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`No. 21-16162
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`CARL WASHINGTON, et al.,
`Plaintiffs/Appellants,
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`v.
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`CVS PHARMACY, INC.,
`Defendant/Appellee.
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`OPENING BRIEF
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`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
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`Appeal from the United States District Court
`for the Northern District of California
`No. 15-cv-03504-YGR-JSC (Hon. Yvonne Gonzalez Rogers)
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`Robert B. Gilmore
`Jeffrey S. Beelaert
`Susie Kim
`STEIN MITCHELL BEATO &
`MISSNER LLP 901 15th Street NW
`Washington, D.C. 20005
`202-737-7777
`
`Elizabeth C. Pritzker
`Jonathan K. Levine
`Caroline Corbitt
`PRITZKER LEVINE LLP
`1900 Powell Street, Suite 450
`Emeryville, CA 94608
`415-692-0772
`
`
`Bonny E. Sweeney
`Samantha Stein
`HAUSFELD LLP
`600 Montgomery Street
`Suite 3200
`San Francisco, CA 94111
`415-633-1908
`
`Richard S. Lewis
`Sathya S. Gosselin
`Theodore F. DiSalvo
`HAUSFELD LLP
`888 16th Street NW, Suite 300
`Washington, D.C. 20006
`202-540-7200
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`TABLE OF CONTENTS
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`TABLE OF AUTHORITIES ...................................................................... iv
`INTRODUCTION ....................................................................................... 1
`JURISDICTIONAL STATEMENT ............................................................ 4
`STATEMENT OF THE ISSUES ................................................................ 5
`PERTINENT STATUTES .......................................................................... 6
`STATEMENT OF THE CASE ................................................................... 7
`A.
`Factual and legal background ................................................. 7
`1. Usual and customary pricing ......................................... 8
`2.
`CVS’s Health Savings Pass program ........................... 10
`a.
`Concern as to usual and customary
`prices .................................................................... 10
`Intentional concealment and damages ............... 14
`b.
`Courts have held that similar pharmacy
`discount program prices should have been
`reported as usual and customary prices. ..................... 15
`State consumer protection statutes ............................. 16
`4.
`Procedural background .......................................................... 17
`1.
`Insured customers sued CVS. ...................................... 17
`a.
`CVS’s motions in limine ...................................... 18
`b.
`Jury instructions ................................................. 20
`i.
`No duty to disclose ...................................... 20
`
`B.
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`3.
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`i
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`ii.
`Third-party beneficiary status ................... 21
`Jury verdict ................................................................... 22
`2.
`SUMMARY OF ARGUMENT .................................................................. 23
`STANDARD OF REVIEW ........................................................................ 25
`ARGUMENT ............................................................................................. 26
`I.
`The district court’s “no affirmative duty to disclose”
`jury instruction and related motion in limine ruling
`misstated the law, confused the jury, and caused
`prejudicial error. .............................................................................. 26
`A.
`The district court improperly limited plaintiffs’
`presentation of their case to the jury based on a
`misunderstanding of its earlier ruling. ................................. 28
`The jury instruction and related motion in limine
`ruling conflict with relevant provisions of the
`state consumer protection statutes. ...................................... 31
`The district court misapplied the law of the case
`doctrine. .................................................................................. 35
`The legal errors prejudiced plaintiffs. ................................... 38
`D.
`II. The district court erred in instructing the jury that
`plaintiffs’ statutory consumer protection claims turned
`on their status as third-party beneficiaries. .................................. 40
`III. The district court abused its discretion in excluding
`evidence of other litigation against CVS. ....................................... 46
`A.
`The district court abused its discretion when it
`prevented plaintiffs from asking witnesses about
`other lawsuits after CVS opened the door to such
`questioning. ............................................................................ 47
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`B.
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`C.
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`B. Other lawsuits demonstrate that CVS knew of
`disagreement within the industry. ........................................ 49
`CONCLUSION ......................................................................................... 52
`STATEMENT OF RELATED CASES
`CERTIFICATE OF COMPLIANCE
`ADDENDUM
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`iii
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`TABLE OF AUTHORITIES
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`Cases
`
`Actuate Corp. v. Aon Corp.,
`No. C 10-05750 WHA, 2012 WL 2285187
`(N.D. Cal. June 18, 2012) .................................................................... 47
`Arizona v. California,
`460 U.S. 605 (1983) ............................................................................. 35
`BladeRoom Grp. v. Emerson Elec. Co.,
`20 F.4th at 1231 (9th Cir. 2021) ........................... 25, 28, 31, 38, 39, 40
`Caballero v. City of Concord,
`956 F.2d 204 (9th Cir. 1992) ............................................................... 39
`Cheatham v. ADT Corp.,
`161 F. Supp. 3d 815 (D. Ariz. 2016) .................................................... 32
`Chess v. Dovey,
`790 F.3d 961 (9th Cir. 2015) ............................................................... 25
`Clem v. Lomeli,
`566 F.3d 1177 (9th Cir. 2009) ........................................... 25, 28, 38, 40
`Collins v. eMachines, Inc.,
`202 Cal. App. 4th 249 (2011) ............................................................... 33
`Compton v. Countrywide Fin. Corp.,
`761 F.3d 1046 (9th Cir. 2014) ....................................................... 17, 37
`Connick v. Suzuki Motor Co. Ltd.,
`675 N.E.2d 584 (Ill. 1996) ................................................................... 34
`Corcoran v. CVS Health Corp.,
`779 Fed. App’x 431 (9th Cir. 2019) ................................................. 7, 18
`Dang v. Cross,
`422 F.3d 800 (9th Cir. 2005) ............................................................... 25
`Entek GRB, LLC v. Stull Ranches, LLC,
`840 F.3d 1239 (10th Cir. 2016) ........................................................... 36
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`Erickson Prods., Inc. v. Kast,
`921 F.3d 822 (9th Cir. 2019) .............................................................. 25
`Exxon Mobil Corp. v. Atty Gen.,
`94 N.E.3d 786 (Mass. 2018) ................................................................ 34
`Frost v. BNSF Railway Co.,
`914 F.3d 1189 (9th Cir. 2019) ....................................................... 28, 40
`Galdamez v. Potter,
`415 F.3d 1015 (9th Cir. 2005) ............................................................. 39
`Gantt v. City of L.A.,
`717 F.3d 702 (9th Cir. 2013) ......................................................... 27, 28
`Gastineau v. Fleet Mortg. Corp.,
`137 F.3d 490 (7th Cir. 1998) ............................................................... 46
`Gonzalez v. Arizona,
`677 F.3d 383 (9th Cir. 2012) ............................................................... 36
`Gutierrez v. Carmax Auto Superstores Cal.,
`19 Cal. App. 5th 1234 (2018) ............................................................... 33
`In re Anthem, Inc. Data Breach Litig.,
`No. 15-MD-02617-LHK, 2016 WL 3029783
`(N.D. Cal. May 27, 2016) ..................................................................... 42
`In re NJOY, Inc. Consumer Class Action Litig.,
`No. CV-14-00428-MMM (JEMx), 2015 WL 12732461
`(C.D. Cal. May 27, 2015) ..................................................................... 34
`Jackson v. Fed. Express,
`No. CV10-01760-MMM, 2011 WL 13268074
`(C.D. Cal. June 13, 2011) .................................................................... 46
`Jenkins v. Union Pac. R.R. Co.,
`22 F.3d 206 (9th Cir. 1994) ..................................................... 27, 31, 40
`Jones v. Williams,
`297 F.3d 930 (9th Cir. 2002) ............................................................... 25
`Masson v. New Yorker Mag. Inc.,
`85 F.3d 1394 (9th Cir. 1996) ............................................................... 26
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`NASCO, Inc. v. Public Storage, Inc.,
`127 F.3d 148 (1st Cir. 1997) .......................................................... 42, 46
`Nat’l Collegiate Athletic Ass’n v. Miller,
`10 F.3d 633 (9th Cir. 1993) ................................................................. 26
`Nat’l Union Fire Ins. Co. v. Showa Shipping Co.,
`47 F.3d 316 (9th Cir. 1995) ................................................................. 26
`Oswego Laborers’ Local 214 Pension Fund v. Marine
`Midland Bank, N.A.,
`85 N.Y. 2d 20 (N.Y. 1995) .................................................................... 34
`Outboard Marine Corp. v. Superior Ct.,
`52 Cal. App. 3d 30 (1975) .................................................................... 17
`Stafford v. Rite Aid Corp.,
`998 F.3d 862 (9th Cir. 2021) ................................. 24, 40, 43, 44, 45, 46
`Swinton v. Potomac Corp.,
`270 F.3d 794 (9th Cir. 2001) ............................................................... 26
`United States ex rel. Garbe v. Kmart Corp.,
`73 F. Supp. 3d 1002 (S.D. Ill. 2014) .................................................... 16
`United States ex rel. Garbe v. Kmart Corp.,
`824 F.3d 632 (7th Cir. 2016) ......................................................... 15, 16
`United States v. Gay,
`967 F.2d 322 (9th Cir. 1992) ............................................................... 47
`Wilkerson v. Wheeler,
`772 F.3d 834 (9th Cir. 2014) ............................................................... 25
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`Statutes
`28 U.S.C. § 1367......................................................................................... 5
`Class Action Fairness Act,
`28 U.S.C. § 1332 .................................................................................. 16
`Arizona Consumer Fraud Act,
`Ariz. Rev. Stat. § 44-1521, et seq ........................................................ 16
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`California Consumers Legal Remedies Act,
`Cal. Civil Code § 1750, et seq .............................................................. 16
`Florida Deceptive and Unfair Trade Practices Act,
`Fla. Stat. § 501.201, et seq .................................................................. 16
`Illinois Consumer Fraud and Deceptive Business Practices Act,
`815 Il. Comp. Stat. 505/1, et seq ......................................................... 16
`Massachusetts Consumer Protection Act,
`Mass. Gen. Laws ch. 93A .................................................................... 16
`New York Deceptive Acts and Practices Statute,
`N.Y. Gen. Bus. Law §§ 349, 350 .......................................................... 16
`
`Rules
`Federal Rule of Evidence 404 ..................................................... 46, 47, 49
`Federal Rule of Appellate Procedure 4 ..................................................... 5
`Federal Rule of Civil Procedure 23 ........................................................... 4
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`Other Authorities
`Judicial Council of California Civil Jury Instructions (2020) ............... 33
`Revised Arizona Jury Instructions (Civil) (7th ed. 2021) ...................... 32
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`INTRODUCTION
`No other country spends as much money per person on health care
`as the United States. To offset the tremendous cost of health care, most
`Americans (and their employers) pay for some form of health insurance
`to help reduce out-of-pocket expenses. Health insurance provides
`important benefits—such as prescription drug coverage—that safeguard
`against financial upheavals. Were it otherwise, businesses and
`individuals nationwide would not spend so much each year on health
`insurance.
`CVS is the largest pharmacy chain in the United States, both by
`number of locations and by annual revenue. Millions of customers fill
`their prescriptions at CVS every day, including countless insured
`customers who trust that their health insurance is working to save
`them money. In 2008, CVS spied an opportunity to boost its
`prescription drug sales to uninsured customers through discounts. But
`CVS did not report or extend the same discounts to insured customers
`(and their insurers) even though it was required to do so. Instead, CVS
`surreptitiously charged insured customers substantially more than
`uninsured customers for hundreds of generic prescription drugs without
`providing any notification at the point of sale. Health insurance became
`a penalty.
`Plaintiffs and the six state classes that they represent are insured
`customers who used their insurance to purchase generic prescription
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`drugs from CVS. As CVS customers, plaintiffs’ purchases were
`administered by a pharmacy benefit manager that directly contracted
`with CVS to process their insurance claims. Under this arrangement,
`CVS was prohibited from charging insured customers more for
`prescription drugs than the prices actually paid by uninsured cash
`customers, known as the “usual and customary” price. Yet CVS flouted
`those requirements to generate higher revenues, simultaneously
`elevating prices for insured customers while attracting uninsured
`customers with discount prices. In doing so, CVS deceived insured
`customers into paying higher prices (by collecting inflated copayments)
`for generic prescription drugs.
`At trial, plaintiffs demonstrated that CVS violated state consumer
`protection statutes that prohibit unfair and deceptive business
`practices, including the concealment or omission of material facts (such
`as the availability of lower prices). Throughout the jury trial, however,
`the district court committed legal errors that prejudiced plaintiffs and
`made a consumer victory virtually impossible. Despite plaintiffs’
`repeated objections, the district court barred important evidence of
`industry standards as to “usual and customary” prices and erroneously
`instructed the jury using language (found in none of the statutes or
`model jury instructions) that effectively exonerated CVS’s conduct. The
`court’s errors went to the heart of plaintiffs’ case.
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`First, the district court instructed the jury that CVS “did not have
`any affirmative duty to disclose” information to plaintiffs under the
`governing state statutes. That instruction misstated the law, confused
`the jury, and constituted prejudicial error. Each consumer protection
`statute prohibited CVS from omitting material information from its
`insured customers as a deceptive or unfair business practice. In giving
`this instruction, the district court erroneously conflated principles of
`common law duty with statutory requirements. Because the court
`essentially told the jury that they could never find CVS liable for
`withholding information from its insured customers, the erroneous “no
`duty” instruction substantially prejudiced plaintiffs.
`Second, the district court erred in instructing the jury regarding
`plaintiffs’ status as third-party beneficiaries to the contracts that CVS
`had with the pharmacy benefit managers that administered plaintiffs’
`insurance benefits. As a matter of law, such status applies (if at all) to
`a breach of contract claim. Plaintiffs asserted no such claim at trial.
`The court’s lengthy and unnecessary instruction misled the jury by
`suggesting that, in “deciding whether CVS violated the consumer
`protection laws of any of the six states,” the jury had to consider
`whether plaintiffs were third-party beneficiaries to the contracts to
`prevail on their statutory claims. That is incorrect.
`Third, the district court abused its discretion in denying the jury
`important evidence of industry disagreement with the self-serving
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`interpretation of “usual and customary” prices that CVS articulated
`here. Specifically, plaintiffs sought to introduce evidence that
`numerous major health insurers had filed suits and arbitrations against
`CVS and other pharmacies for failing to report discounted cash prices
`as usual and customary pricing. This evidence demonstrated major
`industry participants’ views that CVS’s interpretation and conduct was
`wrongful. CVS insisted at trial that it had complied with industry
`standards when it failed to report discounted cash prices for uninsured
`customers as usual and customary. Although CVS opened the door for
`plaintiffs to present evidence of differing views within the pharmacy
`industry reflected in this litigation, the district court refused to allow it.
`Because the district court excluded this evidence, the jury never learned
`that major industry players disagreed with CVS and that CVS knew of
`this disagreement even as it presented a false picture of industry
`consensus at trial.
`This Court previously reversed the district court’s erroneous
`summary judgment, class certification, and Daubert rulings. On
`remand, the district court once again committed prejudicial legal errors.
`This Court should reverse and remand for a new trial.
`JURISDICTIONAL STATEMENT
`The district court had jurisdiction under the Class Action Fairness
`Act, 28 U.S.C. § 1332(d)(2). This class action involves claims by citizens
`of multiple states filed under Rule 23 of the Federal Rules of Civil
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`Procedure; the aggregate amount in controversy exceeds $5,000,000;
`there are millions of class members; and CVS is a citizen of a state
`different from that of plaintiffs and class members. The district court
`had jurisdiction over pendent claims under 28 U.S.C. § 1367(a).
`The parties tried this case before a jury, which resolved all of
`plaintiffs’ claims when it rendered a verdict in favor of CVS. 1 Excerpts
`of Record (ER)-27–33. The district court adopted the jury’s findings and
`entered final judgment against the plaintiffs on June 24, 2021. 1-ER-2.
`Plaintiffs filed their notice of appeal fifteen days later, on July 9,
`2021. 5-ER-995–99. The appeal is timely under Federal Rule of
`Appellate Procedure 4(a)(1)(A).
`STATEMENT OF THE ISSUES
`The six state consumer protection statutes at issue in this
`1.
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`litigation all allow plaintiffs to sue for a defendant’s deceptive
`omissions. Over plaintiffs’ objections, the district court prohibited
`plaintiffs from presenting any evidence or suggesting at trial that CVS
`had a duty to disclose information to plaintiffs and then affirmatively
`instructed the jury that such omissions were not actionable. The
`district court instructed the jury that CVS “did not have any affirmative
`duty to disclose” pricing information to its insured customers. Did the
`district court err in foreclosing the jury’s consideration of CVS’s
`concealment or omission of material facts under the six state consumer
`protection statutes?
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`Plaintiffs asserted only statutory claims, not breach of
`2.
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`contract claims. Over plaintiffs’ objections, the district court instructed
`the jury that it had to consider whether plaintiffs “were third-party
`beneficiaries” under the contracts that CVS had with pharmacy benefit
`managers in deciding whether “CVS violated the consumer protection
`laws of any of the six states.” Did the district court err in instructing
`the jury on third-party beneficiary status when CVS’s liability under
`state consumer protection statutes is independent of such status?
`3. Much of this case turned on the well-established meaning of
`a usual and customary price within the pharmacy industry. Plaintiffs
`sought to introduce evidence that many health insurers disagree with
`the views advanced by CVS at trial, as demonstrated by numerous
`lawsuits filed against CVS (and other pharmacies) concerning
`substantially the same pricing misconduct. Yet the district court
`refused to allow plaintiffs to present that evidence to the jury, even
`after CVS opened the door. Did the district court abuse its discretion in
`refusing to allow plaintiffs to introduce evidence of other lawsuits
`against CVS as undermining CVS’s suggestion of an industry-wide
`consensus on reporting discounted prices as usual and customary?
`PERTINENT STATUTES
`An addendum to this brief includes relevant provisions of the state
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`consumer protection statutes.
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`STATEMENT OF THE CASE
`This litigation concerns CVS’s scheme to deceive millions of
`insured customers into paying higher prices for generic prescription
`drugs. As this case has been pending for more than six years—
`including an earlier appeal in which this Court reversed the district
`court’s summary judgment, class certification, and Daubert rulings,
`Corcoran v. CVS Health Corp., 779 Fed. App’x 431 (9th Cir. 2019) (at 3-
`ER-570–77)—plaintiffs include only the factual, legal, and procedural
`background necessary for the Court to resolve this second appeal.
`A. Factual and legal background
`CVS is the largest pharmacy chain in the United States. 2-ER-
`198, 3-ER-343; 4-ER-612. Millions of customers fill their prescriptions
`at CVS every day. 2-ER-65. Plaintiffs and the six state classes that
`they represent—Arizona, California, Florida, Illinois, Massachusetts,
`and New York—are insured customers who used their insurance to
`purchase generic prescription drugs from CVS between November 2008
`and July 2015. 2-ER-50, 203, 309. As CVS customers, plaintiffs had
`their insurance administered by one of five pharmacy benefit managers:
`Caremark, Express Scripts, Medco, MedImpact, and Optum. 2-ER-54,
`83. CVS contracted with each of these pharmacy benefit managers.
`2-ER-90. The terms of those contracts covered claims for prescription
`purchases, including the calculation of copayments paid by plaintiffs.
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`1. Usual and customary pricing
`In the pharmacy industry, the usual and customary price refers to
`the lowest price charged by the pharmacy to cash customers paying for
`their own prescription drugs. 2-ER-69–72, 111. “Cash customers” are
`customers who do not use insurance—i.e., they pay for their
`prescription drugs out of their own pocket. 2-ER-76, 114. CVS admits
`that the usual and customary price is “an industry term meaning the
`cash price paid by the general public” and a “‘cash’ customer typically
`means a customer who purchases a drug without using insurance.”
`4-ER-709.
`Contracts between CVS and the pharmacy benefit managers all
`include a “lower of” provision that controls prescription drug prices paid
`by insurers and insured CVS customers. 2-ER-77, 120, 127, 130–32,
`171–73; 5-ER-924, 930, 938–39, 964. These provisions require that
`insurers and their insured customers pay no more than a pharmacy’s
`usual and customary price. 2-ER-119, 190.
`A pharmacy sets the usual and customary price. 2-ER-90. In
`doing so, the pharmacy must comply with prevailing industry standards
`and its contractual obligations. Each one of the contracts in this case
`defined the usual and customary price in fundamentally the same
`fashion, referring to (1) the price charged to cash customers or in cash
`transactions; and (2) including any discounts. 2-ER-74–75. This
`definition reflects prevailing industry standards promulgated by the
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`National Council for Prescription Drug Program, which has defined
`usual and customary price as “the amount charged to cash customers
`for the prescription, exclusive of sales tax and other amounts claimed.”
`2-ER-251–52. CVS must adhere to these standards when processing
`any prescription drug purchased by an insured customer. 2-ER-65–66.
`Pricing decisions in the pharmacy industry are made during what
`is referred to as the “claims adjudication” process. 2-ER-65. When an
`insured customer fills a prescription at a pharmacy like CVS, the
`pharmacist generates a “claim” that electronically transmits
`information about the customer, the prescription, the usual and
`customary price, and the relevant insurance information to the
`pharmacy benefit manager. Within seconds, the benefit manager then
`responds to the claim with the reimbursement amount that it is willing
`to pay CVS on top of the customer’s copayment obligation. 2-ER-66–68.
`The calculation of the payment amount depends on the usual and
`customary price reported by CVS. 2-ER-120–21; 2-ER-190, 248. For
`the calculation to be right, the usual and customary price submitted by
`CVS must be accurate. 2-ER-275. If CVS submits an inflated usual
`and customary price, this causes an inflated copayment amount to be
`charged to the insured customer and an inflated reimbursement
`amount to be pocketed by CVS for that purchase. 2-ER-79–80.
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`2. CVS’s Health Savings Pass program
`In 2006, Walmart and then Target began offering steep discounts
`to their customers for hundreds of commonly prescribed generic drugs.
`2-ER-301. CVS responded by creating its own “Health Savings Pass”
`program in 2008, through which uninsured cash customers could
`receive discount pricing for various generic prescription drugs. 4-ER-
`631–32, 880–82. Customers filled out a form, provided basic
`information, and paid a nominal annual enrollment fee ($10 initially),
`enabling them to purchase a 90-day supply of generic drugs from CVS
`for $9.99, which CVS later increased to $11.99. 2-ER-143, 208; 4-ER-
`880–82.
`
`a. Concern as to usual and customary
`prices
`Trial evidence established that the discount price paid by
`uninsured customers enrolled in the CVS program satisfied the well-
`established characteristics of a usual and customary price within the
`industry. As mentioned previously, each of the contracts between CVS
`and the five benefit managers in this case defined “usual and
`customary” as the price charged to cash customers inclusive of any
`discounts. 2-ER-74–75; 4-ER-821; 5-ER-907, 918, 928, 936, 949, 992.
`And CVS witnesses confirmed that none of these contracts defined the
`usual and customary price to exclude discount programs in which cash
`customers enrolled or for which they paid a recurring fee. 2-ER-150,
`218–19.
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`CVS’s own documents, as well as testimony from its own
`witnesses (and plaintiffs’ experts), demonstrated that CVS should have
`included discount program prices as the usual and customary prices for
`insured customers. After all, CVS specifically designed its discount
`program for cash customers. One of the chief architects of the program
`testified that customers purchasing prescription drugs through the
`program paid for their drugs out of their own pocket and that CVS
`properly understood them to be “cash customers.” 2-ER-114, 137–38.
`Indeed, CVS consistently referred to its Health Savings Pass as a
`“cash” program—the hallmark of a usual and customary price. See, e.g.,
`4-ER-864 (“Cash card program”); 4-ER-878 (“Cash card discussion”).
`Nor was CVS alone in reaching this understanding. Caremark (CVS’s
`pharmacy benefit manager arm), which administered the program for
`some time, also referred to the program internally as “the CVS Cash
`Card program” and a “cash offering.” 5-ER-987. Even the enrollment
`form used by customers described the program as offering cash
`“discounts on certain pharmacy products and medical services.” 4-ER-
`880. And in transaction data, CVS itself categorized the program as a
`cash discount. 2-ER-148.
`At the same time, however, internal documents also reflected
`CVS’s ever-present concern about reporting discounted prices from the
`program as the pharmacy’s usual and customary prices because that
`would have reduced copayments collected from insured customers as
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`well as the reimbursements paid by insurers. Internally, CVS
`executives warned that “[m]aking the program ‘too attractive’ creates
`higher risk for our 3rd party plan pricing and profitability.” 4-ER-866
`(emphasis added). Likewise, CVS cautioned that “[t]oo much
`enrollment suggests an offer that is too compelling and a larger risk of
`(a) high cash cannibalization, (b) 3rd party pricing risk, (c) Medicaid
`reimbursement rates.” 4-ER-875 (emphasis added). CVS also worried
`that widespread discounting would offset existing revenue: “We are not
`trying to attract as many people as possible into the program because
`that creates a cannibalization of existing cash customers problem.”
`4-ER-878.
`In June 2010, after a dispute with the State of Connecticut over
`CVS’s refusal to submit its discount program prices as usual and
`customary prices on its state Medicaid claims, CVS performed an
`internal analysis. CVS analyzed the potential reduction in revenue if
`private parties were to take note and similarly to demand that CVS
`report Health Savings Pass prices as usual and customary prices. See
`4-ER-824–62. The analysis—referred to internally as “private third
`party conversion analysis to HSP”—calculated the financial impact to
`be $547 million annually. 5-ER-953; see also 4-ER-837. A former CVS
`executive testified that this analysis reflected the “worst case scenario.”
`2-ER-213.
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`A few years later, CVS contemplated moving administration of the
`program to third-party ScriptSave to minimize the “risk” that CVS
`would have to report discount prices as usual and customary prices.
`ScriptSave presented its “Business Case,” explaining that “ScriptSave’s
`Pharmacy Savings Program minimizes the risk of third party U&C
`‘discussions.’” 5-ER-974 (emphasis added). In the same presentation,
`listed under “Program Features,” ScriptSave referred to “Risk of third
`party U&C,” explaining that the “ScriptSave program can allow CVS to
`protect its third party reimbursement levels as ScriptSave would be the
`third party administrator of the program.” 5-ER-974 (emphasis added).
`CVS executives attempted to hide these discussions. A former
`CVS executive testified that he told ScriptSave, “I don’t want anything
`reflecting usual and customary on any of their materials.” 2-ER-319.
`And another former executive sent an email, titled “ScriptSave,”
`requesting confidentiality and discussing the potential need for a non-
`disclosure agreement. 5-ER-976.
`Ultimately, CVS ended the Health Savings Pass program in early
`2016 as litigation, state investigations, and regulatory risk steadily
`increased. 2-ER-314. An internal CVS document explained:
`“Transition primarily motivated by regulatory” as “States are
`challenging loyalty membership programs and arguing that pricing
`should be extended to State Medicaid programs, e.g. CT and OR.”
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`5-ER-981. In short, by 2016, it had become too costly and too risky for
`CVS to continue its deceptive pricing scheme.
`Intentional concealment and damages
`b.
`CVS never reported its Health Savings Pass program prices as the
`usual and customary prices for any prescription drugs offered
`throughout the life of the program. 2-ER-155.