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OptumRx, Pharma Board Partially Prevail in Due Process Lawsuit

May 19, 2022, 3:54 PM

Drug wholesalers partially lost a suit alleging that a pharmacy board’s denial of their accreditation applications violated their constitutional due process rights, because the board isn’t a state actor, the Third Circuit said Thursday.

The National Association of Boards of Pharmacy is a private entity and wasn’t acting on behalf of the the federal or state government, and therefore isn’t subject to suit under federal civil rights law, the US Court of Appeals for the Third Circuit said.

But the court sent the case back to a federal trial court to determine if Oak Drugs Inc. and PriMed Pharmaceuticals LLC stated a plausible due process claim against NABP and pharmacy benefits manager OptumRx under New Jersey common law.

PriMed and Oak Drugs are small wholesale drug distributors, the court said. Nearly 90% of the independent pharmacies they serve have contracts with OptumRx, which manages pharmacy benefits for United Healthcare.

OptumRx requires its network pharmacies to buy drugs from NABP-accredited distributors. The association’s members include the pharmacy boards of all 50 states, D.C., US territories, and some Canadian provinces, the court said.

NABP canceled the wholesalers’ initial accreditation applications, allegedly with little explanation and no chance to cure any defects. PriMed and Oak Drugs’ alleged they lost dozens of customers as a result.

The wholesalers sued NABP and OptumRx under 42 U.S.C. §1983. The law provides a way to sue for federal law violations committed by government officials or private entities acting on behalf of the government.

PriMed and Oak Drugs didn’t “even try” to show that OptumRx and NABP were state actors, the court said. Their focus on NABP’s allegedly public character as a representative of state boards wasn’t enough, it said.

But the wholesalers can proceed on a claim alleging violations of state-based due process rights, the court said. The New Jersey Supreme Court has recognized a right to proceed on due process grounds against quasi-public associations that allegedly improperly excluded or expelled members, it said.

PriMed and Oak Drugs aren’t NABP members, the court said. But they plausibly alleged that the organization is a quasi-public entity dedicated to improving pharmacy education, licensure, and practice that has monopoly power over wholesale drug distributor accreditation, Judge Thomas L. Ambro said.

Judges Stephanos Bibas and Jane R. Roth joined.

Barclay Damon LLP represents the wholesalers. Barnes & Thornburg LLP and in-house counsel Regina S.E. Murphy of Wilmington, Del., represent NABP. Taft Stettinius & Hollister LLP and Stradley Ronon Stevens & Young LLP represent OptumRx.

The case is Matrix Distribs. Inc. v. Nat’l Ass’n of Bds. of Pharm., 3d Cir., No. 20-3638, 5/19/22.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at mpazanowski@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Brian Flood at bflood@bloomberglaw.com