National pharmacy board group can't be sued as state actor - 3rd Circuit

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REUTERS/Andrew Kelly

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  • Pharmacy board group not state actor, court finds
  • New Jersey common law claims revived

(Reuters) - Two drug distributors cannot bring federal civil rights claims against UnitedHealthcare's pharmacy benefit manager Optum unit and an association of state pharmacy boards for allegedly shutting them out of the market by denying accreditation from state boards, a federal appeals court ruled Thursday.

A three-judge panel of the 3rd U.S. Circuit Court of Appeals largely upheld a lower court judge's dismissal of a lawsuit by distributors PriMed Pharmaceuticals LLC and Oak Drugs Inc against Optum and the National Association of Boards of Pharmacy (NABP), finding the defendants could not be sued under the federal civil rights law because they were not state actors.

However, the panel revived a due process claim against NABP under the common law of New Jersey, where the 2018 lawsuit was filed.

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Linda Clark of Barclay Damon, a lawyer for the distributors, said she believed the state claim would provide a "complete remedy."

Optum said in a statement that it was pleased with the dismissal of the claims against it. NABP did not immediately respond to a request for comment.

According to the lawsuit, filed in federal court in Newark, PriMed and Oak Drugs, both of which operate in multiple states, were deprived of business because Optum, one of the nation's leading pharmacy benefit managers, requires pharmacies it works with to buy only from distributors accredited by NABP.

The distributors said the NABP rejected their applications for accreditation without good reason, violating their due process rights. They brought their claims under the federal civil rights statute known as Section 1983, which allows civil rights lawsuits against states or entities acting on states' behalf, and under New Jersey common law.

U.S. District Judge Kevin McNulty dismissed the case in December 2020, finding that the defendants were not state actors under Section 1983. He also found that New Jersey courts had not recognized any comparable due process claims in the past.

Circuit Judge Thomas Ambro, writing for the panel, agreed that the plaintiffs failed to show how NABP or Optum were acting on behalf of any particular state.

However, he said New Jersey's Supreme Court had recognized a comparable state due process claim in a 1961 decision, Falcone v. Middlesex County Medical Society, siding with a doctor challenging his exclusion from a medical society.

Circuit Judges Jane Roth and Stephanos Bibas joined in the opinion, though a footnote states that Bibas would have upheld the state claim's dismissal.

The case is Matrix Distributors Inc et al v. National Association of Boards of Pharmacy et al, 3rd U.S. Circuit Court of Appeals, No. 20-3638.

For Oak Drugs and PriMed: Linda Clark and Brian Culnan of Barclay Damon

For NABP: Brian Casey of Barnes & Thornburg

For Optum: Jason Asmus of Taft Stettinius & Hollister

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Brendan Pierson reports on product liability litigation and on all areas of health care law. He can be reached at brendan.pierson@thomsonreuters.com.