IN THE COURT OF APPEALS OF IOWA
No. 14-0769 Filed December 23, 2015
T. ZENON PHARMACEUTICALS, LLC, (d/b/a PHARMACY MATTERS), Plaintiff/Counterclaim Defendant-Appellant,
vs.
WELLMARK, INC., Defendant/Counterclaimant-Appellee,
and
WELLMARK HEALTH PLAN OF IOWA, INC., Intervenor/Counterclaimant-Appellee. ________________________________________________________________
Appeal from the Iowa District Court for Johnson County, Paul D. Miller,
Judge.
A pharmacy appeals the district court’s decision that it breached anti-
assignment clauses and failed to provide “covered services” under its contracts
with a health insurance company. AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED.
Richard C. Garberson and Kerry A. Finley of Shuttleworth & Ingersoll,
P.L.C., Cedar Rapids, and Anthony Paduano and Jason Snyder of Paduano &
Weintraub, L.L.P., New York, New York, for appellant.
John F. Lorentzen of Nyemaster Good, P.C., Des Moines, and Sarah J.
Gayer and Kevin H. Collins of Nyemaster Goode, P.C., Cedar Rapids, for
appellees.
Heard by Potterfield, P.J., and Doyle and Tabor, JJ. 2
TABOR, Judge.
This case involves a contract dispute between an Iowa City pharmacy and
a mutual insurance company, Wellmark, Inc.1 The pharmacy, T. Zenon
Pharmaceuticals (doing business as Pharmacy Matters), sued Wellmark after the
insurance company declined to pay claims exceeding $7 million for injectable
drugs prescribed for hemophilia patients. Wellmark (along with intervenor
Wellmark Health Plan of Iowa, Inc. (WHPI))2 counterclaimed, alleging Pharmacy
Matters breached their contracts. After a lengthy trial, the district court decided
Pharmacy Matters materially breached the anti-assignment clauses in the
contracts or, alternatively, did not provide “covered services” to the patients.
On appeal, Pharmacy Matters contends it fulfilled its contractual obligation
to provide “covered services” by “dispensing” the injectable drugs to the patients.
The pharmacy also contends Wellmark breached the entity contracts by not
paying claims submitted for 118 shipments of injectable drugs. We agree
Pharmacy Matters provided “covered services” when its pharmacist, Michael
Stein, filled 114 prescriptions for injectable drugs from his location in Iowa City,
but we find Stein did not provide “covered services” for four shipments that did
not physically pass through Iowa. We also find no support for the district court’s
conclusion Pharmacy Matters violated the anti-assignment clauses. Accordingly,
we affirm in part, reverse in part, and remand for a determination, consistent with
this opinion, of damages owed to Pharmacy Matters.
1 Wellmark is an Iowa health insurance company and independent licensee of the Blue Cross Blue Shield Association (BCBSA). 2 WHPI is licensed by the Iowa Division of Insurance as a health maintenance organization (HMO). We will refer to WHPI and Wellmark collectively as Wellmark. 3
I. Background Facts and Proceedings
At the heart of this case are twenty-four patients, mostly children, who
require Factor drugs to treat the rare, inherited disease of hemophilia.
Hemophilia impairs the body’s natural ability to control blood clotting due to the
patient’s lack of sufficient proteins to stop bleeding quickly. Hemophilia patients
require infusions of a blood-clotting factor to prevent a possibly fatal bleed.
Factor drugs have variable concentration levels attuned to each patient. These
drugs, which are often delivered directly to the patient’s home from a specialty
pharmacy, are expensive. The cost for one year’s supply of the Factor drugs
may exceed $1 million per patient. The patients often require coordinated care
and use disease-management companies to assist with their needs.
The twenty-four patients in this case were all insured by health plans
administered by a BCBSA licensee. The patients also were clients of Factor
Health Management (FHM), a disease-management company and
pharmaceutical wholesaler based in Florida. The company focused on
coordinating care for patients with hemophilia across the country. As part of its
coordination of care, FHM owned FCS Pharmacy, a Florida-licensed pharmacy
that also possessed a non-resident pharmacy license in Iowa. Because of the
high cost of the Factor drugs, it is critical for the patients to use a pharmacy that
accepts their insurance, while delivering the drugs in a timely fashion.
In June 2008, FHM began working with A.K., a patient living in Iowa who
was covered by the hawk-i program (Healthy and Well Kids in Iowa). A.K., who
was then five years old, received treatment at the University of Iowa Hospitals 4
Hemophilia Treatment Center when his parents were unable to find a vein
necessary for infusing his Factor drugs. The drugs were covered under the
hawk-i program only if obtained from a provider within Wellmark’s network of
providers. After an online search for home-infusion therapy providers within the
network, FHM found Pharmacy Matters in Iowa City.
Pharmacy Matters has been an Iowa-licensed pharmacy since 2006. The
owner, Stein, has been a pharmacist since 1990 and is the only full-time
pharmacist at Pharmacy Matters. In 2007, Pharmacy Matters entered into
contracts with Wellmark and WHPI to offer home infusion therapy as an in-
network provider. According to Wellmark’s Home Infusion Therapy (HIT) Guide,
home infusion providers are “licensed pharmacies that provide a wide range of
services required to administer home infusion . . . and specialty drugs.” The
guide sets out services that are billed per diem and medications that are
excluded from per diem billing.
In July 2008, FHM entered into a “contract pharmacy agreement” with
Pharmacy Matters to deliver the Factor drugs to A.K. and other patients around
the country. Under the contract, the designated patients remained as customers
of FHM, but also became customers of Pharmacy Matters once it dispensed the
Factor drugs to them. FHM wanted an agreement with Pharmacy Matters
because the pharmacy was an in-network BCBSA provider, which would enable
the patients to receive a more favorable reimbursement rate.
With the contracts signed, the process for distributing the Factor drugs
generally followed these steps. Coordinating with the patients and their doctors, 5
FCS would obtain Factor from FHM and assemble the patient-specific dosages in
compliance with the prescription. FCS would apply a patient-specific label
containing instructions for how the patients or their caregivers should administer
the drugs. FCS would then package the Factor, which required assembling vials
in baggies and including freezer packs for temperature control. The package
also included the necessary equipment to inject the drugs. FCS would prepare a
delivery ticket and generate other necessary documents. FCS would send
Pharmacy Matters a delivery ticket and prescription form by facsimile to notify it
of an incoming Factor shipment. FCS also provided Pharmacy Matters with
shipping labels to facilitate delivery of the Factor to the patients.
Stein testified Pharmacy Matters received the Factor drugs from the
Florida wholesaler in a large box with room for foam coolers and ice packs. Stein
ensured the drugs were stored properly if he could not process the order right
away. Stein had the patient’s prescription in his possession before the drug
shipment went out. When Stein was ready to process an order, he would
examine the pre-made labels and prescription to ensure the packages contained
the right product. Stein would identify the National Drug Code (NDC) 3 number
and compare it to the label to verify it matched. Stein then affixed his Pharmacy
Matters label and performed the “prospective drug utilization review.” He also
included a patient advisory leaflet with the drugs before repackaging them for
shipment, usually by Federal Express. Then Pharmacy Matters would seek
3 Under the Drug Listing Act of 1972, all drugs prepared for commercial distribution are identified and reported using a unique number called the National Drug Code, which serves as a universal product identifier. See www.fda.gov (last visited November 24, 2015). 6
reimbursement from Wellmark. Under the contract between Pharmacy Matters
and FHM, Pharmacy Matters agreed to pay FHM 98.5% of the reimbursement it
received from Wellmark.
In October 2008, Wellmark began investigating Pharmacy Matters after
the insurance company noticed the pharmacy submitting claims for a large
volume of expensive Factor drugs. BCBSA senior anti-fraud consultant Calvin
Sneed contacted Richard Jensen, Wellmark’s special investigation unit team
leader, about the increase in Factor claims. Jensen assigned senior investigator
Debra Robles to investigate Pharmacy Matters.4
Robles had an initial meeting with Stein in November 2008. Stein told
Robles that he was referred twelve to fifteen new hemophilia patients from FHM.
Although Wellmark decided to deny the claims for those patients while its
investigation progressed, Robles advised Stein to continue submitting claims.
Over the course of its investigation, Wellmark shifted among different
grounds for rejecting Pharmacy Matters’ claims. For instance, an email sent by
Sneed in early December 2008 to Jensen, Robles, and others, advised:
Wellmark may deny claims up front in appropriate circumstances, either for records on new claims, or for not having a valid prescription (if missing from the records provided). With a valid prescription, or once a valid prescription is supplied to Wellmark, [it] may still deny for records—in effect, deferring to each of you to determine whether the claim should be paid.
4 The insurer’s investigation was not limited to Pharmacy Matters; it initially focused on FHM’s nationwide presence. Robles advised Stein the insurance company had been “chasing these folks for a number of years.” Robles said Wellmark did not want Stein to be “a target of our investigation but a cooperative witness” against FHM. 7
Robles replied to Sneed that Wellmark’s pharmacy director, medical
director, and medical policy team were “going to try to put a medical policy in
place that is going to make it difficult for them to use Pharmacy Matters and if
they do [use Pharmacy Matters] to limit the amount of [the F]actor they can
send.”
In late December 2008, Robles emailed Alanna Lavelle, an investigator for
the Georgia BCBSA licensee, explaining Wellmark’s “strategy” was to deny new
claims for “documentation” or for not having a valid prescription. For those
claims that Wellmark received documentation and prescriptions, Wellmark’s
pharmacy director Mathew Hosford performed a review to “determine what is the
maximum amount of [the] Factor that the member should receive in a month. If
the member is receiving more than that amount then we are going to deny
whatever is over as provider liability.” Robles again mentioned “putting a medical
policy in place that will restrict the Factor somehow to try and get a handle on this
situation.” Robles concluded the email: “I would like to adjust these claims
accordingly unless you can think of another reason that the claim can be denied
as I am out of reasons.”
In April 2009, Robles took two investigators from the Food and Drug
Administration to the home of A.K.’s parents in southeast Iowa. Robles had
asked to see A.K.’s infusion logs and, although the parents agreed to send them
to her, she insisted on coming to their home in person. During the three-hour
visit, the parents accounted for every shipment of infusion drugs they had
received. Robles viewed A.K.’s father as “a bit hostile” regarding her inquiries. 8
At the end of the visit, Robles told the parents they were “getting really close” to
their lifetime cap of $1 million on their HIT coverage because of the amount they
were being charged by their current provider.5 Robles suggested they change to
a specialty pharmacy called Caremark, stating Caremark had better rates.
Robles left A.K.’s parents with an application for Caremark coverage. In an email
exchange with Robles two weeks earlier, Wellmark Pharmacy director Hosford
said, “[I]f you can get them to move to [C]aremark willingly I would definitely owe
you lunch!!”
Although Stein, as a pharmacist, did not have access to the medical
records of his new customers with hemophilia, he arranged through FHM for the
patient’s records to be provided to Wellmark. After Wellmark received the
medical records, the insurer searched for a new basis to deny the Factor claims.
The insurer’s conundrum was captured in the following June 2009 email sent to
Robles from Jamie Hanson, an investigator for BCBS licensee Care First:
I received an inquiry on some of our claims from [P]harmacy [M]atters. Currently the claims have been rejected for medical records. Since we have those records, is there another rejection we should be using based on your provider contract? I will hold them off as long as I can. I have a meeting with our attorneys today to discuss our litigation strategy.
Between August 2008 and July 2009, Pharmacy Matters billed Wellmark
for 118 shipments of Factor drugs to the twenty-four patients in eleven states.
Four of the 118 shipments were sent directly from FCS because the patients
urgently needed the medication. After Pharmacy Matters filed its lawsuit,
5 A.K.’s father testified it was not true that their son was close to the lifetime cap, having used only about ten percent of the limit. 9
Wellmark denied all of the claims. According to Robles, Wellmark denied the
claims because the service Stein provided was not covered.
Pharmacy Matters filed its petition against Wellmark on May 1, 2009,
alleging breach of contract, unjust enrichment, and bad faith. On September 11,
2009, WHPI filed a motion to intervene, an answer, and counterclaims. Wellmark
filed an amended answer and counterclaims as well. The district court granted
WHPI’s motion to intervene. The counterclaims alleged Pharmacy Matters
breached the contract by delegating its duties in violation of the anti-assignment
clauses. Wellmark also claimed Pharmacy Matters did not provided “covered
services” as defined in the contracts.
The parties filed stipulated facts in November 2012. An eighteen-day
bench trial began on November 13, 2012, and concluded on December 13, 2012.
The parties filed proposed findings of facts and conclusions of law. On April 25,
2014, the district court issued its ruling. Relevant to this appeal, the court
concluded Pharmacy Matters breached its contract with Wellmark by delegating
its duties to FCS. In the alternative, the district court found Pharmacy Matters did
not provide “covered services” as defined under the contracts. The court denied
the claims brought by Pharmacy Matters. The pharmacy now appeals.
II. Scope and Standards of Review
We review a breach-of-contract claim tried at law to the district court for
correction of errors at law. NevadaCare, Inc. v. Dep’t of Human Servs., 783
N.W.2d 459, 465 (Iowa 2010). The district court’s factual findings have the effect
of a special verdict and are binding on us if supported by substantial evidence. 10
Id. But the district court’s legal conclusions and application of legal principles are
not binding on us. Id.
In this case, as in NevadaCare, the appellant asks that we apply a more
exacting standard of review because the district court’s ruling adopted many of
the appellees’ proposed factual findings and legal conclusions verbatim. Our
supreme court has recognized “counsels’ submission of proposed findings of fact
and conclusions of law can be extremely valuable in assisting the district court,
especially in highly technical or complicated cases.” See id. In NevadaCare, our
supreme court discouraged the practice of adopting the prevailing party’s
language word-for-word and emphasized the “district court’s duty to
independently determine the facts, articulate the controlling law, and apply the
controlling law to the facts.” Id. at 465–66; see Rubes v. Mega Life & Health Ins.
Co., 642 N.W.2d 263, 266 (Iowa 2002) (“[T]he customary deference accorded
trial courts cannot fairly be applied when the decision on review reflects the
findings of the prevailing litigant rather than the court’s own scrutiny of the
evidence and articulation of controlling legal principles.”).
As Pharmacy Matters asserts, the district court’s ruling consistently
borrows verbatim passages from Wellmark’s proposed findings of fact and
conclusions of law. In particular, the district court’s analysis of the contract’s anti-
assignment language reflects Wellmark’s proposed ruling nearly word-for-word
across several pages. Due to the court’s heavy reliance on Wellmark’s proposed
analysis, we will scrutinize the record “more closely and carefully” as we perform
our appellate review. See NevadaCare, 783 N.W.2d at 465. 11
In setting out the standard of review, Wellmark contends we are limited to
assessing whether the district court’s ruling was based on substantial evidence.
See Walsh v. Nelson, 622 N.W.2d 499, 502–03 (Iowa 2001). Wellmark argues
the district court decided Pharmacy Matters did not prove its performance under
the HIT contracts, based on many factual findings, and contends we cannot
reverse the decision concerning lack of performance unless the evidence offered
by Pharmacy Matters was so overwhelming the only reasonable inference was
Pharmacy Matters did provide “covered services” under the contract.
Wellmark is correct that the question of performance or breach is
generally within the province of the fact finder. See Iowa-Illinois Gas & Elec. Co.
v. Black & Veatch, 497 N.W.2d 821, 825 (Iowa 1993). But we may inquire into
whether the district court’s ultimate conclusions were materially affected by
improper conclusions of law. See Fausel v. JRJ Enter., Inc., 603 N.W.2d 612,
617 (Iowa 1999).
The district court’s decision rested on its interpretation and construction of
the contract. In lay terms, “interpret” and “construe” are synonyms. But in
resolving contract disputes, our courts have identified “a distinct technical
significance” between interpretation and construction. See Connie’s Constr. Co.,
Inc. v. Fireman’s Fund Ins. Co., 227 N.W.2d 207, 210 (Iowa 1975). Contract
interpretation is the process of determining the meaning of the words of a
contract, while contract construction is the process of determining the legal effect
of those words. Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 435 (Iowa
2008). We review a district court’s interpretation of a contract for errors at law 12
unless the court used extrinsic evidence to aid in its interpretation of the contract.
Postell v. Am. Family Mut. Ins. Co., 823 N.W.2d 35, 41 (Iowa 2012). When a
district court reaches its interpretation based upon extrinsic evidence, the court’s
factual findings regarding the extrinsic evidence are binding if supported by
substantial evidence. Id. In contrast, we review a district court’s construction of
a contract for errors at law. Id.
In this case, the district court considered extrinsic evidence in its efforts to
interpret the phrase “health care services,” which appears in the contract’s
definition of “covered services” and to interpret the phrase “rights, duties or
obligations,” which appears in the anti-assignment clause. We are bound by the
district court’s findings of fact in regard to that extrinsic evidence, recognizing in
this matter tried to the court that the trial judge makes credibility determinations
and settles factual disputes. But the district court’s ultimate construction of the
contract—applying those factual findings—is a legal conclusion, which as an
appellate court we review for correction of errors at law.
As a final matter in pinpointing our standard of review, we consider the
contention by Pharmacy Matters that its agreement with Wellmark was a contract
of adhesion to be strictly construed against the drafter. See State Farm Auto.
Ins. Co. v. Malcolm, 259 N.W.2d 833, 836 (Iowa 1977) (“An insurance policy is a
contract of adhesion and therefore its provisions will be construed in a light most
favorable to the insured.”). A contract of adhesion is “a standard-form contract
prepared by one party, to be signed by another party in a weaker position,
usually a consumer, who adheres to the contract with little choice about the 13
terms.” Black’s Law Dictionary 390 (10th ed. 2014). The record leaves no doubt
that Wellmark prepared the provider contract and presented it to Pharmacy
Matters on a “take-it-or-leave-it basis.” See generally Mueller v. Wellmark, Inc.,
818 N.W.2d 244, 248 (Iowa 2012). Pharmacy Matters had no bargaining power.
The American Law Institute explained the rationale behind this rule of
contract construction:
Where one party chooses the terms of a contract, he is likely to provide more carefully for the protection of his own interests than for those of the other party. He is also more likely than the other party to have reason to know of uncertainties of meaning. Indeed, he may leave meaning deliberately obscure, intending to decide at a later date what meaning to assert. In cases of doubt, therefore, so long as other factors are not decisive, there is substantial reason for preferring the meaning of the other party. The rule is often invoked in cases of standardized contracts and in cases where the drafting party has the stronger bargaining position, but it is not limited to such cases.
Restatement (Second) of Contracts § 206 cmt. a (1981).
In response, Wellmark points to a clause in its contract that purports to
negate this rule of construction. The clause states the contracts “shall not be
construed more strongly against any party regardless of who was more
responsible for its preparation.” At least one other appellate court has held that
enforcing a contract clause negating the protection for the non-drafting party
would be “unconscionable.” See Concept Rehab, Inc. v. Short, No. F-96-019,
1997 WL 103820, at *3 (Ohio Ct. App. Mar. 7, 1997). In our case, because we
find no ambiguity in the contract terms at issue, we do not believe it is necessary
to decide if such a clause may be enforced in Iowa. 14
III. Analysis of Contract Claims
The parties’ contract dispute turns on a pair of questions, which are
essentially two sides of the same coin. First, did Pharmacy Matters provide
“covered services” under the entity agreements with Wellmark? Second, did
Pharmacy Matters breach the anti-assignment provision of the agreement by
delegating the duty of providing “covered services” to FCS/FHM? To frame
these questions, we first look to the language of the contracts.
Covered Services. Under its entity agreement with Wellmark, Pharmacy
Matters agreed to “provide Covered Services in accordance with the terms of this
Agreement” to participants or beneficiaries of health plans administered by
BCBSA licensees. The agreement defined “Covered Services” as “health care
services or supplies to which a Member is entitled pursuant to a Benefit
Contract.”6 In turn, Wellmark agreed to “make payment to Provider in
accordance with the terms and conditions of the applicable provisions of Exhibit
A.” Exhibit A to the Wellmark Entity Agreement defined “Provider” as including “a
home infusion therapy provider.” Exhibit A stated, “For claims incurred, Provider
will be paid for Covered Services,” including injectable drugs and specialty drugs.
No Assignment. The entity agreement’s anti-assignment clause states:
“No assignment of the rights, duties or obligations of this Agreement shall be
made by Wellmark or Provider without the consent of Provider or Wellmark,
respectively.” Similarly, the entity HMO agreement stated: “No assignment of the
6 One example of a member benefit contract included in the record was A.K.’s coverage under the hawk-i program. That contract’s glossary of terms defined “covered services” as “those medically necessary procedures, services, or supplies listed in this policy in section 1: Benefits.” That section listed home infusion therapy as a covered benefit. 15
rights, duties or obligations of this Agreement shall be made by HMO or Provider
without the consent of Provider or HMO, respectively.”
Having set out the contract provisions at issue, we next review the district
court’s interpretation of the terms and its construction of the agreements.
A. Did Pharmacy Matters Provide Covered Services?
The district court decided Pharmacy Matters was not entitled to recover for
breach of contract because it did not provide “covered services” to any of the
twenty-four patients who were beneficiaries of health care plans administered by
BCBSA licensees. The district court first focused on the term “provide”—which
was not defined in the entity agreements. The court noted testimony from
Michael Fay, Wellmark vice president of health networks, explaining the term
“provide” was not defined “[b]ecause depending on the type of entity that’s
contracting with Wellmark, the range of services that they could offer or perform
is very broad. So we don’t define ‘provide’ inside the contract because it covers
a wide range of provider types.”
In the absence of a definition in the contract, the district court accepted
Wellmark’s contention that the “the parties clearly intended ‘provide’ to mean to
perform or supply rather than to simply make available.”7 Using that definition,
the court concluded Pharmacy Matters did not provide “covered services”
because it “delegated/outsourced all duties that would be associated with
dispensing [the] Factor drugs and performing health care services, essentially
7 Wellmark’s proposed ruling cited on-line dictionaries that defined “provide” as meaning both “to supply” and “to make available.” 16
serving as a shipping agent and an avenue by which FCS/FHM could access
Wellmark’s billing system.”
In reaching its conclusion, the court rejected the position of Pharmacy
Matters that “provide” meant “dispense” as that word was defined in the Iowa
Pharmacy Practice Act. Under state law, “dispense” means “to deliver a
prescription drug, device, or controlled substance to an ultimate user or research
subject by or pursuant to the lawful prescription drug order or medication order of
a practitioner, including the prescribing, administering, packaging, labeling, or
compounding necessary to prepare the substance for that delivery.” Iowa Code
§ 155A.3(11) (2011). That definition is further refined in the state regulations:
“Dispense” includes: 1. Receiving the prescription drug order from the patient, the patient’s agent, or the prescriber; 2. Delivering the filled prescription to the patient or the patient’s agent; 3. Providing drug information concerning a patient’s drug therapy; 4. Providing patient counseling.
Iowa Admin. Code r. 657-18.2.
The district court found the delivery of a prescription drug was “only a
small part of the dispensing process” and also found “the determinative issue is
not whether Pharmacy Matters satisfied the statutory definition of ‘dispense’ but,
instead, whether it provided Covered Services as a home infusion therapy
provider as contemplated in the contracts with Wellmark and WHPI.”8 The court
8 The court’s phraseology here closely tracks Wellmark’s response to plaintiff’s proposed statement of facts and conclusions of law. 17
then concluded: “All of the health care services of a HIT provider were provided
by FCS Pharmacy, not Pharmacy Matters.”
We believe the district court erred as a matter of law in declining to
consider section 155A.3(11)’s definition of “dispense” in deciding whether
Pharmacy Matters provided health care services under the Wellmark contract.
Wellmark argues chapter 155A does not govern its HIT contracts. We disagree.
As discussed above, according to Wellmark’s own guidebook, home infusion
providers are “licensed pharmacies that provide a wide range of services
required to administer home infusion.” Pharmacy Matters is licensed by the Iowa
Board of Pharmacy. Chapter 155A regulates the practice of pharmacy and the
licensing of pharmacies. See Iowa Code § 155A.2(1). The contract between
Pharmacy Matters and Wellmark contained a provision stating: “This Agreement
shall be construed and enforced in accordance with the laws of the State of
Iowa.” Because Wellmark drafted the contract, we presume it was aware of the
law applicable to its providers.
By Iowa law, a pharmacy “dispenses” prescription drugs. See Iowa Code
§ 155A.3(31). When considering whether Pharmacy Matters provided “covered
services,” the district court should have acknowledged that Pharmacy Matters
“dispensed” the Factor drugs by packaging and labeling the drugs for delivery.
Pharmacy Matters also received the prescription drug order from the patient’s
agent, delivered the filled prescription to the patient or the patient’s agent, and
provided information concerning the patient’s drug therapy. See Iowa Admin.
Code r. 657-18.2. 18
While recognizing the Wellmark agreements defined “covered services” as
“health care services or supplies,” the district court’s ruling did not define “health
care services or supplies.”9 In lieu of a definition, the district court listed the
services provided by FCS Pharmacy:
FCS Pharmacy clinically managed the Patients, coordinated the Patients’ care, communicated with the Patients and their caregivers, performed the pharmacy assessments, obtained the prescriptions, analyzed the prescriptions to determine dosage, assembled the patient specific dosages of factor drugs, and applied FCS prescription labels to the drugs. Pharmacy Matters was not allowed to alter the factor drugs in any way and did not perform any “health care services.”
The district court also adopted the following finding from Wellmark’s
proposed ruling:
During Wellmark’s fraud investigation, Michael Stein made admissions that (1) sometimes he did not even open the box that he received from Florida containing the factor drugs . . . and (2) he doesn’t review the package or check the number of units, he only forwards it on.
After closely scrutinizing the record, we do not find substantial evidence to
support this factual finding by the court. See NevadaCare, 783 N.W.2d at 465–
66. According to the notes from Wellmark investigator Robles’s November 2008
meeting with Stein, Stein said he matched the dosage units to the patient’s faxed
prescription before shipping the drugs by FedEx to the patients. Robles’s
9 Pharmacy Matters directs us to the definition of “health care services” at Iowa Administrative Code rule 191–27.2 (defining as “services rendered or products sold by a health care provider within the scope of provider’s license” and noting term includes but is not limited to, “hospital, medical, surgical, dental, vision, and pharmaceutical services or products”). We agree with Wellmark that this definition pertains to preferred providers and does not expressly apply to the contract at issue. 19
description of the interview is consistent with Stein’s trial testimony, which the
district court found credible on several other points.
Stein testified that under his contract with FHM, he was “supposed to
dispense Factor medications as, their term, a third-party pharmacy and handle
the billing responsibilities of the Factor that we dispensed.” Stein also described
the services provided by FHM: “[T]heir responsibilities would have been to
provide the medication, the Factor, from their wholesale division. They also
would provide, maybe what I'll call, back office or home office administrative-type
support, as well as, you know, the disease management portion of the company,
which we would have access to.”
Stein testified that when he received a Factor shipment from FHM, he
would open it as quickly as he could or store it in the refrigerator until he could
process it. His process included “pulling out the prescription and other
supporting documents” and comparing the labels to the actual packages to be
sure it was the right product and the right amount. He then would “identify that
NDC number and compare it to the label to make sure it would match.” Stein
also provided advisory leaflets for the patients. He then would affix his labels
and repackage for shipping. Stein contends once the dispensing pharmacy
affixes its labels on the prescription drugs, it is professionally liable to the patient.
Stein also had some contact with the patients. For example, William Nolan,
whose son had hemophilia, testified that when his family changed pharmacies,
he “had a rule of calling the pharmacist and just, at least, telling them who we 20
were, making sure I could call after hours, making sure I had a number to call at
night, that kind of thing.”
The key question on appeal is whether Stein’s actions amounted to
providing “health care services or supplies” to which the hemophilia patients, all
BCBSA members, were entitled under their benefit contracts. Stein contends he
“dispensed” the prescribed drugs because “that’s what pharmacists do,” and he
“billed Wellmark for Factor, not services.” Wellmark replies that it sets
reimbursement rates for the Factor drugs “at a level to provide compensation for
the many services provided to the hemophilia patient,” citing testimony of its vice
president, Michael Fay.10
But regardless of how Wellmark sets its reimbursement rates, the
language of the entity agreement only required Pharmacy Matters to provide
“health care services or supplies” to the covered patients. By “dispensing” the
Factor drugs, Pharmacy Matters did so. Nothing in the entity agreement required
Pharmacy Matters to provide the whole “constellation” of services required to
manage the disease of hemophilia. Where the language of a contract is clear,
courts must not rewrite it for the parties. See Amish Connection, Inc. v. State
Farm Fire & Cas. Co., 861 N.W.2d 230, 236 (Iowa 2015). The fact that FHM and
FCS provided other pharmaceutical services and coordinated the patients’ care,
as described in the district court’s decision, does not negate the functions
performed by Pharmacy Matters.
10 Fay acknowledged on cross-examination that for home infusion providers, medical services and supplies are billed separately from therapeutic drugs. 21
The district court further concluded Pharmacy Matters did not provide
“health care services” because even its own experts testified FCS could have
dispensed the Factor drugs itself. That conclusion again overlooks the plain
language of the contract. See Broyles v. Iowa Dep’t of Soc. Servs., 305 N.W.2d
718, 721 (Iowa 1981) (stating “when words are free from ambiguity, there is no
occasion for interpretation”). Even if another pharmacy could have provided the
same services as Pharmacy Matters, Wellmark agreed to make payment to the
home infusion therapy provider, here Pharmacy Matters, in accordance with the
terms of their entity agreement, specifically for claims incurred for “covered
services,” including injectable drugs.
Further, the issue here is not one of double billing. Only Pharmacy
Matters sought reimbursement for the Factor drugs it “dispensed” to the patients.
Nothing in the entity agreement prohibits a redundancy in the services provided
for the fixed rate of reimbursement. In fact, pharmacist Donna Horn, an expert
witness for Pharmacy Matters, testified: “Redundancy is preferred.” She opined
there was nothing wrong with pharmacist Stein coordinating with another
pharmacy to deliver the Factor to the patients: “[I]f you have two sets of eyes
looking at specific patient dosing, the chances of the patient getting the wrong
medication are significantly decreased.”
The district court accepted Wellmark’s position that the only unique role
played by Pharmacy Matters was billing as an in-network provider. Wellmark
expert Brian McDonald opined: “Pharmacy Matters provided FCS and FHM with
access to Wellmark’s electronic billing system by which bills were submitted to 22
Wellmark and the BlueCross BlueShield system. FCS or FHM paid Pharmacy
Matters a fee for this service.” In McDonald’s view, the claims Stein submitted to
Wellmark “were based on the false premise that Pharmacy Matters had
performed the pharmacy services and dispensed the prescriptions to the
patients.”11
Despite McDonald’s skeptical view regarding the bills submitted by
Pharmacy Matters, we see nothing nefarious about these patients choosing their
pharmacy based on the pharmacy’s access to more favorable reimbursement
rates. William Nolan, one of the BCBSA customers, testified regarding his
concerns about lifetime insurance caps: “If you don’t have a major illness in your
life, you don’t know what that is. But if you have chronic disease or illness, you
know you only have a certain amount of money to spend inside your insurance
policy.” Pharmacist Robert Gardner testified, if FHM could partner with a
company that had contracts with BCBSA, it would “be able to hold down lifetime
caps for patients, which was a huge concern for patients and their out-of-pocket
responsibilities.”
The district court—embracing Wellmark’s reasoning—read the entity
contract’s obligation to provide “covered services” as an obligation to be the sole
provider of all services associated with home infusion therapy for patients with
hemophilia. That reading goes beyond the terminology used in the Wellmark-
drafted entity agreements and in the Wellmark-drafted home infusion therapy
11 McDonald also testified that delivering a drug to the patient was “an element” of “dispensing” and admitted he had no knowledge of Iowa’s pharmacy laws concerning “dispensing.” 23
guide. Because the court’s flawed legal analysis had a material effect on its
ultimate decision, we reverse its conclusion regarding the Factor drugs that Stein
“dispensed” from Pharmacy Matters. See Falczynski v. Amoco Oil Co., 533
N.W.2d 226, 230, 234 (Iowa 1995). Because Pharmacy Matters was a licensed
pharmacy “dispensing” a necessary therapeutic drug as one of the “wide range of
services” associated with home infusion therapy, it met its obligation to provide
“healthcare services or supplies” to which the patients were entitled under their
health insurance coverage. Accordingly, because Pharmacy Matters did provide
“covered services,” we conclude Wellmark breached its contract with Pharmacy
Matters by denying payment.
Emergency Shipments. Having decided Pharmacy Matters provided
“health care services” when Stein dispensed the Factor drugs from his pharmacy,
we turn to the question of whether he likewise did so for the emergency
shipments that did not pass through Iowa City. In this case, 114 of the 118
insurance claims at issue involved drug shipments sent to the patients from the
physical location of Pharmacy Matters. Four of the shipments were sent directly
from FCS to the patients in response to health emergencies.
The district court found: “There is no justification for Pharmacy Matters
submitting more than $1 million of claims for drugs that were never in its
possession.” We agree.
Pharmacy Matters argues “Stein was the dispensing pharmacist for those
four emergency shipments, even though the Factor did not pass through his
pharmacy.” Stein testified he gave approval for the shipments to be sent directly 24
from FHM, in coordination with the FCS pharmacist in charge. When questioned
by Wellmark’s attorney concerning the labeling of those prescriptions, Stein
testified: “[T]he labeling was probably not as high in my mind priority-wise as
getting that patient Factor medication to get them through a critical situation.”
Regardless of the emergency situations, Pharmacy Matters could not
dispense drugs that never passed through Iowa. Katherine Linder, a former
member of the Iowa Board of Pharmacy, testified that Stein, as an Iowa
pharmacist, cannot dispense a drug simply by declaring that he is taking
responsibility for the drug shipment. Linder opined it “wouldn’t be possible for
[Stein] to be the ‘health care provider’ in that circumstance at all.”
As discussed above, “dispense” means to package or label the drugs for
delivery. See Iowa Code § 155A.3(11). Stein did not package or label the four
shipments that did not go through his pharmacy. He did not check the NDC
numbers on those prescriptions, nor did he have the opportunity to compare the
contents of the shipments to the prescribed doses. Unlike the other shipments,
Stein did not deliver those four prescriptions to the patient or the patient’s agent.
Because Pharmacy Matters did not provide “covered services” for the four
emergency shipments, we affirm the district court’s conclusion that Pharmacy
Matters breached its contractual obligation in those four instances. Accordingly,
Pharmacy Matters is not entitled to reimbursement for those four shipments in
the amount of $1,025,025.20. 25
B. Did Pharmacy Matters Violate the Anti-Assignment Clauses of
the Entity Contracts?
We next turn to Wellmark’s claim that Pharmacy Matters breached the
entity contracts by assigning its rights or delegating its duties without Wellmark’s
consent. As discussed above, both the Wellmark and WHPI contracts included a
clause prohibiting the “assignment of the rights, duties or obligations of this
Agreement.”
The district court found these provisions reflected the parties’ intentions to
prohibit “not only the transfer of rights, but also the delegation of duties and
obligations.” The court opined: “The terms ‘assign’ and ‘delegate’ are synonyms
and commonly used interchangeably.” The court concluded: “Pharmacy Matters
impermissibly delegated its contractual duties and obligations to FCS Pharmacy
(by virtue of FCS Pharmacy supplying all of the health care services to the
Patients) and impermissibly made a de facto assignment to FHM of its
contractual payment rights (by remitting 100% of payments to FHM).”12 We do
not find support in the record or in Iowa law for the court’s conclusions.
The word “assignment,” according to an early pronouncement by our
supreme court, “has acquired a peculiar and appropriate meaning in law, is a
technical word, and must be construed according to that peculiar and appropriate
meaning.” Cowles & Co. v. Ricketts, 1 Iowa 582, 582 (1855). “An assignment
involves the transfer of the entire rights under a contract from the assignor to the
assignee so that the assignee assumes not only the benefits of the contract, but
12 This conclusion is adopted verbatim from Wellmark’s proposed ruling. 26
also the rights and remedies.” Ross v. First Sav. Bank, 675 N.W.2d 812, 817
(Iowa 2004) (citing Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa
1995)). Anti-assignment clauses “are construed narrowly whenever possible.”
29 Williston on Contracts § 74:22 (4th ed. May 2015).
“[D]uties cannot be assigned, they are delegated by the obligor to a
person who assumes the obligation.” Barker Dev. Co. v. Unibank & Trust Co.,
314 N.W.2d 175, 178 (Iowa Ct. App. 1981). The district court correctly noted that
parties often do not distinguish between these terms of art. See id. Although
delegation is a distinct concept from assignment, “‘[u]nless the language or the
circumstances indicate the contrary, . . . an assignment of ‘the contract’ or of ‘all
my rights under the contract’ or an assignment in similar general terms is an
assignment of the assignor’s rights and a delegation of his unperformed duties
under the contract.’” See Midland Mut. Life Ins. Co. v. Mercy Clinics, Inc., 579
N.W.2d 823, 833 (Iowa 1998) (quoting Restatement (Second) of Contracts
§ 328(1) (1979)).
After closely reviewing the trial record, we do not find substantial evidence
to support the district court’s conclusion that Pharmacy Matters assigned all of its
rights or delegated its duties as delineated in the Wellmark entity agreements.
The “contract pharmacy agreement” that Pharmacy Matters entered into with
FHM did not mention any assignment or delegation by Pharmacy Matters. In
fact, that agreement required Pharmacy Matters to distribute the Factor products
for FHM. The “contract pharmacy agreement” also stated Pharmacy Matters was
“solely responsible for confirming, dispensing, and labeling all Factor products 27
sold to customers.” Further, the “contract pharmacy agreement” placed a host of
other requirements on Pharmacy Matters. For example, Pharmacy Matters, as
the contracting pharmacy, had to be licensed; had to be authorized to dispense
the Factor products; had to be on-call twenty-four hours a day, seven days a
week, 365 days a year to respond to emergency calls from customers and from
FHM; and had to keep “timely, accurate and complete records” of the pharmacy
services provided.
Nevertheless, the district court decided Pharmacy Matters delegated
“virtually all” of its contractual duties under the Wellmark entity agreements to
FHM without Wellmark’s consent. In finding Pharmacy Matters breached the
anti-assignment clauses, the district court emphasized the following facts:
1. It was FCS Pharmacy, rather than Pharmacy Matters, that supplied health care services for the Patients. FCS Pharmacy clinically managed the Patients; had communications with the Patients, their caregivers, and the Providers; and prepared the pharmacy assessments and progress notes. 2. FCS pharmacists interpreted the prescriptions for Factor Drugs based on the current weight information that FCS obtained regarding the Patients. FCS assembled the Factor Drugs into patient-specific assays. 3. All of the Factor Drugs left Florida bearing an FCS Pharmacy prescription label after having been checked by an FCS pharmacist. 4. More than $1 million of the Factor Drugs did not pass through Pharmacy Matters’ facility. 5. Even when it did have physical possession of the Factor Drugs for a period of time, Pharmacy Matters was not allowed to alter the Factor Drugs it received from FCS Pharmacy.
These factual findings, which were also set out in Wellmark’s proposed
ruling, do not show Pharmacy Matters delegated its duty to provide “covered
services” under the Wellmark entity agreements. At most, these findings 28
illustrate the view of the Pharmacy Matters’ expert that the provision of the
“covered services” to the hemophiliac patients “was really a team approach.”
Kenneth Baker, a pharmacy consultant, opined:
It was a beautiful way of putting it together, so that you had the expertise [in Factor Health]; you had a guy with a contract with the insurance company who could actually fill the prescription; and . . . the Blue Cross member could get taken care of. . . . That’s a beautiful system from a quality assurance standpoint. . . . [Y]et, it’s what confused everybody when they started looking at this.
Confusion aside, nowhere in the record did Pharmacy Matters expressly
assign its rights or delegate unperformed duties under its entity agreements with
Wellmark to FHM/FCS. In its “contract pharmacy agreement” with Pharmacy
Matters, FHM did not assume the obligation of providing “covered services” as
contemplated in the Wellmark agreements. It was Pharmacy Matters that took
sole responsibility for “confirming, dispensing, and labeling all Factor products
sold to customers.”
The question really returns to whether the “constellation” of services
associated with home infusion therapy for hemophiliac patients can be
unbundled. The district court embraced Wellmark’s position that Pharmacy
Matters violated the anti-assignment clauses by performing only the labeling,
packaging, and delivery of the Factor drugs to the patients and leaving the
clinical management of the patients to FHM and FCS. As our previous analysis
concluded, that position was inconsistent with the unambiguous terms of the
entity agreements.
We also find error in the district court’s legal conclusion that Pharmacy
Matters made a de facto assignment of its rights under the Wellmark agreements 29
by contracting to send “100% of any reimbursement” from the third-party payor to
FHM in exchange for a 1.5% dispensing fee.” Iowa has no case law discussing
de facto assignments. We recognize no specific words are required to effect an
assignment. See In re Wagner, 144 B.R. 430, 437 (Bankr. N.D. Iowa 1991). Any
language will suffice if it shows an intent to transfer the right to the assignee. Id.
But an agreement to transfer future reimbursements is not an assignment. See
Carey v. Chase, 175 N.W. 60, 62 (Iowa 1919). “To constitute a valid assignment,
there must be a perfected transaction between the parties, intended to vest in the
assignee a present right in the thing assigned.” Id. The “contract pharmacy
agreement” between Pharmacy Matters and FHM did not vest in FHM a present
right to payments from Wellmark. Because Pharmacy Matters retained control
over the future reimbursements from Wellmark and had the authority to collect
them, Pharmacy Matters’ arrangement with FHM did not constitute an
assignment. See id. at 61-62.
Wellmark Provider Guide. In addition to interpreting the language in the
entity contract, the district court also adopted Wellmark’s position that the
Wellmark Provider Guide—incorporated by reference into the entity agreement—
included a “warning” to Pharmacy Matters that the kind of relationship it entered
into with FHM and FCS was prohibited by the anti-assignment clause. At issue is
the following language from the Provider Guide’s chapter on Contracts and
Credentialing, under the subheading of Supervisory responsibilities:
There may be situations when a practitioner who is not eligible to contract with Wellmark directly hires or contracts with eligible practitioners as a consultant and uses the eligible practitioner’s 30
direct contracting status with Wellmark to file claims and receive payment. Such arrangements are not accepted by Wellmark.
We find the court’s reliance on the Provider Guide was misplaced. In
carefully scrutinizing the record, we conclude the cited paragraph does not apply
to Pharmacy Matters’ relationship with FHM and FCS. The Provider Guide
divides “licensed providers” into three categories: (1) practitioners, (2) facilities,
and (3) entities. The Provider Guide’s list of practitioners includes doctors,
nurses, and other individual professionals. The list of facilities includes hospitals
and other medical centers. The list of entities includes services such as Home
Infusion Therapy Providers—the category under which Pharmacy Matters was
billing. Accordingly, the Provider Guide’s “warning” regarding non-eligible
“practitioners” filing claims using the status of an eligible “practitioner” does not,
by its very terms, apply to an entity like Pharmacy Matters.
Personal Services Contract. The district court also ruled that the entity
agreements were “a type of personal service contract” under which the
obligations were “not delegable.” We disagree with this legal conclusion.
“A contract for personal services contemplates performance of duties
involving the exercise of special knowledge, judgment, taste, skill, or ability.”
Corell v. Teamsters Local Union No. 828, No. 00-1098, 2002 WL 31018534, at *2
(Iowa Ct. App. Sept. 11, 2002). Under personal services contracts, the assigned
duties are so specialized that they cannot be delegated to another party. Id.
(citing Restatement (Second) of Contracts § 318(2) (1981)). Courts have found
authentic personal-services contracts in the following instances: “[A] contract to
paint a picture; a contract between an author and his publisher; an agreement to 31
sing; an agreement to render service as a physician.” See In re Compass Van &
Storage Corp., 65 B.R. 1007, 1011 (Bankr. E.D.N.Y. 1986) (collecting cases);
see also Lemat Corp. v. Barry, 80 Cal. Rptr. 240, 245 (Cal. Ct. App. 1969)
(discussing contract for unique personal services of star athlete).
Initially, Pharmacy Matters suggests business entities or corporations do
not generally enter into personal-service contracts. While it is true most
contracts “falling within the ‘personal services' exception are employment
contracts of individuals, it does not follow that a corporation cannot enter into
such an agreement.” See Ford, Bacon & Davis, Inc. v. Holahan, 311 F.2d 901,
903–04 (5th Cir. 1962). So, while Pharmacy Matters may be capable of entering
a personal-services contract, we conclude it did not do so when it entered into
the entity agreements with Wellmark.
First, the agreements between Wellmark and Pharmacy Matters did not
contain language expressing that the pharmacy would be providing “personal
services.” Second, while Pharmacy Matters, through pharmacist Stein,
possessed certain specialized knowledge and expertise, it was not the kind of
unique skill set that would justify a finding he was providing personal services to
Wellmark by dispensing the Factor drugs. See Corell, 2002 WL 31018534, at *3
(finding skills of union’s office secretary were “not unique or nondelegable”). We
reject this basis for finding Pharmacy Matters breached its agreements with
Wellmark. 32
IV. Conclusion
We reverse the district court’s ruling that Pharmacy Matters materially
breached the entity agreements with Wellmark by not providing “covered
services” in relation to the 114 shipments of Factor drugs that Stein dispensed
from his pharmacy in Iowa City. We affirm the court’s ruling in regard to the four
emergency shipments that did not pass through Iowa. We also reverse the
district court’s ruling that Pharmacy Matters breached the anti-assignment
clauses of the entity agreements. Conversely, we conclude Wellmark breached
the agreements by not paying those 114 claims submitted by Pharmacy Matters.
We remand for the district court to determine, consistent with this opinion, what
damages are owed to Pharmacy Matters.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.