those outlined above

21

would be performed.

Damages would again be easily calculated as the product of

reimbursement discrimination and the number of prescriptions filled.” (Id. at 13.) For Cowan’s
hypothesis about the employment market for pharmacists, Dr. Seguin opines that Cowan has
already demonstrated that, “although the supply of ‘active’ pharmacists increases over Cowan’s
sample period beginning circa 1970, the percent of said pharmacists that are self-employed has
fallen by roughly 2/3rds from 9.4% in 1983 to but 3.4% in 1998. Once commissioned, I will
investigate whether this trend has continued.” (Id.)
3.

Dr. Jerry A. Hausman

Caremark has submitted the May 15, 2015 Expert Report of Jerry A. Hausman (“2015
Hausman Report”). (ECF 261-10.) 12 He has been asked by Caremark “to assess the plaintiffs’
class certification claims, determine whether plaintiffs’ claims can be proved or disproved with
evidence common to the purported class, and to review Dr. Charles D. Cowan’s proposed
methods for using common evidence to prove or disprove each element of the plaintiffs’ claims
and Dr. Paul J. Seguin’s purported application of some of these methods and his own report and
analysis.” (Id. at 2.) Dr. Hausman has reached the following conclusions:
•
•

Although Dr. Seguin claims to implement tests proposed by Dr. Cowan,
differences between Dr. Seguin’s implementation and Dr. Cowan’s proposal
mean that Dr. Seguin’s tests are invalid even under Dr. Cowan’s standard.
Dr. Seguin fails to define a market, and thus cannot analyze the competitive

12

Dr. Hausman is the MacDonald Professor of Economics at the Massachusetts Institute
of Technology. He graduated from Brown University in 1968 and received his doctorate in
economics in 1973 from Oxford University. (ECF 261-10 at 1.) He received the John Bates
Clark Award of the American Economic Association in 1985, which is awarded every other year
for the most “significant contributions to economics” by an economist under the age of 40. He
was awarded the Frisch Medal of the Econometric Society in 1980. He was named a
Distinguished Fellow by the American Economic Association in 2013. He has published over
170 academic research papers in leading economic journals, including the American Economic
Review, Econometrica, and the Rand (Bell) Journal of Economics; he has also been an associate
editor of Econometrica, the leading economics journal, and the Rand (Bell) Journal of
Economics, the leading journal of applied microeconomics. (Id. at 1-2.)
22

effects of the alleged conduct in a properly defined relevant market.
Moreover, a standard econometric test rejects Dr. Seguin’s claim that location
is irrelevant. When corrected for this error, Dr. Seguin’s model shows that
independent pharmacies in the named plaintiffs’ county often receive greater
reimbursement than chain pharmacies.
• Dr. Seguin fails to demonstrate harm to competition in any relevant market.
The test he has implemented fails to distinguish between lawful and unlawful
behavior, and he provides no evidence that output has been restricted below
competitive levels in any relevant market.
• Dr. Seguin fails to provide a basis for calculating damages. Because Dr.
Seguin’s damage calculations are based on a test that fails to distinguish
between lawful and unlawful behavior, all of the damages Dr. Seguin
calculates may be the result of factors other than the alleged unlawful
behavior.
• Dr. Seguin incorrectly assumes common impact. A standard econometric test
demonstrates that Dr. Seguin’s assumption of common impact is incorrect.
When this incorrect assumption is removed, Dr. Seguin’s model shows that a
substantial percentage of putative class members receive reimbursement that is
greater than that received by many chains, and hence there is no antitrust impact
that is common to members of the putative class.
• In fact, for Lipitor prescriptions in 2005 (the drug-year combination with the
largest number of observations in Dr. Seguin’s study), Dr. Seguin’s model
shows that 52.6% of independent pharmacies received more than the
reimbursement paid to the median chain pharmacy.
• Dr. Seguin fails to demonstrate that the observed change in the number of
independent pharmacy outlets is the result of the alleged discriminatory
reimbursement as opposed to other factors. Even if Dr. Seguin had established
such a connection, he fails to show that the observed change in the number of
outlets demonstrates a harm to competition.
• Dr. Seguin’s proposed future tests would not provide any evidence of
anticompetitive behavior.
(Id. at 3-4 (emphasis in original).)
By way of background, Dr. Hausman opines that the work of PBMs “enables them to
develop ways to increase efficiency for plan sponsors and patients, and to improve patient care
by aiding in the management of prescription drug use by patients through interaction with
patients and other health care providers regarding patient care. Thus, PBMs play an important
role in promoting efficiency and effectiveness in the health care delivery system.” (Id. at 5.) He
adds that (1) PBMs compete against each other to obtain plan sponsor clients; (2) PBMs must

23

negotiate with plan sponsors, drug manufacturers, independent pharmacies, pharmacy chains,
and businesses that negotiate on behalf of a collective of independent pharmacies; (3) during the
period that Plaintiffs allege a conspiracy between PBMs was ongoing, the FTC’s analysis of the
Caremark/AdvancePCS merger concluded that “competition among PBMs will remain vigorous
in the wake of the Caremark/AdvancePCS acquisition, and that this competition is likely to cause
PBMs to pass on at least some of their cost savings to their customers in order to gain or retain
their business” (see ECF 260-5, Statement of the Federal Trade Commission in the Matter of
Caremark Rx, Inc./AdvancePCS, File No. 031 0239); (4) PBMs must meet the geographic needs
of its clients; i.e., to gain the business of a plan sponsor with enrollees in a particular market, the
PBM must include pharmacies in that market in its network; (5) pharmacies, including chains,
must make a determination of the relative costs and benefits of participating in a particular
network, including benefits from increased in-store business and non-pharmaceutical sales, and
based on these considerations, some pharmacies, including some chains, do not participate in
certain networks; (6) the contract between the PBM and the pharmacy governs the
reimbursement rates for each particular network in which the pharmacy is a participant; (7)
pricing in each network is different for brand name and generic drugs with the pharmacy
typically reimbursed by the plan sponsor for the AWP less a negotiated discount percentage, plus
a flat fee for dispensing; (8) pharmacies can be reimbursed for the dispensing of generic drugs
either based on a similar formula, or based on what is called the maximum allowable cost
(“MAC”) rate list, which is a rate set by the PBM and which changes over time and plan. (Id. at
5-7.) Dr. Hausman notes that Dr. Seguin performed no analysis of reimbursement for generic
drugs in his report.
Dr. Hausman states the following opinions regarding the class certification issues:

24

•

•
•

•

•

•

Since the claims in this case relate to the retail pharmacy services that retail pharmacies
sell to PBMs, and for which PBMs reimburse those pharmacies, the relevant product
market consists of retail pharmacy services. He notes that this product market is the same
as the relevant product market the Federal Trade Commission (“FTC”) has used to
analyze the effects of retail pharmacy mergers. (Id. at 7.)
Neither Dr. Cowan nor Dr. Seguin define a relevant market in their reports, nor do they
adequately explain their defined national market in their deposition testimony.
The relevant product market for the purposes of this case is the market in which
competition has allegedly been restrained, which is the retail pharmacy services market,
in which pharmacies are the sellers of the services, and PBMs are the buyers of the
services. (Id. at 7-8.)
The geographic scope of the retail pharmacy services market is local. 13 An important
implication of the fact that pharmacy markets are local is that the bargaining power of a
PBM with respect to pharmacies will vary depending on a number of factors unique to
each market, including the number and type of pharmacies operating in the local market.
Dr. Sequin’s suggestion that geography does not matter is unsupported and inconsistent
with the approach of the federal government in this area, as well as basic economics.
When enrollees in a plan need a prescription, they need to have access to a pharmacy in
their local area. Hence when assembling a network, a PBM must meet the geographic
needs of its clients. (Id. at 8.)
Using standard tools of antitrust analysis (as described in the Department of Justice and
Federal Trade Commission Horizontal Merger Guidelines (2010)), Hausman concludes
that geographic markets for retail pharmacies are local, not national, in scope, which is
consistent with the FTC’s analysis of retail pharmacy services product markets. (Id. at 89.)
There are factors unique to each local market, including the number and type of
pharmacies operating in the local market. In a market with many pharmacies, a PBM
will have many options to choose from, and hence will be in a strong bargaining position.
In contrast, in a market with few pharmacies, a PBM will have fewer options when
assembling its network, and hence will be in a weaker bargaining position, all other
factors being equal. (Id. at 9-10.)

13

Both Dr. Cowan and Dr. Seguin have filed rebuttals to Dr. Hausman. Regarding
Hausman’s assertion that he has failed to define a relevant market, Dr. Cowan opines “that it is
clear from Dr. Hausman’s own summary of the reach and scope of the PBMs that he believes
that the market served by the PBMs in national.” (ECF 248, Ex. E (July 31, 2015 Rebuttal
Expert Report of Charles D. Cowan, Ph.D. (“Cowan Rebuttal”) at 3.) He continues that
Hausman’s assertion that the geographic scope of retail pharmacy services is local is both
misleading and incorrect. Cowan notes that the class claims are about the national reach and
impact of PBMs, and that he has personally shopped at chain pharmacies “in different states and
paid exactly the same negotiated price for prescription medicines, regardless of where I am.”
(Id.)
25

•
•

Dr. Seguin did not utilize all of the data he was provided. For example, he did not take
into account networks for which reimbursements were made, nor did he include an
analysis of reimbursement for generic drugs. 14 (Id. at 11.)
Plaintiffs allege two antitrust conspiracies, one between Caremark and plan sponsors, and
one between Caremark and two of its competing PBMs. Dr. Seguin was not aware of the
nature of the conspiracies alleged by the plaintiffs in this case. Thus, he was unable to
connect his findings to any particular claim. (Id. at 11-12.)

Dr. Hausman also provides a critique of Dr. Seguin’s specification for a regression model.
While Seguin’s model would find damages relating to Lipitor in 2005 of $300,103, Hausman
asserts that Seguin’s test differs from Dr. Cowan’s proposal in several important respects. The
Cowan factors not accounted for by Dr. Seguin include any relationship between reimbursement
and (1) the size of the chain, (2) network membership, (3) market concentration, (4) geographic
and demographic factors, (5) membership in a bargaining collective, and (6) tradeoffs between
brand drugs and generics in pricing. As a result, Hausman asserts, the test Dr. Seguin actually
performs is invalid under even Dr. Cowan’s standard. 15 (Id. at 13.)

14

In his rebuttal to Dr. Hausman, Dr. Seguin concedes that, “for demonstration purposes
I examined only the reimbursement for brand-name (non-generic) prescription fulfillment. One
goal of my Report was to demonstrate feasibility, which I did successfully for the one market I
examined. Once class certification is granted, I can apply my methods to generics.” (ECF 248,
Ex. D (July 31, 2015 Expert Rebuttal Report by Paul J. Seguin, PhD (“Seguin Rebuttal”)) at 4.)
15

To address the criticism that he did not consider the size of the chain, Dr. Seguin
responds that his “NPC” variable, which is the number of pharmacies in a chain, is used to
isolate whether or not a chain contains five or fewer locations. He opines that this adequately
considers size.
To address the criticism that he did not consider pharmacy networks, Seguin has
appended a new exhibit to his rebuttal in which he analyzed reimbursements for the 10 most
commonly filled prescriptions as defined by Dr. Hausman, selecting the single most prescribed
quantity, then, for each unique value of “network ID,” calculated the average total
reimbursement and the percent of those prescriptions filled under that network ID by IP. (Seguin
Rebuttal at 5.) He opines that “[t]he (statistically significant) negative correlations show that as
the percent of prescriptions under that network ID filled by independent pharmacies goes up,
average compensation declines. In other words, those network IDs associated with greater
independent pharmacy participation are also associated with lower rates of reimbursement.”
(Id.) He finds a 15.3% decline in the average reimbursement for filling a prescription of 30 pills
26

According to Dr. Hausman, both Dr. Cowan and Dr. Seguin fail to provide a market
definition, the first step in assessing the competitive effects of an alleged antitrust violation
analyzed under the rule of reason. (Id. at 14.) There is no discussion of either the product
market or the geographic market allegedly monopolized. He notes that Seguin testified at his
deposition that he does not have “an expert or professional opinion on what is meant by
geographic market,” and that he has never attempted to define a boundary for a geographic
market, or to identify the competitors within a geographic market. (Id. at 14 (quoting ECF 2615, March 19, 2015 Dep. of Paul J. Seguin, Ph.D. (“Seguin Dep.”) at 126-27).) Dr. Cowan,
however, stated that geographic and demographic factors “must be included as variables in the
set of equations to control for differences that may explain why there is variability in pricing.”
(Id. at 14 (quoting 2006 Cowan Report at 44).) Nonetheless, Dr. Seguin claimed that his model
“has shown that geography is not a factor,” and therefore pharmacies compete “regardless of
[their] geographic location.” (Seguin Dep. at 123-24.) Hausman opines that this “position is
wrong as a matter of common sense, is contrary to the FTC’s assessment, and is rejected as a
matter of econometrics.” (2015 Hausman Report at 14).

under an IP contract as compared to a chain contract. (Id. at 6.) Dr. Seguin’s use of averages is
addressed infra.
To address the criticism that he did not consider market concentration, Seguin contends
that his NPZ variable, which is the number of pharmacies in a zip code, is used to account for
market concentration. While he did not specifically discuss his reasons for using zip codes in his
first report, he asserts that using it to define geographic areas is accepted and is used by Dr.
Hausman himself. (Id. at 7-8.) He also contends that using zip codes addresses Hausman’s
criticism concerning the lack of geographic factors. (Id. at 10.) He adds that he has also
incorporated median income of each zip code, thereby accounting for demographic factors. (Id.)
He concedes that he has not considered “membership in a bargaining collective,” but notes that
this data was not provided by either side. (Id.) He explains the lack of consideration of the
“tradeoff between brand name and generic drugs” by noting that “the decision to fill ‘as written’
is generally up to the prescribing physician, an individual that is not a party to this case and not
subject to any influence by the PBM.” (Id.)
27

To rebut Dr. Seguin’s assertion that geography is not a factor, Dr. Hausman attempts to
test “whether the coefficients for pharmacies in one geographic area are different than the
coefficients for pharmacies in another geographic area.”

(Id. at 15.) Hausman tests “whether

the coefficients for pharmacies in Jackson County, Alabama (the location of the named
plaintiffs) are different from the coefficients for pharmacies in the rest of the country. I perform
the test for the top 5 most-dispensed drugs in Jackson County for both 2005 and 2008.” (Id.)
Hausman sought to obtain for each “the probability of obtaining the observed difference between
the Jackson County coefficients and the coefficients for the rest of the country under the
hypothesis that Dr. Seguin’s assumption is correct.” (Id. at 16.) He finds that the test rejects Dr.
Seguin’s assumption for 9 of the 10 drug- year combinations and thus concludes that “Dr.
Seguin’s assumption that ‘location is irrelevant’ is incorrect.” (Id., Table 1 (finding p values of
0.000 for 7 drug-year combinations, 0.004 for one drug-year combination, 0.019 for one drugyear combination, and 0.350 for one drug-year combination (Toprol XL).) Hausman reports
that, while Dr. Seguin’s assumption would calculate $4,273.01 in aggregate damages to Jackson
County IPs for those ten drug-year combinations based on his national coefficient, a similar
calculation using a Jackson County coefficient results in negative damages of -$1,489.87. (Id. at
16-17.) This would indicate that those IPs are estimated to have received higher reimbursements
than chain pharmacies. 16 (Id. at 17.)

16

Dr. Seguin responds that Dr. Hausman has misinterpreted his testimony that
“geography is not a factor,” noting that he has estimated a model where geography is made a
variable through first excluding and then including the NPZ term. (Seguin Rebuttal at 12-13.)
He found that allowing for zip-code specific variation did not alter his conclusions concerning
reimbursement discrimination; thus “geography was not a factor, as significant discrimination
was found using either method.” (Id. at 13.) Seguin suggests that Hausman’s test is flawed
because the sample size and the required parameters are limited to the small number of
prescriptions filled within Jackson County. (Id. at 13-14.) He adds that, should the class be
28

Next, Dr. Hausman criticizes Dr. Seguin’s failure to demonstrate harm to competition in
any relevant market.

He opines that, although Dr. Seguin “claims that he was able to

‘empirically test for the presence of anti-competitive behavior,’ Dr. Seguin’s results do not
demonstrate that competition has been harmed.” (Id. at 17-18 (footnote omitted).) While Seguin
stated that his hypothesis is that “a condition of a legal world would be that . . . chains and
independent pharmacies would be reimbursed at the same levels,” (see Seguin Dep. at 200),
Hausman opines that “observing a reimbursement differential does not prove illegal behavior,
because (as Dr. Cowan has acknowledged) large pharmacies receive better reimbursement than
smaller pharmacies because they are in a better bargaining position.

Indeed, because Dr.

Seguin’s test fails to account for the reimbursement-size relationship acknowledged by Dr.
Cowan, Dr. Seguin’s test would find anticompetitive behavior even when no such behavior has
occurred.” (2015 Hausman Report at 18 (parenthesis in original).) Hausman asserts that one
must
distinguish between monopsony power (in which a large buyer reduces the price it
pays by restricting the quantity of purchases) and bargaining power (in which a
large buyer uses its bargaining power to reduce the price it pays without
restricting the quantity of purchases), and that the PBM business is not conducive
to the exercise of monopsony power. Thus, if the differential reflects the exercise
of bargaining power, then there is no harm to competition and, if anything,
consumers are likely to benefit as the PBMs pass the lower prices along to their
customers.
(Id. at 19 (citing ECF 260-5 (FTC Statement on In re Caremark) in which the FTC found that the
exercise of monopsony power was unlikely); ECF260-1 (FTC Statement on Express Scripts
Acquisition of Medco Health Solutions) in which the FTC again found the exercise of

certified, he could alter and increase the breadth of his variables to account for local variations.
(Id. at 14.)
29

monopsony power unlikely in the PBM industry).) 17 Hausman notes that Seguin acknowledged
that he did not know the explanation for the average reimbursement differential he observed, he
offered no opinion about what caused the differential, and he could not rule out other factors as
being responsible for the differential because he did not consider any other factors. (Id. at 19
(citing Seguin Dep. at 71-72, 75-76).) Because Dr. Seguin’s test does not distinguish between
unlawful and lawful explanations for the differential, Hausman asserts that Seguin cannot claim
that the differential is evidence of unlawful behavior. (Id.) Additionally, Hausman faults
Seguin’s analysis since he provides no evidence that market output has been restricted. (Id. at
19-20.)
Next, Dr. Hausman offers a critique of Dr. Seguin’s attempt to construct a but-for world
to provide common evidence of damages. He notes that Seguin made no assumptions about
what a but-for world would look like, and he professed to have no understanding of the

17

Dr. Cowan takes issue with Dr. Hausman’s assertion that Dr. Seguin has not
demonstrated harm to competition. According to Cowan, Hausman is “only looking at one piece
of Dr. Seguin’s analysis and not considering the whole of his analysis where Dr. Seguin
demonstrates that the impact of the PBMs is to reduce the number of independent pharmacies
including small chains relative to the total number of pharmacies nationally - clearly a harm to
competition.” (Cowan Rebuttal at 6.) However, Dr. Cowan does not explain how the reduction
in the IPs’ market share constitutes harm to competition, rather than harm to certain competitors
— an important distinction since the anti-trust laws have been enacted for the protection and
preservation of competition, not for the protection of competitors. See Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (citing Brown Shoe, 370 U.S. at 320).
Regarding Hausman’s discussion of monopsony power, Cowan responds that “if the small
Independent doesn’t agree to a severely reduced reimbursement, the PBM simply doesn’t agree
to work with them, thus restricting the quantity of purchases.” (Id.) Regarding the concept of
distinguishing monopsony power from bargaining power, Cowan opines that Hausman “is
assuming away the problem instead of considering that this is essentially a legal question about
impacts and the loss of competition because of interference in the market.” (Id. at 7.) He takes
issue with Hausman’s “very narrow definition” asserting that, if by market output one can
interpret the reduction in the number of small chains and the consolidation of the market into a
few very large players because of the actions of the PBMs, then Dr. Hausman himself is arguing
that there is a competitive harm. (Id.)
30

conspiracies alleged in the SAC. 18 Seguin also conceded that he did not consider factors other
than an alleged conspiracy that might have contributed to the differential in average
reimbursements between IPs and larger chains and could not offer an opinion on “how much” of
the $23 million differential he found was caused by an antitrust conspiracy or some other
cause. 19 When asked if he could “rule out to a reasonable degree of certainty in the field of
economics and statistics that the entire $23 million differential was caused by something other
than a violation of the antitrust laws,” Dr. Seguin testified, “My report shows a differential and to
the extent that I do not attribute that differential to any one factor, I have no opinion on the cause
of that differential. . . . I didn’t consider other factors.” (Seguin Dep. at 76.) From this
testimony, Dr. Hausman opines that
Dr. Seguin’s damage calculation is invalid because it is not limited to the effects
of the alleged illegal behavior. As I explained above, Dr. Seguin’s test (which is
the basis for his damage calculation) finds independent pharmacies to be
undercompensated even if no such undercompensation exists. Dr. Seguin
acknowledged at his deposition that he is not suggesting that the differential is the
result of a conspiracy alleged in the Complaint. Dr. Seguin’s calculation does not
separate lawful reasons for the differential from unlawful reasons. Indeed, Dr.
Seguin acknowledged that because he did not consider other factors that could
explain the differential (such as the relative bargaining power of small pharmacies
vs. large pharmacies), he cannot rule out that the entire $23 million differential he
finds was caused by something other than a violation of the antitrust laws.
Furthermore, Dr. Seguin has no opinion as to whether the differential reflects
independent pharmacies being paid too little or larger chains being paid too much.
If the differential reflects chains being paid “too much,” then independent
pharmacies are not underpaid and there are no damages. Therefore, his statement
in his report that he has “reliably demonstrate[d] that . . . reimbursement rates are
too low” is not supported and inconsistent with his deposition testimony.
18

Dr. Seguin testified: “Q. Was it important in any way for your work to understand the
nature of the conspiracy alleged in the Complaint? A. Only to the extent of defining the class
(i.e., as IPs with five or fewer locations). . . . Q. In your work on this case, did you make any
assumptions about what a but-for world would look like? A. No.” (Seguin Dep. at 73-74.)
19
Dr. Seguin stated: “Q. So that you’re stating that for these two years combined the
differential when you add it all up is roughly $23 million, correct? A. Correct. Q. And you’re
not saying of that $23 million how much may have been caused by a conspiracy and how much
may have been caused by something else; is that correct? A. Correct.” (Seguin Dep. at 75.)
31

(2015 Hausman Report at 21-22 (footnotes citing Seguin Dep. omitted).) 20
According to Dr. Hausman, Dr. Seguin has only demonstrated that IPs are on average
reimbursed less than chain pharmacies, but he has not shown that all or nearly all IPs are
reimbursed less than chain pharmacies. Hausman opines, therefore, that Seguin has failed to
provide evidence common to the class of antitrust impact. (Id. at 22-23.) Seguin assumed that
only two factors affect the reimbursement a pharmacy receives:

the quantity of the drug

dispensed and whether the pharmacy is an independent or chain.

According to Hausman,

Seguin’s estimated coefficient on the independent-pharmacy variable reflected the average
reimbursement differential between independents and chains, holding quantity constant, and
demonstrated that nearly all IPs were reimbursed less than chain pharmacies. Hausman attempts
to test this assumption using an F test comparing a restricted model to an unrestricted model.
Hausman’s “restricted” model is Dr. Seguin’s model, which assumes that there are no pharmacyspecific factors (other than being an independent or a chain) that affect reimbursement. The
“unrestricted” model is a model that allows pharmacy-specific effects by adding what Hausman
calls a “fixed effect” for each pharmacy. (Id. at 23.)
Hausman performed the F test for the top 5 drugs in 2005 and the top 5 drugs in 2008.
The p value he calculated for these drug-year combinations “is approximately zero. Thus, the F
test strongly rejects Dr. Seguin’s assumption in favor of a model that allows for pharmacyspecific effects.” (Id. at 24; Table 2.) Hausman opines that this result “means that there is
significant variation in reimbursement across pharmacies that is not captured by Dr. Seguin’s
20

Dr. Seguin responds that Dr. Hausman’s assertion — that the differential Seguin finds
between chain and IP reimbursements may be due to lawful behavior including the relative
bargaining power of small versus large pharmacies — is speculation. (Seguin Rebuttal at 20.)
He reiterates that his model estimates the difference between the compensation to a chain
pharmacy for filling a particular drug versus the compensation for the identical service
performed by an IP. (Id.)
32

model and that Dr. Seguin’s model cannot be relied upon to demonstrate common impact.” (Id.)
Focusing on one drug-year combination, Lipitor in 2005, Hausman asserts that the data show that
that “almost all (99.78%) independents receive reimbursement that is greater than the
reimbursement received by the lowest-reimbursed chain. Over half (52.60%) of independents
receive reimbursement that is greater than the median chain. Some independents (1.68%) even
receive reimbursement that is higher than the highest-reimbursed chain.” (Id. at 25; Table 3.)
According to Dr. Hausman, “[t]hese results demonstrate that when Dr. Seguin’s incorrect
assumption is removed, his own model shows that a substantial percentage of putative class
members receive reimbursement that is greater than that received by many chains, and hence
there is no antitrust impact that is common to members of the putative class.” 21 22 (Id. at 26.)

21

Dr. Seguin responds that Dr. Hausman “does not argue with the $300,103 differential,
he merely wonders how this differential should be allocated among class members.” (Seguin
Rebuttal at 15.) He asserts that the F test examines whether Hausman’s more complicated
analysis “offers a better fit than my parsimonious model which requires estimating only three
parameters,” and finds that allowing the variable “to vary across pharmacy names offers a better
fit.” (Id.) Seguin contends that this finding is specious because: (1) while Hausman argues that
markets are local, his specification implies that all locations receive the same reimbursement
regardless of their locale; (2) a substantial percent of the pharmacies Hausman selected filled a
prescription for a selected drug only once during the year; thus sufficient data (which Seguin
defines as at least 30 observations) exist for estimating pharmacy-specific reimbursement
differentials for only 20%-36% of the pharmacies; (3) Hausman’s F test does not directly
compare his model to Seguin’s because Hausman’s model does not include information on
whether the particular pharmacy is a chain or an IP; virtually all of the pharmacy to pharmacy
dispersion Hausman documents is explained by whether that pharmacy was an IP or a chain; and
(4) Hausman’s specification provides no insight to the trier of facts concerning the key issue of
whether IP’s receive a lower reimbursement than do chains. (Id. at 16-20.)
22
Dr. Cowan responds to Dr. Hausman’s criticism involving Dr. Seguin’s use of averages
that fails to show pharmacy level variation contending that Seguin’s analysis “doesn’t preclude
pharmacy level variation – he’s measuring an average, as Dr. Hausman states. In the real world,
one would expect there to be pharmacy level variation, but that doesn’t mean that there is not an
overall impact on the Independents. . . . [I]t is misleading to argue that there is significant
variation in pharmacy by pharmacy reimbursement without considering that one major
component of that variation is the average reduction observed for Independents.” (Cowan
Rebuttal at 8.)
33

Next, Dr. Hausman offers a critique of Dr. Seguin’s analysis of the number of pharmacy
outlets.

While Seguin opines that the differential between the growth of IPs and non-IPs

“strongly suggests that the common harm or ‘suffering’ by Independent Pharmacies due to
discriminatory reimbursement by PBMs endures,” (see 2014 Seguin Report at 10), Hausman
opines that Seguin “fails to demonstrate that the observed change in the number of outlets is the
result of the alleged ‘discriminatory reimbursement,’” or that “the observed change in the
number of outlets demonstrates a harm to competition.” (2015 Hausman Report at 26-27.) He
notes that Seguin conceded at his deposition (1) that “there are numerous potential explanations”
why the relative number of outlets of a chain group rose more rapidly than that of IPs, and (2)
that he did not test any of those explanations. (Seguin Dep. at 211.) He further conceded that
reimbursement differential “is one but not necessarily the only force” causing the reduction in IP
market share. (Id. at 205-06.) Dr. Hausman faults Dr. Seguin for “simply assum[ing] causation
and fail[ing] to demonstrate that the observed change in the number of [IP] outlets is the result of
‘discriminatory reimbursement.’”

(2015 Hausman Report at 27.)

He also faults Seguin’s

analysis for failing to demonstrate that the observed change demonstrates a harm to competition
since IPs are part of a broader market of chains and mass-merchandizers for which the data show
an increase in the number of outlets and the number of prescriptions dispensed. (Id. at 28.)
Finally, Dr. Hausman opines that the tests Dr. Seguin proposes to test for the presence of
antitrust behavior are invalid. While Seguin proposes to test whether multi-month prescriptions
are disproportionately filled by mail-order pharmacies, Hausman opines this is invalid because it
would provide no evidence on whether there was an output reduction in a properly defined
relevant market, and hence Dr. Seguin’s test fails to test for anticompetitive behavior. (Id. at 29.)

34

According to Hausman, Seguin’s proposal to test for discrimination in reimbursement for
prescriptions filled for uninsured clients is also invalid because,
prices paid by uninsured customers cannot be used as a benchmark for the
reimbursement paid by PBMs. The reimbursement rates paid by PBMs are set by
negotiations between PBMs and pharmacy chains and, as discussed above, larger
chains should be expected to receive greater reimbursement due to their greater
bargaining power. In contrast, the prices paid by uninsured customers are not
determined through a negotiation that depends on chain size, but instead are set by
the pharmacies. Thus, if Dr. Seguin found that there was no reimbursement
differential for uninsured customers, such a finding would not indicate the
absence of a PBM conspiracy, but instead an expected competitive outcome.
(Id. at 30.) Hausman also opines that Seguin’s proposal to examine whether the percentage of
self-employed pharmacists has continued to decrease would also provide no evidence of
anticompetitive behavior, because it would provide no evidence of reduced output in a properly
defined relevant market. (Id.)
III.

The Daubert Motion

The United States Court of Appeals for the Third Circuit has joined “certain of our sister
courts to hold that a plaintiff cannot rely on challenged expert testimony, when critical to class
certification, to demonstrate conformity with [Federal Rule of Civil Procedure] 23 unless the
plaintiff also demonstrates, and the trial court finds, that the expert testimony satisfies the
standard set out in Daubert [v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)].” In re Blood
Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015).

The Court held that expert

testimony “that is insufficiently reliable to satisfy the Daubert standard cannot ‘prove’ that the
Rule 23(a) prerequisites have been met ‘in fact,’ nor can it establish ‘through evidentiary proof’
that Rule 23(b) is satisfied.” Id.
The Daubert analysis governing the admissibility of expert testimony has been codified
in Federal Rule of Evidence 702, which provides as follows:

35

A witness who is qualified as an expert by knowledge, skill, experience, training,
or education may testify in the form of an opinion or otherwise if: (a) the expert’s
scientific, technical, or other specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in issue; (b) the testimony is based
on sufficient facts or data; (c) the testimony is the product of reliable principles
and methods; and (d) the expert has reliably applied the principles and methods to
the facts of the case.
Fed. R. Evid. 702. The proponent of the expert testimony has the burden of establishing its
admissibility by a preponderance of the evidence. Padillas v. Stork-Gamco, Inc., 186 F.3d 412,
418 (3d Cir. 1999) (citing Daubert, 509 U.S. at 592 n.10 (1993)); see also Mahmood v. Narciso,
549 F. App’x 99, 102 (3d Cir. 2013) (citing In re TMI Litig., 193 F.3d 613, 663 (3d Cir. 1999)).
There are three requirements for the admissibility of expert testimony pursuant to Rule
702, “‘qualification, reliability and fit.’” Calhoun v. Yamaha Motor Corp., U.S.A., 350 F.3d 316,
321 (3d Cir. 2003) (quoting Schneider v. Fried, 320 F.3d 396, 405 (3d Cir. 2003)).
“Qualification requires ‘that the witness possess specialized expertise.’” Id. (quoting Schneider,
320 F.3d at 405). The Third Circuit has ‘“interpreted this requirement liberally,’ holding that ‘a
broad range of knowledge, skills, and training qualify an expert as such.’” Id. (quoting In re
Paoli R.R. Yard PCB Litig., 35 F.3d 717, 741 (3d Cir.1994) (“Paoli II” ).
The “reliability” prong requires that “the expert’s opinion must be based on the ‘methods
and procedures of science’ rather than on ‘subjective belief or unsupported speculation’; the
expert must have ‘good grounds’ for his or her belief.” Id. (quoting Paoli II at 742 (quoting
Daubert, 509 U.S. at 590)). An assessment of ‘“the reliability of scientific evidence under Rule
702 requires a determination as to its scientific validity.’” Id. (quoting Paoli II at 742). The
reliability prong “applies to all aspects of an expert’s testimony: the methodology, the facts
underlying the expert’s opinion, and the link between the facts and the conclusion.” ZF Meritor,
LLC v. Eaton Corp., 696 F.3d 254, 291 (3d Cir. 2012) (quotations omitted). Where the expert’s

36

“factual basis, data, principles, methods, or their application are called sufficiently into question,
. . . the trial judge must determine whether the testimony has ‘a reliable basis in the knowledge
and experience of the relevant discipline.’” Id. at 294 (quoting Kumho Tire Co. v. Carmichael,
526 U.S. 137, 149 (1999)).
“Fit” means that “‘the expert’s testimony must be relevant for the purposes of the case
and must assist the trier of fact.’” Calhoun, 350 F.3d at 321 (quoting Schneider, 320 F.3d at
405). It pertains “‘primarily to relevance.’” Meadows v. Anchor Longwall & Rebuild, Inc., 306
F. App’x 781, 790 (3d Cir. 2009) (quoting Lauria v. Nat’l R.R. Passenger Corp., 145 F.3d 593,
599 (3d Cir. 1998)). “The expert’s testimony must ‘fit’ under the facts of the case so that ‘it will
aid the [fact finder] in resolving a factual dispute.’” Id. (quoting Lauria, 145 F.3d at 599). This
element “‘requires a valid scientific connection to the pertinent inquiry as a precondition to
admissibility.’” Id. (quoting Lauria, 145 F.3d at 600). “In other words, expert testimony based
on assumptions lacking factual foundation in the record is properly excluded.” Id. (citing Stecyk
v. Bell Helicopter Textron, Inc., 295 F.3d 408, 414 (3d Cir. 2002)).
Caremark raises several reliability and fit arguments: (1) Plaintiffs’ expert evidence fails
to distinguish between legal conduct and illegal conduct, rendering it unfit; (2) the experts offer
no reliable opinion about the existence of an antitrust violation; (3) the expert evidence does not
track Plaintiffs’ different theories of liability, rendering it unreliable under the United States
Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013); (4) the use of
national averages in the expert model cannot demonstrate antitrust impact for individual class
members, rendering it unfit; and (5) the regression model is unreliable because it finds damages
for class members who have suffered no damage.

37

Plaintiffs’ expert evidence fails to pass Daubert analysis. Dr. Seguin’s regression model,
while asserting that there is a difference in reimbursement rates paid to IPs and chain pharmacies
at the national level, does not attribute that differential solely to illegal conduct alleged in the
SAC. As Dr. Hausman notes, Dr. Seguin’s underlying hypothesis that “a condition of a legal
world would be that . . . chains and independent pharmacies would be reimbursed at the same
levels,” (see Seguin Dep. at 200), fails to account for legal behavior that could result in different
reimbursement rates, such as local market concentration, size efficiencies, and differences in
bargaining power.

Dr. Cowan has acknowledged that large pharmacies can receive better

reimbursement rates than smaller pharmacies for the completely legal reason that they are in a
better bargaining position.

Dr. Seguin’s test fails to account for the reimbursement/size

relationship acknowledged by Dr. Cowan, and Seguin’s test could find antitrust impact where no
anticompetitive behavior has occurred. (See 2015 Hausman Report at 18-19 (faulting Seguin’s
failure to distinguishing monopsony power from bargaining power); ECF 260-5 (FTC Statement
on In re Caremark) (finding that the exercise of monopsony power in the PBM industry was
unlikely); ECF260-1 (FTC Statement on Express Scripts Acquisition of Medco Health Solutions)
(same).) 23 Importantly, Seguin offered no antitrust explanation for the average reimbursement

23

Cowan’s response to Hausman’s discussion of monopsony power is unavailing.
Cowan asserts that “if the small Independent doesn’t agree to a severely reduced reimbursement,
the PBM simply doesn’t agree to work with them, thus restricting the quantity of purchases.”
(Cowan Rebuttal at 6.) There appears to be no evidence in the record to support this assertion.
Regarding the concept of distinguishing monopsony power from bargaining power, Cowan
opines that Hausman “is assuming away the problem instead of considering that this is
essentially a legal question about impacts and the loss of competition because of interference in
the market.” (Id. at 7.) However, it is Plaintiffs’ class certification burden to show impact and
loss of competition because of market interference through common evidence. The assertion that
there has been a “reduction in the number of small chains and the consolidation of the market
into a few very large players,” does not itself demonstrate illegal behavior since consolidation
may be the result of market forces, a factor that the Plaintiffs fail to exclude as a possible reason
for the impact they allege.
38

differential he observed and admitted that he could not rule out other factors as being responsible
for the differential because he did not consider any other factors. (See Seguin Dep. at 71-72, 7576.) Because Dr. Seguin’s test does not distinguish between unlawful and lawful explanations
for the observed differential, it does not constitute evidence of unlawful behavior and fails to fit
test. Accord Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 152 F.3d 588,
593 (7th Cir. 1998) (stating that statistical studies that “fail to correct for salient factors, not
attributable to the defendant’s misconduct, that may have caused the harm of which the plaintiff
is complaining do not provide a rational basis for a judgment” and are “worthless”).
Plaintiffs’ experts offer no reliable opinion about the existence of an antitrust violation
for the plan sponsor conspiracy claim. There are four essential elements of an antitrust claim
under § 1 of the Sherman Act analyzed under the rule of reason: (1) concerted action by the
defendants; (2) that produced anti-competitive effects within the relevant product and geographic
markets; (3) that the concerted action was illegal; and (4) that the plaintiff was injured as a
proximate result of the concerted action. Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124
F.3d 430, 442 (3d Cir. 1997). “The relevant geographic market ‘is that area in which a potential
buyer may rationally look for the goods or services he seeks.’” Fed. Trade Comm’n v. Penn
State Hershey Med. Ctr., 838 F.3d 327, 338 (3d Cir. 2016) (quoting Gordon v. Lewistown Hosp.,
423 F.3d 184, 212 (3d Cir. 2005); U.S. Horticultural Supply v. Scotts Co., 367 F. App’x 305, 311
(3d Cir. 2010). A market’s geographic scope is “[d]etermined within the specific context of each
case,” and “must ‘correspond to the commercial realities of the industry’ being considered and
‘be economically significant.’” Id. (quoting Brown Shoe Co. v. United States, 370 U.S. 294,
336-37 (1962) (footnote and internal quotation marks omitted in original). Plaintiffs bear the
burden of establishing the relevant geographic market. Id. (citing St. Alphonsus Med. Ctr. –

39

Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 784 (9th Cir. 2015).

Because

establishing the geographic market looks to buyer behavior, “the evidence of the geographic
market presented by the party claiming a Section 1 violation must therefore speak to buyer
behavior.” U.S. Horticultural Supply, 367 F. App’x at 311.
Neither Dr. Cowan nor Dr. Seguin have provided a market definition or attempted to
relate their conclusions to anti-competitive effects in either a product market or a geographic
market. Indeed, Seguin testified that he does not have “an expert or professional opinion on
what is meant by geographic market,” he has never attempted to define a boundary for a
geographic market, and has never attempted to identify the competitors within a geographic
market. 24

(Seguin Dep. at 126-27.) The failure to offer an opinion on the geographic market

renders the conclusion on antitrust impact unreliable. Dr. Hausman opines that the relevant
market is the retail pharmacy services market — in which pharmacies are the sellers of the
services and PBMs are the buyers of the services — and that the geographic scope of that
product market is local. While Dr. Sequin suggests that the geographic market is national
because including a location variable in his regression did not change the result, this finding is
inconsistent with the approach taken by the FTC in conducting antitrust analyses of past PBM
mergers. (See Hausman Report at 7 n.9 (citing FTC statements in PBM mergers defining market
to be retail pharmacy services); 9 n. 13 (citing FTC statements defining local geographic
markets).) Dr. Hausman aptly opines that, when enrollees in a plan need a prescription, they

24

It must also be noted that although the SAC asserts that Caremark acted as a “conduit
for the Client Payors to engage in horizontal restraint of trade by removing the need and
existence for any market whereby they must compete in order to secure the services of
pharmacists to service their insured,” (SAC ¶ 5d), Plaintiffs offered no expert economic analysis
of this claim to support a rule of reason analysis. Their assertion that this activity gave Caremark
and the other PBMs market power in the negotiation of these services to engage in horizontal
price fixing (see ECF 181 at 4-5; SAC ¶ 5) is also unsupported by expert market analysis.
40

need to have access to a pharmacy in their local area; hence, when assembling a network, a PBM
must meet the geographic needs of its clients. (Id. at 8.) This approach is consistent with the
FTC’s analysis of retail pharmacy services product markets, and it appears beyond reproach that
factors unique to each local market, including the number and type of pharmacies operating in
the local market and their resultant bargaining power, must be considered in a discussion of
antitrust impact. Dr. Cowan and Dr. Seguin fail to analyze this consideration.
Plaintiffs’ expert evidence also does not track their different theories of liability,
rendering it unreliable under the United States Supreme Court’s decision in Comcast. In that
case, the Court considered the class certification of a class of more than two million current and
former Comcast subscribers who sought damages for purported antitrust violations. 133 S. Ct. at
1429-30. Both the district court and the Third Circuit had determined that the putative class
satisfied Rule 23(b)(3)’s predominance requirement, with the Court of Appeals holding that “[a]t
the class certification stage,” the proposed class did not have to “tie each theory of antitrust
impact to an exact calculation of damages.” Id. at 1431 (quoting Behrend v. Comcast Corp., 655
F.3d 182, 206 (3d Cir. 2011) (quotations omitted)). The Supreme Court reversed, holding that
Rule 23(b)(3) had not been satisfied because the plaintiffs’ model of damages fell “far short of
establishing that damages are capable of measurement on a classwide basis.” Id. at 1433. The
majority emphasized that while damages calculations “need not be exact” at the classcertification stage, “any model supporting a ‘plaintiff’s damages case must be consistent with its
liability case, particularly with respect to the alleged anticompetitive effect of the violation.’” Id.
(citations omitted).
The plaintiffs in Comcast had alleged four theories of antitrust impact, but the district
court accepted only one such theory as “capable of classwide proof and rejected the rest.” Id. at

41

1431. The damages model proposed by plaintiffs, however, failed to “isolate damages resulting
from any one theory of antitrust impact.” Id. The Supreme Court held that this inability to
match a damages model with any one theory of liability was fatal to class certification, noting
that under the Third Circuit’s logic, “any method of measurement” would conceivably be
“acceptable so long as it [could] be applied classwide, no matter how arbitrary the
measurements.” Id. at 1433. The majority held that the Comcast class was improperly certified
“[i]n light of the [damages] model’s inability to bridge the differences between supracompetitive prices in general and supra-competitive prices attributable to the [one antitrust
impact theory found to be viable].” Id. at 1435.
Plaintiffs’ expert submissions here are similarly defective.

First, they assign any

differential found to be the result of Defendants’ alleged conduct. Second, while the SAC asserts
two distinct antitrust conspiracies — a conspiracy among PBMs and a conspiracy between
PBMs, plan sponsors, and chain pharmacies — Dr. Cowan and Dr. Seguin fail to propose a
model capable of distinguishing the damages that are attributable to each of the two theories of
liability. The teaching of Comcast is that antitrust plaintiffs must match a damages model to
their theory of liability. The failure to do so here may well lead to the same paradox condemned
in Comcast, i.e., a damages model unattributed to any specific theory of antitrust impact being
accepted at class certification with the possibility of one or more of those theories ultimately
rejected under Rule 56 or at trial.
In the context of Daubert, the failure to match the damages model to the theory of
antitrust impact renders the expert opinion unfit since it cannot assist the Court at this point in
the litigation in applying the Rule 23 requirements or assist the trier of fact later on to determine
damages attributable to the purported antitrust violation. Indeed, Dr. Seguin testified that he did

42

not seek to understand the nature of the conspiracies alleged by the Plaintiffs — other than
“understanding this is an antitrust case” — and did not attempt to connect his findings to any
particular claim or attempt to attribute what portion of damages he measured to the two theories.
(ECF 261-7 at 72:23-73:11; ECF 261-9 at 132:6-15.)
Another insurmountable Daubert fit problem arises from the use of national averages in
the expert model since averages cannot demonstrate antitrust impact for individual class
members. Because antitrust impact is an element of Plaintiffs’ causes of action, 25 “every class
member must prove at least some antitrust impact resulting from the alleged violation.” In re
Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008). Dr. Seguin has only
demonstrated that IPs are on national average reimbursed less than chain pharmacies, but he
has not shown that all or nearly all IPs are reimbursed less than chain pharmacies. This creates
two Hydrogen Peroxide issues:

national averages do not account for legitimate, locally

25

Even when pursuing a per se violation of the antitrust laws plaintiffs must establish that
they suffered an antitrust impact. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328,
341-42 (1990) (“We also reject respondent’s suggestion that no antitrust injury need be shown
where a per se violation is involved.”); In re Mercedes-Benz Antitrust Litig., 213 F.R.D. 180, 188
(D.N.J. 2003) (same). As the Court stated,
The antitrust injury requirement ensures that a plaintiff can recover only if the
loss stems from a competition-reducing aspect or effect of the defendant's
behavior. The need for this showing is at least as great under the per se rule as
under the rule of reason. Indeed, insofar as the per se rule permits the prohibition
of efficient practices in the name of simplicity, the need for the antitrust injury
requirement is underscored. “[P]rocompetitive or efficiency-enhancing aspects of
practices that nominally violate the antitrust laws may cause serious harm to
individuals, but this kind of harm is the essence of competition and should play no
role in the definition of antitrust damages.” Page, The Scope of Liability for
Antitrust Violations, 37 Stan.L.Rev. 1445, 1460 (1985). Thus, “proof of a per se
violation and of antitrust injury are distinct matters that must be shown
independently.” P. Areeda & H. Hovenkamp, Antitrust Law ¶ 334.2c, p. 330
(1989 Supp.).
Atl. Richfield Co., 495 U.S. at 344.
43

explained factors creating differentials in reimbursements between IPs and chains (like market
concentration and bargaining power), and averages cannot account for substantial deviations
between the IPs themselves. 26
Numerous courts have rejected the use of average price differentials to show evidence of
antitrust impact that is common to the class. See e.g., Sheet Metal Workers Local 441 Health &
Welfare Plan v. GlaxoSmithKline, PLC, Civ. A. No. 04-5898, 2010 WL 385552, at *30 (E.D. Pa.
Sept. 30, 2010) (noting that methodology using average prices was insufficient as a common
method capable of showing class-wide injury because “averaging by definition glides over what
may be important differences”) (quotations omitted) (citing ABA Section of Antitrust Law,
Econometrics: Legal, Practical, and Technical Issues 220 (2005) (“Using averages can lead to
serious analytical problems.

For example, averages can hide substantial variation across

individual cases, which may be key to determining whether there is common impact.”); Gates v.
Rohm & Haas Co., 655 F.3d 255, 266 (3d Cir. 2011) (averages evidence “is not ‘common’
because it is not shared by all (possibly even most) individuals in the class. Averages or
community-wide estimations would not be probative of any individual’s claim because any one
class member may have an exposure level well above or below the average” and noting that
“[a]ttempts to meet the burden of proof using modeling and assumptions that do not reflect the
individual characteristics of class members have been met with skepticism.”) (citations omitted);
In re Optical Disk Drive Antitrust Litig., 303 F.R.D. 311, 321 (N.D. Cal. 2014) (statistical model
26

Plaintiffs argue that the additional factors that Caremark raises “simply represent an
alternative view of the question and in no way show that Dr. Seguin’s approach to local variation
to be incapable of proving impact and damages on a class-wide basis.” (ECF 269 at 25.) They
argue that the “failure to include all the proper variables” goes to an expert report’s
‘“probativeness, not its admissibility.”” (Id. (quoting In re Ethylene Propylene Diene Monomer
(EPDM) Antitrust Litig., 256 F.R.D. 82, 98, 100-102 (D. Conn. 2009).) This pre-Blood Reagents
authority is unhelpful. Courts must now ensure that expert evidence is admissible for Daubert
purposes before a party may use it to meet their class certification burden.
44

in which the alleged conspiratorial overcharge was assumed to be the same for all purchasers and
throughout the entire class period “cannot serve to establish that all (or nearly all) members of
the class suffered damage as a result of defendants’ alleged anti-competitive conduct [because
the] regression analysis . . . assumes the very proposition that the [Plaintiffs] are now offering it,
in part, to show.”); Reed v. Advocate Health Care, 268 F.R.D. 573, 591 (N.D. Ill. 2009)
(“Measuring average base wage suppression does not indicate whether each putative class
member suffered harm from the alleged conspiracy. In other words, it is not a methodology
common to the class that can determine impact with respect to each class member.”); In re Flash
Memory Antitrust Litig., Civ. A. No. 07-0086, 2010 WL 2332081, at *10 (N.D. Cal. June 9,
2010) (“By looking only at an average price trend, [plaintiff’s expert’s] model obscures
individual variations over time among the prices that different customers pay for the same or
different products that appear in the data.”)
As the Hon. Lawrence F. Stengel noted in Sheet Metal Workers, [j]ust because an
average price was increased or decreased by the alleged [anticompetitive activity] does not mean
that all members of the proposed class paid supra-competitive prices or that any damage for an
individual end-payor could be calculated in a formulaic way by common proof.” Id., 2010 WL
385552, at *30. But see, In re Processed Egg Prod. Antitrust Litig., 312 F.R.D. 171, 199 (E.D.
Pa. 2015) (stating that “even though the use of a single average overcharge to demonstrate the
impact of a conspiracy across the class can be problematic, Plaintiffs have laid a sufficient
foundation for the inferential finding that the impact reflected in the single average overcharge
was shared by virtually every class member.”). Here, Plaintiffs’ experts provide no basis on
which one can conclude that the average reimbursement differential they find between an IP and
a chain pharmacy is shared by virtually every class member. For this reason, the experts’ use of

45

the average as a method for establishing antitrust impact fails the fit test because there is no valid
scientific connection between the averages evidence and the pertinent inquiry of whether the
differential was the result of anticompetitive behavior.
Finally, the regression model is unreliable because it finds damages for class members
who have suffered no damage. Dr. Seguin testified in his deposition that his model’s use of
average reimbursements would result in finding damages for an IP that received the same
reimbursement as a chain, as well as for an IP that received a larger reimbursement than a chain.
(See ECF 261-8 at 54-57. 27)
Accordingly, the Plaintiffs’ expert submissions fail to pass Daubert scrutiny. Caremark’s
Motion to exclude Plaintiffs’ expert testimony is granted. Next, the Court considers the class
certification issues.
27

In discussing the one dollar average differential Dr. Seguin used to calculate damages,
and presented with a hypothetical situation where there are two pharmacies in the same town,
one an IP and one a chain outlet, and the chain received a reimbursement that was 50 cents per
Lipitor prescription filled higher than the IP — rather than the one dollar average he applied —
Dr. Seguin testified that “would necessarily mean some other independent pharmacy would get a
dollar 50 per fill.” (ECF 261-8 at 55:2-4.) When asked how he would determine “which
pharmacy got the 50 cents and which got the dollar 50,” Dr. Seguin testified “I haven’t thought
that through. I — I’ve suggested on way or [sic] allocating aggregate damages.” (Id. at 55:7-9.)
When asked if it was possible that in some areas IP are being paid the same reimbursement rates
as chain outlets, he responded “[f]rom a probability point of view, it’s possible. . . . And yes,
under that one plausible solution I provided [i.e., the one dollar differential]; even though they’re
getting the same as the pharmacy across the street, they would still get a dollar for every Lipitor
prescription they filled under that scenario, which I’m simply suggesting.” (Id. at 55:11-56:7.)
When confronted with Dr. Hausman’s evidence that the data show that 52.60% of IPs
receive reimbursements that are greater than the median chain (see Hausman Report at 25; Table
3), Dr. Seguin continued to assert that “as a class, they suffered injuries of $300,000 for this
drug.” (ECF 261-8 at 115.) When asked to assume an example of an IP that had one Lipitor
prescription fill in 2005 for which it received a higher reimbursement rate than a chain
pharmacy, and asked whether it had “been harmed by the alleged conspiracy,” Seguin stated that
“[a]s a member of the class, they were harmed. Again, you’re asking me — if you’re willing to
concede there that the class was harmed by $300,000; I’m willing to have a different discussion
as to how to apportion that. And, you know, whether or not a particular independent pharmacist
who filled one prescription at $80 deserves compensation or not is, I think, up to the counsel and
class to decide.” (Id. at 117:2-14.)
46

IV.

The Class Action Motion

To prosecute their two conspiracy claims under Section 1 of the Sherman Act, Plaintiffs
seek to certify the following Class pursuant to Rule 23(b)(2) and (b)(3) of the Federal Rules of
Civil Procedure:
All independent pharmacies within the boundaries of the United States who
contracted with Caremark or Advance PCS at any time during the period
commencing four years prior to the filing of the initial complaint in this action
through the present (the “Class Period”), to dispense and sell prescription drugs to
members of a Caremark or Advance PCS network. Excluded from the Class are
any pharmacies owned or operated by Caremark or Advance PCS their
subsidiaries, agents, principals or affiliated companies.
(ECF 248 at 1.) They assert that the requirements for a (b)(2) injunctive relief class are met
because Caremark has “acted or refused to act on grounds generally applicable to the class,
thereby making appropriate final injunctive relief or corresponding declaratory relief with
respect to the class as a whole,” Fed. R. Civ. P. 23(b)(2), and Caremark acted on grounds
generally applicable to the class making certification of Plaintiffs’ claim for injunctive relief is
appropriate. They assert that the requirements for a (b)(3) damages class are met because
common questions of law and fact predominate over any potential individualized questions and
because a class action is superior to any other means of adjudication. (ECF 248 at 2.) They
assert that they can establish common impact and damages utilizing class-wide proof through the
expert submissions of Dr. Cowan and Dr. Seguin. Even though Plaintiffs’ expert submissions
fail the Daubert analysis, the court will nevertheless provide its analysis of all Rule 23 issues.
a.

Standard of Review

The United States Court of Appeals for the Third Circuit requires rigorous assessment of
the available evidence to assure the prerequisites of Rule 23 are met and to “resolve factual
disputes by a preponderance of the evidence and make findings that each Rule 23 requirement is

47

met or is not met, having considered all relevant evidence and arguments presented by the
parties.” In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 320. A plaintiff “must be
prepared to prove that there are in fact sufficiently numerous parties, common questions of law
or fact, etc.” Wal-mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011) (emphasis omitted).
“Failure to meet any of Rule 23(a) or 23(b)’s requirements precludes certification.” Danvers
Motor Co., Inc. v. Ford Motor Co., 543 F.3d 141, 147 (3d Cir. 2008). It is the plaintiff’s burden
to prove by a preponderance of the evidence each of the prerequisites under Rule 23(a), and that
the class fits within the desired categories of class actions set forth in Rule 23(b).

In re

Hydrogen Peroxide Antitrust Litig., 552 F.3d at 307, 316 n. 14 (citation omitted); Carrera v.
Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013) (stating a plaintiff must show class action
prerequisites by a preponderance of the evidence); see Hayes v. Wal-Mart Stores, Inc., 725 F.3d
349, 354 (3d Cir. 2013) (“It is plaintiff’s burden to show that a class action is a proper vehicle for
this lawsuit”). Rigorous analysis will frequently “entail some overlap with the merits of the
plaintiff’s underlying claim.

That cannot be helped.

‘[T]he class determination generally

involves considerations that are enmeshed in the factual and legal issues comprising the
plaintiff’s cause of action.’” Dukes, 564 U.S. at 351 (alteration in original) (quoting General Tel.
Co. of SW v. Falcon, 457 U.S. 147, 160 (1982)).
b.

Rule 23(a) Requirements

Rule 23(a) requires that Plaintiffs meet four elements for class certification: (1)
numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation.

If the

requirements of Rule 23(a) are met, Plaintiffs seeking to certify a damages class must satisfy
additional requirements of predominance and superiority required by Rule 23(b)(3).
1.

Numerosity

48

Under Rule 23(a), a plaintiff bears the burden of establishing numerosity by a
preponderance of the evidence. Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 594-95 (3d Cr.
2012). Plaintiff must prove that the putative class is “so numerous that joinder of all members is
impracticable.” Fed. R. Civ. P. 23(a)(1). “No minimum number of plaintiffs is required to
maintain a suit as a class action, but generally if the named plaintiff demonstrates that the
potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met.” Stewart v.
Abraham, 275 F.3d 220, 226-27 (3d Cir. 2001) (citing 5 James Wm. Moore et al., Moore’s
Federal Practice § 23.22[3][a] (Matthew Bender 3d ed. 1999)).

We cannot “assume,”

“speculate,” or defer to “common sense” with respect to how many class members exist.
Marcus, 687 F.3d at 595-97. The plaintiff must produce evidence, direct or circumstantial,
specific to the products, problems, parties, and geographic areas actually covered by the
proposed class definitions to allow a court to make a factual finding on this requirement. Id. at
596.
Plaintiffs assert there are approximately 25,000 IPs throughout the United States that
dispense approximately 1.3 billion prescriptions annually amounting to $60 billion dollars in
prescription sales. (SAC ¶ 2.) Caremark’s data establishes that in 2005 there were 11,741 IPs
with data in Caremark’s dataset and in 2008 there were 11,710. (Seguin Rebuttal at 2 n.1.)
Caremark makes no specific argument on the numerosity requirement, and Plaintiffs have
satisfied the requirement.
2.

Commonality

“A putative class satisfies Rule 23(a)’s commonality requirement if ‘the named plaintiffs
share at least one question of fact or law with the grievances of the prospective class.’” Reyes v.
Netdeposit, LLC, 802 F.3d 469, 486 (3d Cir. 2015) (citing Rodriguez v. Nat’l City Bank, 726

49

F.3d 372, 382 (3d Cir. 2013)). “Commonality does not require perfect identity of questions of
law or fact among all class members. Rather, even a single common question will do.” Id., 802
F.3d at 486 (citing Dukes, 564 U.S. 338).

The commonality inquiry turns on whether

determining the truth or falsity of a common contention will resolve an issue that is central to the
validity of each one of the claims in one stroke. Id. at 487. “What matters to class certification . .
. is not the raising of common questions — even in droves — but, rather the capacity of a
classwide proceeding to generate common answers apt to drive the resolution of the litigation.”
Dukes, 564 U.S. 338, 131 S.Ct. 2541, 2551 (emphasis and ellipsis in the original). The bar for
establishing commonality is “not high” and is “easily met.” In re Cmty. Bank of N. Va. Mortg.
Lending Practices Litig., 795 F.3d 380, 397 (3d Cir. 2015); Reyes, 802 F.3d at 486 (citing Baby
Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994)). 28
Plaintiffs argue that, in addition to the “overarching common question of whether
Caremark entered into the conspiracies alleged in the complaint,” the following questions of law
and fact are common to the Class:
(a) whether the existence of such an understanding, agreement or conspiracy
fixed, maintained or stabilized prices for dispensing services and/or prescription
drugs below what would otherwise prevail in a competitive market;
(b) whether Caremark diverted health plan members to its parent company, CVS;
(c) whether Caremark required pharmacies to dispense and sell drugs on a
formulary as a condition of reimbursement and whether such conduct supports a
claim that Defendants violated Section 1 of the Sherman Act;
(d) whether Plaintiffs and Class members suffered antitrust injury as a result of
the alleged conspiracy to fix prices paid to independent pharmacies for dispensing
services and/or sale of prescription drugs;
(e) whether Plaintiffs and Class members were damaged as a result of the alleged
28

Where the class is proposed to be certified under Rule 23(b)(3), district courts typically
analyze Rule 23(a)’s commonality requirement together with the more stringent predominance
requirement of Rule 23(b)(3). Reyes, 802 F.3d at 486; see Sullivan v. DB Investments, Inc., 667
F.3d 273, 297 (3d Cir. 2011). The Third Circuit, however, recently cautioned that commonality
must be established before predominance can be considered. Reyes, 802 F.3d at 486 (emphasis
in original).
50

conspiracy to fix prices to independent pharmacies for dispensing services and/or
sale of prescription drugs; and
(f) whether class members are entitled to injunctive relief.
(Pl. Mem. at 7.)
Caremark responds that, although Plaintiffs list these six issues they assert are common,
they have not met their burden to show that they are common to all class members. It argues that
because Issues (a), (d), and (e) all relate to whether any conspiracy fixed prices below what
would prevail in a competitive market and whether class members suffered antitrust injury and
damages, and because the factors that affect reimbursement rates in both the real world and the
“but-for” world described by Plaintiffs’ experts differ from one putative class member to the
next, there are no common questions across the proposed class. With respect to Issues (b) and
(c), addressing whether Caremark diverted health plan members to CVS and whether Caremark
required some pharmacies to dispense and fill drugs as a formulary, Caremark challenges
whether they can be “common” questions because they are unrelated to the Sherman Act
violations Plaintiffs allege, and Plaintiffs do not describe how any of the actions caused them
antitrust injury.

Caremark offers no argument to rebut whether Plaintiffs’ “overarching”

common issue of the existence of the alleged conspiracies is common.
Because the commonality element does not require perfect identity of questions of law or
fact among all class members, Caremark’s arguments are rejected. Common questions clearly
exist, specifically whether Caremark engaged in the antitrust conspiracies detailed in the SAC.
Answers to the questions asserted by the Plaintiffs as common will drive the resolution of the
litigation.

51

3.

Typicality

The typicality requirement aids a court in determining whether maintenance of a class
action is economical and whether the named plaintiff’s claim and the class claims are so
interrelated that the interests of the class members will be fairly and adequately protected in their
absence. Marcus, 687 F.3d at 597-98 (citing General Telephone Co. of the Sw., 457 U.S. at 158
n. 13). Typicality “screen [s] out class actions in which the legal or factual position of the
representatives is markedly different from that of other members of the class even though
common issues of law or fact are present.” Id. at 598. To determine whether a plaintiff’s
position is markedly different from the class as a whole, courts compare three distinct, though
related, concerns: (1) the claims of the class representative must be generally the same as those
of the class in terms of both (a) the legal theory advanced and (b) the factual circumstances
underlying that theory; (2) the class representative must not be subject to a defense that is both
inapplicable to many members of the class and likely to become a major focus of the litigation;
and (3) the interests and incentives of the representative must be sufficiently aligned with those
of the class. Marcus, 687 F.3d at 599.
The named Plaintiffs in Caremark assert that their claims arise from the same course of
conduct that gives rise to the claims of absent class members, and their claims are based on the
same legal theory. They contend they will advance the interests of absent class member because
they must show that Caremark engaged in an unlawful combination or conspiracy to fix the
prices that all participating independent pharmacies are paid for dispensing services and/or
prescription drugs. They also contend that they possess no antagonistic interests or conflicts with
the absent class members.

52

Caremark responds the typicality requirement is absent because the named Plaintiffs’
economic experience is directly contrary to the injury that they allege on behalf of their proposed
class. Specifically, it asserts that the relevant markets in this case are highly diverse local retail
pharmacy markets, meaning that the named Plaintiffs’ proof of antitrust impact and the resulting
anticompetitive effects will differ significantly from the proof for the hundreds of other local
pharmacy markets across the country. If the named Plaintiffs were able to prove that lower
reimbursement had caused anticompetitive effects of higher prices and reduced output in Jackson
County, Alabama, Caremark argues that it would prove nothing about whether prices were
higher and output was lower in other markets (such as urban areas) with characteristics different
from those of Jackson County. It notes that Dr. Hausman has provided evidence that IPs in
Jackson County received $1,490 more than they would have received had they been
compensated at the rate received by competing local chain outlets. (See Hausman Report at 1617 and Table 1.) It notes too that Dr. Cowan has conceded that dispensing fees received by the
named Plaintiffs were in line with chain outlets in their markets, and they therefore suffered no
antitrust injury. (See ECF 261-12 (May 4, 2006 Dep. of Charles D. Cowan, Ph.D.) at 481:24485:15, 487:2-13. 29) From this evidence, Caremark argues (1) since the named Plaintiffs have

29

On the issue of whether named Plaintiffs received dispensing fees equal to or greater
than chain outlets in their home markets, Dr. Cowan conceded in his deposition that “[s]ome of
the information that I saw from the first case told me that the dispensing fees that they received
seemed to be in line with other chains that were in their market.” (ECF 261-12 at 482:4-7.) He
maintained, however, that the data did not affect his analysis “because I just got through
describing an analysis that compared averages across a set of variables, and this is a specific
independent pharmacy.” (Id. at 483:19-22 (emphasis added).) On the issue of whether named
Plaintiff Big C suffered an antitrust injury, Dr. Cowan testified “I simply haven’t thought about
how to look at individual pharmacies relative to the tests that I offered.” (Id. at 486:22-24.) He
further testified: “Q. Well, one of the things you propose in your report, is it not, that, in
computing damages, for example, you would compare the predicted dispensing fee versus the
actual dispensing fee. Right? A. Yes. Q. Now, if you applied that method to Big C — A.
53

not individually suffered the type of antitrust injury that they allege on behalf of the putative
class, and (2) various members of the proposed class have divergent circumstances and interests,
the named Plaintiffs fail to meet Rule 23(a)’s typicality and adequacy requirements. (See ECF
261 at 47-48 (citing E. Texas Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 403 (1977)
(noting that, in order to satisfy typicality, the proposed class representative must show that it
“possess[es] the same injury” as other class members); Williams v. Empire Funding Corp., 227
F.R.D. 362, 373 (E.D. Pa. 2005) (stating that class representative was not typical and adequacy
was in doubt when she could not show damages caused by the conduct on which the class claim
was based); Blue v. Defense Logistics Agency, 181 F. App’x. 272, 275 (3d Cir. 2006) (holding
that claimant not was an adequate representative where, among other reasons, she has not made
prima facie showing of discrimination)).
The named Plaintiffs refute Caremark’s assertion that they are atypical of the Class
because they received reimbursements above those received by local chain outlets, asserting that
this “conclusion is premised on the erroneous notion that an Independent Pharmacy must have
been reimbursed at a rate below that of local chains on each and every drug in order to have been
injured or sustained damages, while in actuality the injury and damages to Independent
Pharmacies are measured against the reimbursements they would have received absent the
conspiracy.” (ECF 269 at 3.)
The named Plaintiffs in Caremark have failed to meet their burden to show that their
claims are typical of the class they seek to represent. They produced no evidence that they
received reimbursements that were lower than the chain competitors in their markets while
Caremark produced evidence that they received reimbursements equal to or greater than their

Um-hmm. Q. — you would get a 0 measure of damages. Right? A. Yes.” (Id. at 487:2-13
(emphasis added).)
54

chain competitors. Given this class certification record, the named Plaintiffs are clearly subject
to a defense that is both inapplicable to many members of the class and likely to become a major
focus of the litigation, namely whether they have suffered an antitrust injury resulting from the
conspiracies they allege. An antitrust injury is an “injury of ‘the type the antitrust laws were
intended to prevent and that flows from that which makes defendants’ acts unlawful. The injury
should reflect the anti-competitive effect either of the violation or of anti-competitive acts made
possible by the violation.” Eichorn v. AT & T Corp., 248 F.3d 131,140 (3d Cir. 2001) (quoting
Brunswick Corp., 429 U.S. at 489). Because the record shows the named Plaintiffs failed to put
on evidence that they received lower reimbursements, they cannot show they suffered the same
effect of the anti-competitive conspiracies they allege. Thus, they fail the typicality requirement.
4.

Adequacy

The fourth requirement in Rule 23(a) is that the representative plaintiffs must “fairly and
adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). Adequacy concerns both
“the experience and performance of class counsel” and “the interests and incentives of the
representative plaintiffs.” Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir.
2012) (citing In re Cmty. Bank of N. Va., 418 F.3d 277, 303 (3d Cir. 2005). “The principal
purpose of the adequacy requirement is to determine whether the named plaintiffs have the
ability and the incentive to vigorously represent the claims of the class.” Community Bank III,
795 F.3d at 393 (quoting In re Cmty. Bank of N. Va., 622 F.3d 275, 291 (3d Cir. 2010)
(Community Bank II)). In fact, ‘“the linchpin of the adequacy requirement is the alignment of
interests and incentives between the representative plaintiffs and the rest of the class.”’
Community Bank III, 795 F.3d at 393 (quoting Dewey, 681 F.3d at 183). This inquiry is closely
tethered to the typicality inquiry, see Danvers Motor Co., Inc., 543 F.3d at 149, and ensures that

55

the named plaintiff’s claims “are not antagonistic to the class.” Id. at 150 (citing Beck v.
Maximus, Inc., 457 F.3d 291, 296 (3d Cir. 2006)).
While the named Plaintiffs in Caremark assert that they are not aware of any conflict that
would prevent them from serving in the capacity as named representatives and contend that their
interests in successful prosecution of the claims asserted in the SAC are aligned with the interest
of absent class members since the nature of antitrust claims and the injury that flows from an
unlawful conspiracy and/or combination to restrain trade are identical, they do not satisfy the
adequacy requirement for the same reason that they fail to satisfy the typicality requirement. As
they have not demonstrated that they have individually suffered the type of antitrust injury that
they allege on behalf of the putative class, their interests diverge from other members of the
proposed class who allegedly have received lower reimbursements as a result of anticompetitive
activity. 30
b.

Ascertainability and Cohesiveness

For a class to be certified under Rule 23(b)(3), it must also be “ascertainable.” See
Carrera, 727 F.3d at 306 (“Class ascertainability is ‘an essential prerequisite of a class action, at
least with respect to actions under Rule 23(b)(3).’”) (quoting Marcus, 687 F.3d at 592-93); see
also Byrd v. Aaron’s Inc., 784 F.3d 154, 162 (3d Cir. 2015), as amended (Apr. 28, 2015) (stating
“the ascertainability requirement as to a Rule 23(b)(3) class is grounded in the nature of the
class-action device itself”).
The ascertainability element “functions as a necessary prerequisite (or implicit
requirement) because it allows a trial court effectively to evaluate the explicit requirements of
Rule 23.” Byrd at 162. It is an independent inquiry, in addition to the Rule 23 requirements, that
30

There is no suggestion that counsel does not possess the experience or skill necessary
to adequately represent the class.
56

“ensures that a proposed class will actually function as a class.”

Id.

To satisfy the

ascertainability prerequisite, Plaintiffs must show by a preponderance of the evidence that the
class is “currently and readily ascertainable based on objective criteria,” Marcus, 687 F.3d at
593, and the court “must undertake a rigorous analysis of the evidence to determine if the
standard is met.” Carrera, 727 F.3d at 306. “[A]scertainability and a clear class definition allow
potential class members to identify themselves for purposes of opting out of a class. Second, it
ensures that a defendant’s rights are protected by the class action mechanism. Third, it ensures
that the parties can identify class members in a manner consistent with the efficiencies of a class
action.” Id. Accordingly, courts must “ensure that class members can be identified ‘without
extensive and individualized fact-finding or “mini-trials.”’” Id. (quoting Marcus). “[T]o satisfy
ascertainability as it relates to proof of class membership, the plaintiff must demonstrate that his
purported method for ascertaining class members is reliable, administratively feasible, and
permits a defendant to challenge the evidence used to prove class membership.” Id. The Third
Circuit has also recently reiterated that “a party cannot merely provide assurances to the district
court that it will later meet Rule 23’s requirements. . . . Nor may a party ‘merely propose a
method of ascertaining a class without any evidentiary support that the method will be
successful.’” Byrd, 784 F.3d at 164 (quoting Carrera 727 F.3d at 306, 307, 311) (internal
citation omitted).
While a Rule 23(b)(2) class need not meet the ascertainability requirements that apply to
Rule 23(b)(3) classes, see Shelton v. Bledsoe, 775 F.3d 554, 563 (3d Cir. 2015)
(“[A]scertainability is not a requirement for certification of a (b)(2) class seeking only injunctive
and declaratory relief, such as the putative class here.”), such a class must be sufficiently
cohesive. Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d. Cir. 1998) (“While 23(b)(2) class

57

actions have no predominance or superiority requirements, it is well established that the class
claims must be cohesive.”). An injunctive relief class must also be properly defined. “A
properly defined ‘class’ is one that: (1) meets the requirements of Rule 23(a); (2) is sufficiently
cohesive under Rule 23(b)(2) and [the Third Circuit’s] guidance in Barnes, 161 F.3d at 143; and
(3) is capable of the type of description by a ‘readily discernible, clear, and precise statement of
the parameters defining the class,’ as required by Rule 23(c)(l)(B) and [the Third Circuit’s]
discussion in Wachtel [v. Guardian Life Ins. Co. of Am], 453 F.3d [179] at 187 [(3d Cir. 2006)].”
Shelton, 775 F.3d at 563.
The cohesiveness requirement protects two interests. The first interest is in protecting
unnamed class members, who “are bound by the action without the opportunity to withdraw and
may be prejudiced by a negative judgment in the class action.” Barnes, 161 F.3d at 143. The
cohesiveness requirement protects this interest by ensuring that “significant individual issues do
not pervade the entire action because it would be unjust to bind absent class members to a
negative decision where the class representatives’ claims present different individual issues than
the claims of the absent members present.” Id. (citations and quotation marks omitted). The
second interest is in ensuring that the litigation remains manageable. If a class is not sufficiently
cohesive, “the suit could become unmanageable and little value would be gained in proceeding
as a class action if significant individual issues were to arise consistently.” Id. (quotation marks,
citations, and alterations omitted).
To satisfy the cohesiveness test, Plaintiffs must show that the “class’s claims are common
ones and that adjudication of the case will not devolve into consideration of myriad individual
issues.” Newberg on Class Actions § 4:34. “In other words, Rule 23(b)(2) applies only when a
single injunction or declaratory judgment would provide relief to each member of the class. It

58

does not authorize class certification when each individual class member would be entitled to a
different injunction or declaratory judgment against the defendant.” Dukes, 564 U.S. at 360
(emphasis in original). The Third Circuit has held that any ‘“disparate factual circumstances of
class members’ may prevent a class from being cohesive.” Gates, 655 F.3d at 264 (citing Carter
v. Butz, 479 F.2d 1084, 1089 (3d Cir. 1973). Courts have the discretion to deny certification in
the presence of disparate factual circumstances. Geraghty v. U.S. Parole Comm’n, 719 F.2d
1199, 1205 (3d Cir. 1983). “The key to the (b)(2) class is ‘the indivisible nature of the injunctive
or declaratory remedy warranted — the notion that the conduct is such that it can be enjoined or
declared unlawful only as to all of the class members or as to none of them.’” Dukes, 564 U.S. at
360 (quoting Nagareda, The Preexisting Principle and the Structure of the Class Action, 103
Colum. L. Rev. 149, 176 n. 110 (2003)).
Plaintiffs in Caremark contend that the proposed Rule 23(b)(3) class can be readily
ascertained because Caremark’s data contains the name of the pharmacy that filled each
prescription. Caremark makes no specific argument on the ascertainability requirement, and the
Plaintiffs’ evidence satisfies the ascertainability requirement. Neither party has specifically
addressed the cohesiveness requirement to certify a Rule 23(b)(2) injunctive relief class.
Nonetheless, the lack of cohesion is clear upon examination of the same reasons, writ larger, that
the named Plaintiffs fail the typicality test, as well as those discussed earlier in the Daubert
context. The record demonstrates that the market for retail pharmacy services is highly diverse
and local. Proof by use of averages that some members suffered antitrust injury from the
anticompetitive effects of the alleged conspiracy does not constitute common evidence that they
all did, that they all suffered the same antitrust injury, or that the same injunctive relief is
appropriate. Accordingly, the putative class members’ disparate factual circumstances prevent

59

the proposed national injunctive class from being sufficiently cohesive to ensure that injunctive
relief is manageable.
c.

Rule 23(b) Requirements

A class action can be certified under Rule 23(b)(3) if (1) the questions of law or fact
common to class members predominate over any questions affecting only individual members,
and (2) a class action is superior to other available methods for fairly and efficiently adjudicating
the controversy. Fed. R. Civ. P. 23(b)(3). The Rule provides that the following matters are
pertinent to these findings: (1) the class members’ interests in individually controlling the
prosecution or defense of separate actions; (2) the extent and nature of any litigation concerning
the controversy already begun by or against class members; (3) the desirability or undesirability
of concentrating the litigation of the claims in the particular forum; and (4) the likely difficulties
in managing a class action. Id.
1.

Predominance

“Considering whether ‘questions of law or fact common to class members predominate’
begins, of course, with the elements of the underlying cause of action.” Erica P. John Fund, Inc.
v. Halliburton Co., 563 U.S. 804, 809 (2011); see also In re Modafinil Antitrust Litig., 837 F.3d
238, 260 (3d Cir. 2016) (stating that the predominance inquiry “is especially dependent upon the
merits of a plaintiff’s claim, since the nature of the evidence that will suffice to resolve a
question determines whether the question is common or individual.”) (quoting In re Constar Int’l
Inc. Sec. Litig., 585 F.3d 774, 780 (3d Cir. 2009) (internal quotation marks omitted in In re
Modafinil).) We “must examine each element of a legal claim ‘through the prism’ of Rule
23(b)(3).” Marcus, 687 F.3d at 600 (citing In re DVI, Inc. Sec. Litig., 639 F.3d 623, 630 (3d Cir.
2011)). To obtain class certification, “[a] plaintiff must demonstrate that the element of the

60

[legal claim] is capable of proof at trial through evidence that is common to the class rather than
individual to its members.” Marcus, 687 F.3d at 600 (citation omitted). If proof of an element
of the legal claim requires individual treatment, then class certification is unsuitable. See Tyson
Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1045 (2016) (stating that “[a]n individual question
is one where members of a proposed class will need to present evidence that varies from member
to member, while a common question is one where the same evidence will suffice for each
member to make a prima facie showing [or] the issue is susceptible to generalized, class-wide
proof.”) (internal quotation marks omitted) (citing Newberg on Class Actions § 4:50, pp. 169197); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311-312 (stating that “the task for
plaintiffs at class certification is to demonstrate that the element [] is capable of proof at trial
through evidence that is common to the class rather than individual to its members. Deciding
this issue calls for the district court’s rigorous assessment of the available evidence and the
method or methods by which plaintiffs propose to use the evidence to prove [the elements] at
trial.”); see also Fed. R. Civ. P. 23 advisory committee’s note to 2003 amendment (“A critical
need is to determine how the case will be tried.”).
Horizontal price-fixing is a per se violation of § 1 of the Sherman Antitrust Act. See,
e.g., Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 647 (1980); United States v. SoconyVacuum Oil Co., 310 U.S. 150, 218 (1940). To prevail on their per se inter-PBM price-fixing
claim under § 1 of the Sherman Act, Plaintiffs must prove three elements: (1) a conspiracy to fix
prices in violation of the antitrust laws; (2) the antitrust impact of the unlawful activity; and (3)
damages sustained as a result of the unlawful activity. See, e.g., In re Linerboard Antitrust Litig.,
203 F.R.D. 197, 214 (3d. Cir. 2001); (citing In re Plastic Cutlery Antitrust Litig., Civ. A. No. 96728, 1998 WL 135703, *5 (E.D. Pa. Mar. 20, 1998) (“In a price-fixing antitrust class action,

61

plaintiffs must establish that both the defendants’ violations of law and the impact of those
violations on the class members involve predominantly common issues. Plaintiffs must therefore
make a threshold showing that the element of impact will predominantly involve generalized
issues of proof, rather than questions which are particular to each member of the plaintiff class.”
(internal citations omitted)).

As previously discussed, Plaintiffs also must show “that the

damages resulting from that injury were measurable on a class-wide basis through use of a
common methodology.” Comcast Corp., 133 S. Ct. at 1430 (quotation marks omitted). A model
purporting to serve as evidence of damages in a class action must measure only those damages
attributable to the theory upon which liability is premised. Id. Where the damages evidence
does not translate the relevant “‘legal theory of the harmful event into an analysis of the
economic impact of that event,’” the Comcast Court determined that common questions could
not predominate over individual ones. Id. at 1435 (quoting Federal Judicial Center, Reference
Manual on Scientific Evidence 432 (3d ed. 2011)). 31
Plaintiffs’ argument that common questions can be proven through evidence that is
common to the class rather than individual to its members (see ECF 248 at 15) must be rejected
for similar reasons undergirding the Daubert analysis.
A.

Common Evidence of a Per Se Violation

Because “[t]he essence of any violation of § 1 is the illegal agreement itself,” it is not
necessary for a plaintiff to prove that “overt acts [were] performed in furtherance of it.” Summit
Health, Ltd. v. Pinhas, 500 U.S. 322, 330 (1991) (citing United States v. Kissel, 218 U.S. 601
31

The Third Circuit has held, however, that it is “a misreading of Comcast” to interpret it
as “preclud[ing] certification under Rule 23(b)(3) in any case where the class members’ damages
are not susceptible to a formula for classwide measurement.” Neale v. Volvo Cars of N. Am.,
LLC, 794 F.3d 353, 375 (3d Cir. 2015) (quoting Comcast, 133 S.Ct. at 1437 (Ginsburg, J. &
Breyer, J., dissenting) (citing 2 William B. Rubenstein, Newberg on Class Actions § 4:54 (5th
ed.2012))) (collecting cases).
62

(1910)); see also, Socony-Vacuum Oil Co., 310 U.S. at 224, n. 59 (“[C]onspiracies under the
Sherman Act are not dependent on any overt act other than the act of conspiring.”). Nor is it
necessary to prove that the conspiracy was actually successful in raising prices. Id. (“It is the
contract, combination . . . or conspiracy, in restraint of trade or commerce which § 1 of the Act
strikes down, whether the concerted activity be wholly nascent or abortive on the one hand, or
successful on the other.”) (quotation marks omitted).
Accordingly, to meet the predominance requirement, Plaintiffs seeking class certification
of a per se antitrust claim must show by common evidence that a conspiracy existed, which may
be done through either direct evidence, such as an express agreement, or circumstantial evidence,
such as parallel conduct and course of dealing. See, e.g., In re EPDM, 681 F. Supp. 2d at 166
(“To prove the existence of an express, manifested agreement, the antitrust plaintiff should
present ‘direct or circumstantial evidence that reasonably tends to prove that the manufacturer
and others had a conscious commitment to a common scheme designed to achieve an unlawful
objective.’”) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)); Apex
Oil Co. v. DiMauro, 822 F.2d 246, 252 (2d Cir.1987) (“[A]t a minimum,” a jury must be able to
conclude that “the conspirators had a unity of purpose or a common design and understanding, or
a meeting of minds in an unlawful arrangement” (quotation omitted)); United States v.
Paramount Pictures, 334 U.S. 131, 142 (1948); Am. Tobacco Co. v. United States, 328 U.S. 781,
800 (1946). In the class action context, pre-Hydrogen Peroxide cases generally accepted that
“allegations of the existence of a price-fixing conspiracy are susceptible to common proof and, if
proven true, would satisfy the first element of . . . [an] antitrust cause of action.” Cordes &Co.
Fin. Servs., Inc. v. A.G. Edwards & Sons, Inc., 502 F.3d 91, 105 (2d Cir. 2007). In the post-

63

Hydrogen Peroxide world, the “if proven true” part of the formulation takes on new imperative
since courts may no longer merely assume that allegations can be proven later at trial.
The allegations here against the PBMs include fixing and artificially depressing the prices
paid to IPs, conspiring to use their combined monopolistic market power to force unconscionable
reimbursement rates, acting as a conduit for the Client Payors to engage in horizontal restraint of
trade by removing IP competitors, using market power to stabilize and repress the fees IPs would
be able to charge in a free and open market, and diverting health plan members to their mail
order businesses. (SAC ¶ 5.) Dr. Cowan opines that Caremark’s actions “have the effect of
price-fixing, eliminating competition, indirect collusion among the PBMs, and an attempt to
drive independent pharmacies out of the market.” (Cowan Report at 24.) He then goes on to
offer criteria by which it may be determined whether IPs “are being treated differentially after
other factors, such as size, are accounted for.” (Id. at 27.) He opines that if the average of
“dispensing fee contract values falls below the bounds established in determining the size to fee
relationship,” this would indicate that prices have been fixed and fees paid to IPs are artificially
low. (Id. at 34.) He proposes that, if there is no natural variability in the contract values between
IPs and PBMs — in other words all contracts with the PBMs vary much less than they do for the
PBMs’ contracts with pharmacies with six or more stores — then there is also an indication of
price collusion. (Id. at 35.) Dr. Cowan has not, however, actually studied these criteria in order
to provide common evidence of price fixing. (Id. at 37.) Dr. Seguin also did not attempt to
provide common evidence of price fixing.

He assumed price fixing had occurred and

endeavored only to calculate the resulting damages. Thus, there has been no actual evidence,
common or otherwise, offered on the basic issue of whether a price fixing conspiracy existed.

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B.

Common Evidence of a Rule of Reason Violation

The Daubert analysis fully sets forth the reasons why Plaintiffs fail to show that their rule
of reason violation is capable of being proven by evidence that is common to the class rather
than individual to its members. They have offered no evidence to establish the geographic
market or Defendants’ market power. Not only are their experts’ conclusions on antitrust impact
unreliable, there is also a failure to demonstrate that the claim is capable of proof through
common evidence.
C.

Comcast

Plaintiffs’ proposed damages model fails the Comcast test, and thus cannot serve as
common evidence of predominance, because the damages model does not matchup with
Plaintiffs’ theories of liability. Having already discussed this problem at length in the Daubert
analysis, it serves merely to reiterate that Dr. Seguin made no effort to determine which portion
of the class’s purported damages result from which alleged conspiracy (see Seguin Sept. 11,
2015 Dep. at 132:6-15), and he was not even aware of the nature of the conspiracies alleged by
Plaintiffs when he conducted his study. (Seguin Mar. 19 2015 Dep. at 72:19-73:15.)
Importantly, Dr. Seguin failed to isolate the difference in reimbursement rates attributable
to an alleged antitrust conspiracy from any difference attributable to legitimate bargaining power
or other market factors. Merely assuming that any difference observed has to be the result of
Plaintiffs’ allegations of antitrust behavior is insufficient, and Dr. Seguin admitted that could not
say that the difference he observed was the result of any conspiracy alleged in the SAC. Rather,
he did not consider any potential causes other than illegal activity. (See Seguin Mar. 19, 2015
Dep. at 71:18-72:1, 75:21-76:23.)

This failure to isolate differentials solely due to anti-

competitive activities is fatal since Dr. Cowan recognized that reimbursement rates between IPs

65

and chains could differ in the absence of anticompetitive behavior. (See Cowan Sept. 11, 2015
Dep. at 40:1-4 (“Q: So in the but-for world, you would still expect the PBM to have different
reimbursement rates to different pharmacies; correct? A: Within reason, yes.”); see also id. at
98:15-25 (“I’m allowing for variation [in reimbursement rates between pharmacies.]”).) Both
experts also recognized that legitimate bargaining power can explain the differential. (See
Cowan Report at 42; Seguin Sept. 11, 2015 Dep. at 72:8-73:11.) While Dr. Cowan warned that,
in examining the variability in reimbursements, one must examine if there is natural variability in
the contract values between IPs and PBMs, as well as control for market concentration and other
factors (see Cowan Report at 34, 39), Dr. Seguin did not do this. Accordingly, Plaintiffs’
damages model cannot serve as common evidence.
D.

Reliance on Averages

Dr. Seguin’s reliance on averages fails to comply with the Hydrogen Peroxide imperative
that Plaintiffs show that every member of the putative class suffered an antitrust injury. His
conclusion that there is a nationwide average differential of approximately $1.00 between the
reimbursement rate paid to IPs and chains is then used in his regression model that considers
only one explanatory variable, namely whether the pharmacy is an IP or a chain. As Dr.
Hausman explains, this parsimonious model fails to account for market forces that can explain
the differential independent of the conspiracies alleged by the Plaintiffs, including local market
density and local costs of doing business. Again, having already discussed this problem at length
in the Daubert analysis, the Rule 23(b)(3) predominance problem stemming from the Seguin
model’s use of averages is the failure to discount other causes of the observed average
reimbursement differential in order show common evidence that all putative members were
impacted by the anticompetitive conduct. See Areeda, Hovenkamp, Blair, Durrance, Antitrust

66

Law ¶ 398 (4th ed. 2014) (stating that to satisfy predominance, “even in a per se case . . . it is
necessary to prove that all class members suffered injury to their business or property using
common proof.” (emphasis added)). Evidence that IPs received on average $1.00 less than a
chain pharmacy is not evidence that every IP received less and was thus impacted. Combined
with Dr. Hausman’s unrebutted evidence that 52.6% of IPs received a higher reimbursement than
the 50th percentile chain pharmacy, and that the named Plaintiffs themselves received above
average reimbursements compared to the chain pharmacies they directly competed against,
Plaintiffs have failed to show antitrust impact by evidence that is common to the class through
Dr. Seguin’s parsimonious model. 32 See In re Rail Freight Fuel Surcharge Antitrust Litig., 725
F.3d 244, 252 (D.C. Cir. 2013) (holding that while plaintiffs do not need to be prepared at the
certification stage to demonstrate through common evidence the precise amount of damages
incurred by each class member, “we do expect the common evidence to show all class members
suffered some injury”) (emphasis in original).
E.

Local Market Variation

Because Dr. Seguin assumes a national market for retail pharmacy sales, his model fails
to account for the effect of local market forces on reimbursement rates differentials.

Dr.

Hausman’s test of Seguin’s model found there was a less than one percent probability to Dr.
Seguin’s assumption that reimbursement rate differentials was consistent nationwide. While
Seguin opines that he has undertaken to judge the robustness of his model by incorporating three

32

It must be noted that even after being presented with Dr. Hausman’s criticism of his
use of averages, Dr. Seguin prepared additional charts that still used averages. (See Seguin
Rebuttal at 5-6.) Dr. Seguin’s rebuttal to Dr. Hausman’s criticism of his use of averages is
unmoving. Seguin asserts that the problem is merely one of how the average differential “should
be allocated among class members.” (Id. at 15.) That is not the problem; the use of averages
evidence is flawed because it does not constitute class-wide evidence of antitrust impact. It
shows only that some members were allegedly impacted but does not show that they all were.
67

local variables, it must be noted that two of those variables — the number of pharmacies within a
zip and the median income within a zip — reduced his $1.00/prescription fill differential
estimate to $0.54. (See ECF 261-7 at 162:12-23.) The evidence of local variation and lack of
robustness supporting a national geographic market is particularly problematic for considering
whether common evidence predominates for Plaintiffs’ Plan Sponsor conspiracy claim that is
subject to rule of reason analysis. It is counterintuitive to think of the geographic market for
retail pharmacy sales as national. Dr. Hausman aptly opines that a consumer in Alabama would
not consider a pharmacy in Wisconsin to be an option to fill a prescription.
F.

Evidence that the Number of IPs is Declining

Dr. Cowan’s alternative method of using data on the declining market share for IPs and
Dr. Seguin’s data showing different CAGRs for chains and IPs must also be rejected as common
evidence of antitrust impact. Dr. Seguin’s data on market share showing that the chain group
had an increase in the relative number of outlets of 19.2% over the period from 2002 to 2012, or
a CAGR of 1.8%, versus data indicating that the market share of IPs fell with a CAGR of 0.15%, does not attempt to relate the perceived differential to the anticompetitive conduct
alleged in the SAC. While Seguin opines that the decline in the number of IP outlets over this
period “strongly suggests” common harm to IPs “due to discriminatory reimbursement by
PBMs,” (Seguin Report at 11), he conceded at his deposition that there were “numerous potential
explanations” why the relative number of chain outlets rose compared to IPs, and that he had not
tested any of those explanations in order to discount them. (ECF 261-7 at 211.) Because, as
already noted, antitrust laws protect competition and not competitors, whether certain
competitors’ market shares have declined is not alone common evidence of an antitrust violation.

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2.

Superiority

The superiority requirement ‘“asks the court to balance, in terms of fairness and
efficiency, the merits of a class action against those of alternative available methods of
adjudication.’” In re Processed Egg Prods. Antitrust Litig., 284 F.R.D. 278, 293-94 (E.D. Pa.
2012) (quoting In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283,
316 (3d Cir. 1998). Courts use the four factors listed in Rule 23(b)(3) — (1) the class members’
interests in individually controlling the prosecution or defense of separate actions; (2) the extent
and nature of any litigation concerning the controversy already begun by or against class
members; (3) the desirability or undesirability of concentrating the litigation of the claims in the
particular forum; and (4) the likely difficulties in managing a class action — to make the
determination. While Plaintiffs assert that no putative member of the class has expressed an
interest in individually controlling a separate action and that managing a class action will not be
difficult, the prior discussion of the typicality and predominance elements makes it clear that
class treatment is not a superior method of adjudicating Plaintiffs’ antitrust conspiracy claims.
The different way that the alleged anticompetitive activities may have impacted individual IPs’
reimbursement rates makes collective management of claims particularly difficult.
V.

The Decertification Motion in Express Scripts and Medco

On March 3, 2006, the transferee court in the Northern District of Alabama certified a
class of all independent pharmacies in the United States who contracted with any of the named
Defendants “to dispense and sell prescription drugs to members of a defendant network.” 33
(ECF 153-4 at 13-14 (“the Alabama certification order”).) Like the lead case, the Plaintiffs in
33

The order provides that the class period “commences four years before the filing of this
Complaint through the present,” and the class definition excludes “any pharmacies owned or
operated by any of the Defendants, their subsidiaries, agents, or principals, etc.” (ECF 153-4 at
13-14.)
69

Express Scripts and Medco allege two separate conspiracies in violation of Section 1 of the
Sherman Act: (1) a “client-payor conspiracy” wherein each PBM allegedly conspired with its
thousands of clients to lower the reimbursement rates paid to IPs for dispensing prescription
drugs to plan members; and (2) a “PBM conspiracy” wherein Medco, Express Scripts, and
Caremark conspired with each other (and other unnamed PBMs) to lower the reimbursement
rates paid to IPs. (Id. at 4.) The alleged purpose of the conspiracies was to engage in horizontal
price fixing to artificially depress the reimbursements paid to pharmacies for drugs and
professional services. (Id. at 4-5.)
Defendants argue that the class created by the Alabama certification be decertified for
four reasons: (1) to reconcile the case analytically with the other pending cases since the class
definitions overlap; (2) the Alabama certification order fails to comply with Third Circuit law
and the specificity required by the amendments to Federal Rule of Civil Procedure 23(c)(1)(B);
(3) the order was not grounded upon specific, market-based evidence, which Third Circuit law
requires in order to demonstrate that a plaintiff can use common proof to show the impact of the
alleged antitrust violation; and (4) the Plaintiffs cannot now meet their burden to show that
common questions predominate over questions affecting only individual class members.
Plaintiffs respond that (1) the principles of comity require that the Alabama certification order be
respected, and (2) Defendants’ request is contrary to the recent trend by MDL transferee courts
to send class certification issues back to the transferor courts. Because the Alabama certification
order has been rendered deficient by intervening changes in the law, the class must be
decertified.
a.

Preliminary Issue: Rule 23(c)(1)(C), Comity, and Preclusive Effect of
the Alabama Certification Order

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Shortly after the cases comprising the MDL were transferred to the United States District
Court for the Eastern District of Pennsylvania, the Hon. John P. Fullam concluded that the
Alabama certification order “does not comply with the requirements of Fed. R. Civ. P.
23(c)(1)(B), since the order does not define the class and the class claims, issues, or defenses.”
(Order of Feb. 21, 2007, ECF 42, at 1.) Judge Fullam’s order was filed after the pending motion
to decertify was filed of record and recognized that Defendants’ raised substantial arguments that
the certification order was probably defective and inconsistent with prevailing law since he
stated that “further information” was needed “in reaching a correct decision as to class
certifications.” (Id.)
This Order, as well as the pending motion to decertify, are fully consistent with the
authority granted by Rule 23(c)(1)(C) stating that an “order that grants or denies class
certification may be altered or amended before final judgment.” Fed. R. Civ. P. 23(c)(1)(C).
They are also consistent with Third Circuit precedent. See Barnes, 161 F.3d at 140 (stating that
“[u]nder Rule 23(c)(1), district courts are required to reassess their class rulings as the case
develops”); Zenith Labs., Inc. v. Carter-Wallace, Inc., 530 F.2d 508, 512 (3d Cir. 1976) (stating
that law of the case rules do not apply to class certification rulings).
Plaintiffs’ argument that comity should be granted to the Alabama court’s decision is thus
ill grounded. Granting comity — and thus setting in stone a transferor court’s certification
decision — would violate Rule 23’s explicit pronouncement that certification orders are subject
to later modification. Plaintiffs’ citation to the United States Supreme Court’s decision in Smith
v. Bayer Corp., 564 U.S. 299 (2011) is also inapt. In that decision, the Court held that a federal
court had exceeded its authority under the Anti-Injunction Act in enjoining a state court from
considering the certification of a class in a products liability action that was largely identical to

71

one in which the federal court had denied certification. The case turned on whether the federal
court’s prior decision had a preclusive effect on the state court. The Court held that “[n]either a
proposed class action nor a rejected class action may bind nonparties. What does have this effect
is a class action approved under Rule 23.” Id. at 315. The Court also stated that it expects
“federal courts to apply principles of comity to each other’s class certification decisions.” Id. at
317.

Although Plaintiffs seek to apply this quoted language here, the context is entirely

different. Bayer was a case concerning the application of federal-state comity to a state court
copycat lawsuit where certification was initially denied by the federal court. It was not a motion
for decertification of a class certified in the same lawsuit before venue was transferred from one
federal court to another by order of the Multidistrict Panel. In addition, the doctrine of comity is
not a rule of issue preclusion, but rather one of deference. Smentek v. Dart, 683 F.3d 373, 377
(7th Cir. 2012) (stating that, after the decision in Bayer, “[w]e are left with the weak notion of
‘comity’ as requiring a court to pay respectful attention to the decision of another judge in a
materially identical case, but no more than that even if it is a judge of the same court or a judge
of a different court within the same judiciary”). While the Alabama certification order is entitled
to deference, it is clearly not entitled to preclusive effect given the language in Rule 23(c)(1)(C).
b.

Standard of Review and Analysis

The question of which party has the burden on a motion to decertify a previously certified
class is not settled. Some courts assign the burden to the proponent of the decertification motion.
See, e.g., Doe v. Karadzic, 192 F.R.D. 133, 136-37 (S.D.N.Y. 2000) (holding that “the Court
may not disturb its prior findings absent ‘some significant intervening event,’” and defining as
significant the same events that would justify a motion for reconsideration, i.e., “an intervening
change of controlling law, the availability of new evidence, or the need to correct a clear error or

72

prevent manifest injustice”); In re Atl. Fin. Fed. Securities Litig., Civ. A. No. 89-645, 1992 WL
50072, *2 (E.D. Pa. Feb. 28, 1992) (“[W]hen seeking decertification of a class, the defendant
bears a heavy burden to show that there exist clearly changed circumstances that make continued
class action treatment improper.”). Other courts look to whether the plaintiff has carried the
burden of showing a continued right to proceed as a class. See, e.g., Marlo v. United Parcel
Service, Inc., 639 F.3d 942, 947 (9th Cir. 2011) (holding that “as to the class-decertification
issue,” the party seeking certification continues to bear the burden of showing compliance with
Rule 23); In re Credit Suisse First Boston Corp. (Lantronix, Inc.) Analyst Securities Litig., 250
F.R.D. 137, 140 (S.D. N.Y. 2008) (“In order to decide whether or not to decertify this class, the
Court must determine whether Plaintiff has carried his burden of demonstrating that each
element of Rule 23 is met by a preponderance of the evidence.”); Walker v. Bankers Life & Cas.
Co., Civ. A. No. 06-6906, 2008 WL 2883614, at *9 (N.D. Ill. July 28, 2008) (holding that
“plaintiffs bear the burden of producing a record demonstrating the continued propriety of
maintaining the class action”); see also Newberg on Class Actions § 7:39 (5th ed.) (collecting
cases). Assigning the burden to either party here, however, leads to the same result.
Defendants have met their burden to show that decertification is appropriate since (1) the
Alabama certification order did not originally comply with the requirements of Fed. R. Civ. P.
23(c)(1)(B), and (2) the law governing the consideration of class certification has changed in the
intervening years so that the record undergirding the Alabama certification order would no
longer be deemed sufficient. On the other hand, Plaintiffs, to the extent that they hold the
laboring oar, have not met their burden to show continued compliance with Rule 23. With the
advent of Duke, Comcast, Hydrogen Peroxide, and Blood Reagents, all decided after the original
certification order was entered, commentators note that the federal class action has become far

73

more challenging to certify. See, e.g., Linda S. Mullenix, Ending Class Actions As We Know
Them: Rethinking the American Class Action, 64 Emory L.J. 399 (2014); Edward D. Cavanagh,
Antitrust Law and Economic Theory: Finding A Balance, 45 Loy. U. Chi. L.J. 123, 159-60
(2013) (noting that, under these decisions, certification proceedings have “become something of
a cottage industry for expert economists. As a result, class certification proceedings have been
transformed into complex miniature trials, a practice roundly condemned by the Supreme Court
three decades ago”).

The requirement of rigorous analysis, the ability to engage in an

examination of the merits of the claim where needed, and the imperatives to establish that
predominance is susceptible to common proof and that damages can be measured on a class-wide
basis tied to each theory of antitrust impact, simply did not exist when the Alabama certification
order was entered. Through no fault of the judge that entered it, that order is now deficient in
numerous respects.
First, contrary to Dukes, the Alabama certification order specifically states that “the Court
may not inquire into the merits of Plaintiffs’ claims at this preliminary stage.”

Compare

Alabama certification order at 8; Dukes, 564 U.S. at 351. Second, it does not specifically
employ the preponderance of the evidence standard. See Hydrogen Peroxide, 552 F.3d at 320
(citing Gariety v. Grant Thornton, LLP, 368 F.3d 356, 365 (4th Cir. 2004)). Third, it did not
resolve concededly disputed evidence, concluding instead that Plaintiffs had met their burden by
merely providing some evidence on an issue. See Alabama certification order at 12 (finding
antitrust standing sufficiently demonstrated by “substantial, although disputed, evidence”.)
Finally, it made no attempt to analyze competing expert submissions on the predominance issue
before granting certification, deferring that issue to a later stage of the litigation. (Id. at 26

74

(stating “In the face of Plaintiffs’ evidence and their expert’s analysis, I find that, at least at this
stage, the Plaintiffs have carried their burden of establishing predominance.”).)
Having rigorously analyzed the certification record, and having found it wanting in the
key respects discussed supra, the Motion for decertification in Express Scripts and Medco is
granted.
VI.

The certification Motion in Brady

Similar to Caremark, Plaintiffs in Brady seek to certify a class consisting of pharmacies
that contracted or were under contract with Medco to dispense and sell brand name and generic
prescription drugs for any prescription drug benefit plan. (See ECF 57.) Plaintiffs allege an
antitrust conspiracy essentially identical to the Plan Sponsor conspiracy alleged by Plaintiffs in
Caremark. Also similar to Caremark, Plaintiffs rely on the expert reports submitted by Dr.
Cowan. (See ECF 45-2 (appending Cowan Rebuttal Report to Pls.’ Joint Resp. to Defs.’ Suppl.
Mem. in Opp. to Pls.’ Mot. for Class Cert.).) Because the conspiracy alleged in Brady is judged
under the rule of reason, the same Daubert defects and substantive class certification
predominance issues identified in the discussion of the Caremark Plaintiffs’ rule of reason claim
prevent certification of Brady Plaintiffs’ claim.
VII.

Conclusion

Rigorous analysis of pending class certification Motions leads to the conclusion that
Plaintiffs’ expert submissions fail to pass Daubert scrutiny and that Plaintiffs are unable to meet
their burdens under Rule 23. Accordingly, Caremark’s Motion to exclude expert evidence shall

75

be granted, Plaintiffs’ Motions for class certification in the lead case and in Brady shall be
denied, and the class previously certified in Express Scripts and Medco shall be decertified.
An appropriate Order follows.
BY THE COURT:

/s/ C. Darnell Jones, II
C. Darnell Jones, II J.

76

MO: 1782

JUDICIAL PANEL ON
MULTIDISTRICT LITIGATION

AUG 2 ~ 2006
RELEASED FOR PUBLICATION

FILED
CLERK'S OFFICE

DOCKET NO. 1782
BEFORE THE JUDICIAL PANEL ON MULT/DISTRICT LITIGATION
IN RE PHARMACY BENEFIT MANAGERS ANTITRUST LITIGATION
BEFORE WM. TERRELL HODGES, CHAIRMAN, D. LOWELL JENSEN, J.
FREDERICK MOTZ; ROBERT L. MILLER, JR.; KATHRYN H. VRATIL,
DAVID R. HANSENANDANTHONYJ. SCIRICA, JUDGES OF THE PANEL
TRANSFER ORDER
This litigation presently consists of six actions listed on the attached Schedule A as follows:
two actions each in the Northern District of Alabama and the Eastern District of Pennsylvania and one
action each in the Northern District of Cali fomi a and the Northern District of Illinois. Before the Panel
is a motion, pursuant to 28 U.S.c. § 1407, by plaintiffs in one Pennsylvania action seeking
centralization of all actions in the Eastern District of Pennsylvania. Plaintiffs in the California action
support the motion. Medea Health Solutions, Inc. (Medeo), its former parent Merck & Co" Inc.,
(Merck) and PAID Prescriptions LLC (P AID)l support centralization of the actions in which they are
defendants (three of the six actions before the Panel) in the Eastern District of Pennsylvania. The
Alabama and Illinois plaintiffs agree that centralization is appropriate, but suggest the Northern District
of Alabama as transferee district. Defendants ExpressScripts, Inc.; Caremark RX and Caremark Inc.;
and AdvancePCS 2 oppose centralization. If the Panel deems centralization appropriate, they suggest
selection of the Northern District of Illinois as transferee district.
On the basis of the papers filed and hearing session held, the Panel finds that the actions in this
litigation involve common questions of fact, and that centralization in the Eastern District of
Pennsylvania will serve the convenience ofthe parties and witnesses and promote the just and efficient
conduct of the litigation. All actions arise out of allegations that certain conduct by the phannacy
benefit manager (PBM) defendants-including the negotiation ofrates for the sale ofprescription drugs

• Judges Motz and Miller did not participate in the decision of this matter.
I

Merekand Medco inform the Panel that PAID has merged with Medea and is no longer a separate

2

AdvancePCS has been recently acquired by Caremark RX and is now known as CaremarkPCS.

entity.

OFFICIAL FilE COJ'fAGED AUG 2 4 2000

J

•
-2by retail pharmacies-violated the federal antitrust laws. Centralizing these actions is desirable in order
to avoid duplication of discovery, prevent inconsistent or repetitive pretrial rulings (especially on the
issue of class certification), and conserve the resources of the parties, their counsel and the judiciary.
See In re Managed Care Litigation, 2000 U.S. Dist. LEXIS 15927 (J.P.M.L. Oct. 23, 2000).

Opposing defendants argue that unique questions of fact relating to each PBM should produce
a different result. We are unpersuaded by this argument. While the contracts between each plan
sponsor/PBM will spawn some unique discovery, all plaintiffs allege that these contracts create a pricefixing conspiracy. Moreover, all actions can be expected to focus on similar PBM practices and
procedures. Some plaintiffs also allege that the PBMs conspired with each other to further the pricefixing conspiracies. Transfer to a single district under Section 1407 has the salutary effect of placing
all actions before one court which can fonnulate a pretrial program that: 1) allows pretrial proceedings
with respect to any non-common issues to proceed concurrently with pretrial proceedings on common
issues, In re Multi-Piece Rim Products Liability Litigation, 464 F.Supp. 969, 974 (J.P.M.L. 1979); and
2) ensures that pretrial proceedings will be conducted in a manner leading to the just and expeditious
resolution of all actions to the overall benefit of the parties. The MDL-1782 transferee court can
employ any number of pretrial techniques-such as establishing separate discovery and/or motion
tracks-to efficiently manage this litigation. In any event, we leave the extent and manner of
coordination or consolidation of these actions to the discretion of the transferee court. In re Equity
Funding Corp. ojAmerica Securities Litigation, 375 F.Supp. 1378, 1384-85 (l.P.M.L. 1974).
Given the geographic dispersal of constituent actions, any of the suggested transferee districts
would be an appropriate transferee forum. We are persuaded that the Eastern District of Pennsylvania,
where two actions are currently pending, has the experience to steer this litigation on a prudent course.
IT IS THEREFORE ORDERED that, pursuant to 28 U.S.c. § 1407, the actions listed on
Schedule A and pending outside the Eastern District ofPennsylvania are transferred to that district and,
with the consent ofthat court, assigned to the Honorable John P. Fullam for coordinated or consolidated
pretrial proceedings with the actions pending there and listed on Schedule A.

FOR THE PANEL:

4:i.2~'0AWm. Terrell Hodges
Chainnan

'.
SCHEDULE A

MDL-1782 -- In Ie Pharmacy Benefit Managers Antitrust Litigation

Northern District of Alabama

North Jackson Pharmacy, Inc., et al. v. Express Scripts Inc., et al., C.A. No. 5:03-2696
North Jackson Pharmacy, Inc., et al. v. Medea Health Solutions, Inc., et aI.,
C.A. No. 5:03-2697
Northern District of California

Mike's Medical Center Pharmacy, et al. v. Medea Health Solutions, Inc., et aI.,
C.A. No. 3:05-5108
Northern District of Illinois

North Jackson Pharmacy, Inc., et al. v. Caremark RX Inc., et aI.,

c.A. No.

1:04-5674

Eastern District of Pennsylvania

Brady Enterprises, Inc., et al. v. Medea Health Solutions, Inc., et al., C.A. No. 2:03-4730
Bellvue Drug Co., et al. v. AdvancePCS, C.A. No. 2:03-4731