Jerry Beeman Pharmacy Services, Inc. v. Tdi Managed Care ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JERRY BEEMAN AND PHARMACY 
SERVICES, INC., dba Beeman’s
Pharmacy; CHARLES MILLER, dba
Medicine Shoppe; ANTHONY
HUTCHINSON AND ROCIDA, INC., dba
Finley’s Rexall Drug; JIM
MORISOLI AND AMERICAN SURGICAL
PHARMACY, INC., dba American
Surgical Pharmacy; BILL
PEARSON AND PEARSON AND HOUSE,
No. 04-56369
on behalf of themselves and all
others similarly situated and on
behalf of the general public, dba
 D.C. No.
CV-02-01327-VAP
Pearson’s Medical Group
Pharmacy,
Plaintiffs-Appellants,
v.
TDI MANAGED CARE SERVICES,
INC., dba Eckerd Health Services;
MEDCO HEALTH SOLUTIONS, INC.;
EXPRESS SCRIPTS, INC.; ADVANCE
PCS,
Defendants-Appellees.

6113
6114 BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE
ANTHONY HUTCHINSON, AND 
ROCIDA, INC., dba FINLEY’S REXALL
DRUG; CHARLES MILLER, dba
YUCAIPA VALLEY PHARMACY; JIM
MORISOLI, AND AMERICAN SURGICAL
PHARMACY, INC., dba AMERICAN
SURGICAL PHARMACY; BILL
PEARSON, AND PEARSON AND HOUSE,
dba PEARSON’S MEDICAL GROUP
PHARMACY, on behalf of
themselves and all others similarly
situated and on behalf of the
general public; JERRY BEEMAN, AND
PHARMACY SERVICES, INC., dba
BEEMAN’S PHARMACY,
Plaintiffs-Appellants, No. 04-56384
v.
 D.C. No.
CV-04-00407-VAP
ANTHEM PRESCRIPTION
MANAGEMENT, INC.; ARGUS HEALTH OPINION
SYSTEMS, INC.; BENESCRIPT
SERVICES, INC.; FFI RX MANAGED
CARE; FIRST HEALTH SERVICES
CORPORATION, dba VIRGINIA FIRST
HEALTH SERVICES CORP.; MANAGED
PHARMACY BENEFITS, INC.; MEDE
AMERICA CORP.; NATIONAL MEDICAL
HEALTH CARD SYSTEMS, INC.;
PHARMACARE MANAGEMENT
SERVICES, INC.; PRIME
THERAPEUTICS; RESTAT
CORPORATION; RX SOLUTIONS, INC.;
TMESYS, INC.; WHP HEALTH
INITIATIVES, INC.,
Defendants-Appellees.

BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE 6115
Appeal from the United States District Court
for the Central District of California
Virginia A. Phillips, District Judge, Presiding
Argued and Submitted
April 3, 2006—Pasadena, California
Filed June 2, 2006
Before: Mary M. Schroeder, Chief Judge, Myron H. Bright,*
and Harry Pregerson, Circuit Judges.
Opinion by Judge Bright
*The Honorable Myron H. Bright, Senior United States Circuit Judge
for the Eighth Circuit, sitting by designation.
BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE 6117
COUNSEL
Michael A. Bowse and Allan Browne, Beverly Hills, Califor-
nia, Alan M. Mansfield, John W. Hanson, and Hallen D. Ros-
ner, San Diego, California, for the appellants.
6118 BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE
Thomas N. Makris and Andrea L. Courtney, Sacramento, Cal-
ifornia, Brian D. Martin, San Diego, California, for the appel-
lees.
OPINION
BRIGHT, Circuit Judge:
Plaintiffs-Appellants Pharmacies brought suit against
Defendants-Appellees Pharmacy Benefit Managers (“PBMs”)
based on violations of California Civil Code §§ 2527 and
2528. The district court dismissed the Pharmacies’ claims due
to lack of “injury in fact” sufficient to confer Article III stand-
ing. We reverse and remand.
I
This case involves the relationship between PBMs (referred
to in California Civil Code §§ 2527 and 2528 as “Prescription
Drug Claims Processors”), pharmacies, and third-party payors
(for example, health insurance companies, self-insured
employer groups, and union health and welfare plans). A cus-
tomer goes to a pharmacy with a prescription and presents
both an insurance card and a co-pay to get the prescription.
The pharmacy fills the prescription from inventory. The phar-
macy then submits a claim to a PBM for reimbursement. The
pharmacy usually has a contractual relationship with various
PBMs to assist in performing claims processing services. A
PBM coordinates certain aspects of the reimbursement rela-
tionship between pharmacies and third-party payors. The
PBM processes the pharmacy’s claim for reimbursement and
pays the pharmacy reimbursements in the amount it unilater-
ally sets. The PBM, which handles claims for several third-
party payors, then submits the claim to the payor and gets
paid.
BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE 6119
In 1981, the California Pharmacists Association introduced
a bill which would require PBM reimbursements at customary
charges made by pharmacies rather than the rates unilaterally
set by PBMs. However, the bill that passed merely required
PBMs to conduct or obtain the results of bi-annual studies of
a statistically significant sample of California pharmacies’
retail drug pricing for pharmaceutical dispensing services to
private uninsured customers, and supply copies of those
studies to “clients” on whose behalf the PBMs perform
studies. See Cal. Civ. Code § 2527(c), (d).
The Pharmacies sought to enforce California Civil Code
sections 2527 and 2528 by bringing an action against the
PBMs. The PBMs sought to dismiss the case under Federal
Rule of Civil Procedure 12(b)(6) by arguing the Pharmacies
lack Article III standing. The District Court granted the
motion to dismiss. This appeal followed.
II
Standing issues are reviewed de novo. Viceroy Gold Corp.
v. Aubry, 75 F.3d 482, 487-88 (9th Cir. 1996). The district
court’s interpretation of a statute is a question of law also sub-
ject to de novo review. Id. at 488. This court may affirm the
district court’s judgment on any ground supported by the
record. Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926
(9th Cir. 2003).
III
[1] The Pharmacies claim, among other things, they have
suffered procedural injury sufficient to give them Article III
standing. “To satisfy the injury in fact requirement, a plaintiff
asserting a procedural injury must show that the procedures in
question are designed to protect some threatened concrete
interest of his that is the ultimate basis of his standing.” Citi-
zens for Better Forestry v. USDA, 341 F.3d 961, 969 (9th Cir.
2003) (citations omitted). “Furthermore, he or she ‘needs [to]
6120 BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE
establish ‘the reasonable probability of the challenged
action’s threat to [his or her] concrete interest.’ ” Id. (citation
omitted) (alteration in original).
[2] California Civil Code section 2527(c) requires prescrip-
tion drug claims processors to conduct or obtain the results of
a study or studies identifying the fees, separate from ingredi-
ent costs, of all, or of a statistically significant sample, of Cal-
ifornia pharmacies, for pharmaceutical dispensing services to
private consumers.1 Section 2527(d) provides in part: “[t]he
study report or reports obtained pursuant to subdivision (c)
shall be transmitted by certified mail by each prescription
drug claims processor to the chief executive officer or desig-
nee, of each client for whom it performs claims processing
services . . . . no less often than every 24 months.” Section
2528 reads in part:
A violation of Section 2527 may result only in impo-
1
Section 2527(c) reads in full:
(c) On or before January 1, 1984, every prescription drug
claims processor shall have conducted or obtained the results of
a study or studies which identifies the fees, separate from ingredi-
ent costs, of all, or of a statistically significant sample, of Califor-
nia pharmacies, for pharmaceutical dispensing services to private
consumers. The study or studies shall meet reasonable profes-
sional standards of the statistical profession. The determination of
the pharmacy’s fee made for purposes of the study or studies
shall be computed by reviewing a sample of the pharmacy’s usual
charges for a random or other representative sample of com-
monly prescribed drug products, subtracting the average whole-
sale price of drug ingredients, and averaging the resulting fees by
dividing the aggregate of the fees by the number of prescriptions
reviewed. A study report shall include a preface, an explanatory
summary of the results and findings including a comparison of
the fees of California pharmacies by setting forth the mean fee
and standard deviation, the range of fees and fee percentiles
(10th, 20th, 30th, 40th, 50th, 60th, 70th, 80th, 90th). This study
or these studies shall be conducted or obtained no less often than
every 24 months.
BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE 6121
sition of a civil remedy . . . . Any owner of a licensed
California pharmacy shall have standing to bring an
action seeking a civil remedy pursuant to this section
so long as his or her pharmacy has a contractual rela-
tionship with, or renders pharmaceutical services to,
a beneficiary of a client of the prescription drug
claims processor, against whom the action is brought
....
Thus, sections 2527 and 2528 are intended to give the Phar-
macies the ability to enforce PBMs’ obligations to provide
certain studies to PBM third-party payor clients.
[3] Plaintiffs make out a procedural injury: the failure on
the part of the PBMs to follow the statutory procedures
requiring they conduct studies and provide them to third par-
ties. Cf. Idaho Conservation League v. Mumma, 956 F.2d
1508, 1514 (9th Cir. 1992) (“[B]ecause ‘NEPA is essentially
a procedural statute designed to ensure that environmental
issues are given proper consideration in the decisionmaking
process,’ injury alleged to have occurred as a result of violat-
ing this procedural right confers standing.” (citations omit-
ted)).
[4] The Pharmacies must still, however, show the proce-
dures are designed to protect some threatened concrete inter-
est. See Mumma, 956 F.2d at 1514 (“The personal injury
requirement will be met only if the alleged harm is ‘distinct
and palpable . . . and not abstract or conjectural or hypotheti-
cal.’ ” (citation omitted)).
The Pharmacies argue California Civil Code sections 2527
and 2528 require the PBMs to make studies available to third-
party payors. These studies would reflect the true market rate
of return for pharmacy prescriptions. Thus, the Pharmacies
claim the Legislature intended that by supplying those
involved in the transactions with accurate information regard-
ing free market pricing for the drugs, the market and third-
6122 BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE
party payors could make informed decisions about fair reim-
bursement rates to be paid or received for the provision of
pharmaceuticals to plan participants — as compared to the
rates PBMs were currently imposing on pharmacies. The
Pharmacies assert recipients of the studies could use this
information to evaluate what should be actual market prices,
negotiate fairer reimbursement rates, lobby for legislative
intervention should that be necessary, and ascertain payments
made to PBMs against those amounts the PBMs pass on to
pharmacies.
The PBMs respond that the use of the information in this
manner, to the benefit of the Pharmacies, is too remote to
create standing: should the third-party payors actually receive
the studies, there exists no requirement they use them in the
event that they even read them.
[5] When the legislature “is the source of the purportedly
violated legal obligation, we look to the statute to define the
injury.” Mumma, 956 F.2d at 1514 (citation omitted). The
Legislature here intended that making these studies publicly
available would presumably at least “require claims proces-
sors to present objective data on the range and percentiles of
usual and customary charges of pharmacists in the hope that
at a time in the future this information will become the basis
for reimbursement.” Staff Comment to the report of the
Assembly Committee on Finance, Insurance, and Commerce
(cited in ARP Pharm. Serv., Inc. v. Gallagher Bassett Serv.,
Inc., 135 Cal. App. 4th 841, 850 (Cal. Ct. App. 2006)
(vacated and request for rehearing granted)). As the Depart-
ment of Insurance noted in the Enrolled Bill Report, even if
“the bill is fairly innocuous in its impact . . . it may help iden-
tify areas for cost-containment in the future.” The concrete
injury, as the Pharmacies allege, is a lack of information, the
denial of which then adversely affects the possibility such
information will improve reimbursement rates at some point
in the future.
BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE 6123
[6] Short of assuming the legislature passed a bill with use-
less procedural provisions, we must conclude such procedures
play some, if not a critical, part in future third-party payor
decisions. See Mumma, 956 F.2d at 1514. The procedural
injury here threatens a concrete interest of the Pharmacies and
is thus sufficient to create “injury in fact” for Article III stand-
ing purposes.
[7] Nonetheless, the PBMs continue, the Pharmacies must
still show causation and redressability. See Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560 (1992). They argue the Phar-
macies cannot allege facts leading to a reasonable inference
that “but for” the PBMs’ alleged failure to provide adequate
fee studies, the Pharmacies would have received increased
payments. However, as the Pharmacies correctly note, the rel-
evant question is not the ultimate outcome that would result
from the properly followed procedures, but rather whether the
failure to conduct and disseminate the studies is the “but for”
cause of the procedural injury. Cf. Mumma, 956 F.3d at 1517-
18 (“The asserted injury is that environmental consequences
might be overlooked and reasonable alternatives ignored as a
result of deficiencies in the final EIS and ROD. The ultimate
outcome following proper procedures is not in question.”).
[8] Regarding redressability, the PBMs argue the Pharma-
cies cannot allege facts creating a reasonable inference that
the failure to provide surveys caused an identifiable injury to
any pharmacy, and thus neither statutory damages nor any
other remedy sought can be fairly seen as providing redress.
This argument, however, merely restates the PBMs’ claim
that there exists no “injury in fact.” The procedural injury
would be redressed if the PBMs followed proper procedures.
Finally, the PBMs argue the district court should be
affirmed on the alternative basis that California Civil Code
sections 2527 and 2528 violate the First Amendment of the
United States Constitution. While this court can affirm on any
legal basis finding support in the record, Atel Fin. Corp., 321
6124 BEEMAN & PHARMACY SERVICES v. TDI MANAGED CARE
F.3d at 925, we decline to address this issue here when it was
not argued in the district court below. We observe that the
parties will have an opportunity to fully address such argu-
ment on remand.
REVERSED AND REMANDED.