i ·.·--. .. ---·--. ..under rcw 48.155 .020(5)(b) (pharmacy benefit managers are not dpos). 4....
TRANSCRIPT
Sln!G ofWt\ahlnrJ\on Office of Uw ln11urnnco Oornmlssloner Heoiirlngs Unll PO Box 402&6 Olympl11 WA Qa604·.02!J$ 6000 Cspltol frnt1hward T11mwa\er, WA 9660'1 (:!$0) 7?.6•7002 FAX (::!SO) l'lB4~27!1!! 1'1oerln1j11U@o!Q,W~.IJl.lV
Demand for Hearung
0 Revocation or o~ml!il of Ucensll
[J Imposition of F!na/Consenl Order
Cl Revoca\lon or Denial Cl)rtlflcate of Aullwrlly or Rogls\r(l\Hm D OIJ~l\1~ and Desist Order
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a. lsouos - Briefly describe 011ch lsoue or arno of dispute that you wish us to co11Stder. Attaoh additional pages If necessary.
See attaohed Demand fo1· Hearing.
b. Arguments - Explain wl1y each Issue or area of dispute listed above ahould be decided in yourfavo1'. AUacJ1 adtlltionel pages If necessary, To the extent known, ctta appHcable rules, statutes, or cases in support of your arguments. Enclose copies of documents concerning your arguments Including documents the Departn1ent previously requesl:~)d fro111 you that you have not yet provided.
See attached Demand for Hearing.
& Signature ™ IW
Either the Requesting Party or the Attorney/Representative can sign this Demand for Hearing. However, If the Representative Is submitting the Demand, contact Information for the Requesting Party !ll!J.§.\ be provided under Section 1 above and the Attorney/Representative's contact Information must be provided In Section 2.
Requesting Party:
December 2016 Signature Date
Heather Zimmerman c/o David B. Robbins Rep~(:)_sentativ_(:),_for WADC?.c._!:_LC ___ -·-·---Title
~;;~~-David B. obbins
December 2016 Date
Counsel for WADCO, LLC ·-------··-·-----"'"' __ _
Name (pl· ase print or type) Title
REV (6116)
WASHINGTON STATE OFFICE OF THE INSURANCE COMMISSIONER
In re Discount Plan Organization Application by W AGDCO, LLC.
DEMAND FOR HEARING
Pursuant to WAC 284-02-070, WAGDCO, LLC ("W AGDCO") hereby appeals and
demands that the Washington State Office of the Insurance Commissioner ("OIC") conduct a
hearing regarding the denial of WAGDCO's discount plan organization ("DPO") application by
Company Licensing Specialist, Susan Baker ("Ms. Baker"), by a letter tlated September 8, 2016,
and received by WAGDCO on September 12, 2016 (the "Denial Letter"). The Denial Letter is
attached as Exhibit A. The purported bases for denial ofWAGDCO's application in 1he Denial
Letter are untethered to, or directly contradicted by, Washington law governing DPOs. The
bases for denial set forth in the Denial Letter also confound the pro-consumer policy bases for
Washington law regulating DPOs. WAGDCO requests that pursuant to WAC
284-02-07092)(a)(i), the Commissioner appoint an administrative law judge to make the initial
order, which will be confirmed with the Commissioner's review and entry of a final order.
WAGDCO's application for a DPO license should be approved immediately, and the denial
reversed.
I. Ir ACTS AND BACKGROUND
1. On August 10, 2015, WAGDCO submitted a completed application and
accompanying documentation (collectively, the "Application") for a license to the OIC. After
thirteen months of waiting on September 8, 2016, Ms. Baker of the OIC sent WAGDCO the
Denial Letter, which concluded that W AGDCO was not qualified for a license for several
reasons, none of which were ever raised with WAGDCO prior to the Denial Letter despite a
8<1213-0002/LEGAL I :lJ76'/94 l J
series of emails, letters and calls between employees of the OIC and legal counsel for
WAGDCO.
2. This denial should be reversed for at least four reasons:
a. The 01.C plainly violated its statutory mandate by failing to approve or
disapprove of the Application within ninety days of its receipt. By extending the process to what
Ms. Baker acknowledged was an unprecedented length--0ver four times the time required by
statute--thc denial violated RCW 48.155.020(6)(a).
b. To the extent that the Denial Letter found that the Application had any
deficiencies, the OIC violated RCW 48. 155.020(5) by not informing WAGDCO of these
deficiencies within ninety days of receipt of the Application.
c. The deficiencies and other issnes cited as justification in the Denial Letter
are not supported by either the statutory or regulatory law. Instead, the OIC applied
requil'ements to WAGDCO's Application that have no textual support in the law and thus were
extra-legal.
d. The OIC's exercise of discretion in the denial of the Application was
contrary to the purpose of statutory scheme, which is to protect consumers. W AGDCO has been
unable to provide consumers with access to Walgreens Prescription Savings Club since
November 2015, depriving uninsured and underinsured consumers of savings of approximately
$200 per year per consumer.
3. Walgreen Co. ("Walgreens") and its affiliates have been offering a successful
nationwide DPO, called the Prescription Savings Club ("PSC"), since 2009. It is licensed across
the country and has saved uninsured and underinsured consumers of prescription drngs hundreds
of millions of dollars. The PSC offers disconnts on prescription drugs, immunizations. and other
pharmacy items at over 8,000 Walgreens retail pharmacy locations and on Walgreens Healthcare
Clinic services. In Washington Stare alone, consumers who have become PSC members have
2
84213·0002/LEGAJ.133767941.l
saved approximately $51 million below retail pricing. The PSC was not licensed in Washington
since its inception because it was originally operated by a pharmacy benefit manager that was a
wholly-owned subsidiary o:fWalgreens, and was thus statutorily exempt under Washington Jaw
under RCW 48.155 .020(5)(b) (pharmacy benefit managers are not DPOs).
4. After Walgreens sold its PBM and underwent a series of corporate restructuring
initiatives, responsibility for the PSC was vested in one ofWalgreens' wholly-owned
subsidiaries, WAGDCO, LLC. WAGDCO submitted the complete DPO Application to the OTC
that was received on August 12, 2015.
5. The OIC did not respond to W AGDCO's completed Application until 90 days
thercafter---on November 12, 2015-whenNina Slocum ofthe OIC sent Heather Zimmerman,
in-house counsel for W AGDCO, an email requesting that W AGDCO provide information
regarding the total payments for individual and family membership plans sold since July 2009.
While the requested information may have been of interest relating to past compliance with
Washington law, it did not correspond to any perceived deficiency in the Application, nor did it
suggest that the application was not complete in any way. No approval or denial of the license
was provided, nor was there any identification of application deficiencies or an offer of any
excuse for the OIC's failure to follow the mandatory approval/denial 90-day timeline set forth by
RCW 48.155.020(6)(a).
6. On December 29, 2015, counsel for WAGDCO sent the OIC a letter providing the
requested information on past membership sales, which also demonstrated that since 2010, PSC
has saved Washington PSC members au estimated $51.4 million in discounts off the list price
that they would have otherwise had to pay, an estimated $200 per year per member savings.
7. On March 14, 2016, Ms. Slocum sent cowJSel for WAGDCO an email requesting
additional information regarding W AGDCO's 2014 Audited Financial Statement and
WAGDCO's 2015 Audited Financial Statement. Ms. Slocum also requested a copy o:fthe
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842IJ.0007JLEGAL13376794 l .3
contract with the entity responsible for managing the day-to-day operations ofWAGDCO,
noting, however, that the OIC had the subcontract for management of the discount plan by
Walgreens Business Services, LLC ("WBS"),
8. On March 25, 2016, counsel for WAGDCO responded, answering Ms. Slocum's
questions about the 2014 Audited Financial Statement, providing a copy ofWalgreens' 2014
Annual Report, stating that the 2015 Audited Financial Statement for WAGDCO would be
completed in April 2016 and would be provided at that time, and explaining that WBS is the
entity that employs the individuals who provided the day-to-day support and operations for
WAGDCO.
9. On May JO, 2016, WAGDCO reached out to the ore regarding the status of the
Application. Ms. Baker informed W AGDCO that the Application had been transferred to her
following Ms. Slocum's departure from the ore but that neither had completed their review of
the Application. In a follow-up email on May 19, 2016, Ms. Baker asked counsel for W AGDCO
for some information to clarify WAGDCO's assertions and filings.
I 0. On Jw1e I 0 .. 2016, WAGDCO provided responses to the questions in Ms. Baker's
email, and on June 23, 2016, WAGDCO provided the 2015 Audited Financial. Statement.
11. On September 8, 2016, almost 13 months after the OIC received ti1e completed
Application by W AGDCO, Ms. Baker sent W AGDCO the Denial Letter, without explanation for
its delay or its failure to timely provide WAGDCO of notice of alleged deficiencies in its
Application, stating that. WAGDCO was not qualified for a license. The substance of this four
page, singk~spaced letter is discussed in detail below.
12. On November 17, 2016, Mr. Hartz and Ms. Baker ofthe ore met with both in-
house and outside counsel for WAGDCO in an effort to avoid the necessity of a formal appeal.
Upon the request of Mr. Hartz, WAGDCO submitted a letter describing all of the grounds for an
appeal, similm· to this letter, on November 18, 2016. On November 29, 2016, Mr. Hartz and Ms.
4
J:M213~000':.ULEOAL 13.176794 l J
Baker participated in a conference call with WAGDCO in an attempt to resolve the issues
identified in the November 1 gth letter. Apparently recognizing that it violated its own statute, the
OIC offered to witl1draw the Denial Letter, but the ensuing discussion made plain that the OIC
would impose similar extra-legal and unnecessary requirements that would cause a further,
unnecessary delay of the licensing decision, to the detriment of WAGDCO and the consumers
who would benefit from the PSC. W AGDCO thus files the instant appeal.
II. First Grounds for Appeal: The OIC's Response to W AGDCO Violated RCW 48.l55.020(6)(a).
13, For DPO applications, RCW 48.155.020(6)(a) provides that "[w]ithin ninety days
after the date of receipt of a completed application, the commissioner must: (i) Issue a license if
the commissioner is satisfied that the application has met the [th.e requirements of the statute]; or
(ii) Disapprove the application and state the grounds for disapproval." [Emphasis added]. The
application form reiterates that "our OIC has ninety days from submission of a completed
itpplieation to issue or deny a license." The OIC took over four times the statutory limit--393
days, to issue its decision--without offering an excuse or justification for its defiance of the
statutory requirement. Ms, Baker acknowledged that the amount of time taken was
unprecedented, though offered no remedy to WAGDCO or to the consumers who have gone
without the PSC during the OIC's deliberations. While WAGDCO acted in a cooperative and
transparent mmmer to provide Ms. Slocum and Ms. Baker with information they sought, none of
the information provided was missing from the initial Application or would have rendered the
Application incomplete. if not provided.
III. Second Grounds for Appeal: The OIC Never Infonned W AGDCO of Any of the Later Cited "Deficiencies" in its Applicalio11 in Violation of RCW 48.155.020(5).
14. RCW 48.155.020(5) provides tlmt "[a]fter the receipt of an application ... the
commissioner must review the application and notify the applicant of any deficiencies in the
application." [Emphasis added]. The application form states that tl1e Commission will "provide
5
84213·0002/LEOALI 3J 767941.3
an opportunity to address an issue or admission." Read in conjw1ction with
RCW 48.155.020(6)(a), the notification of any deficiencies must be within the 90 day licensing
decision framework. Many or all of the alleged bases for license denial contained in the Denial
Letter were never raised before that letter issued, well over a year after the complete application
was submitted.
15. The Denial Letter also offered no opportunity to address the issues it raised, in
violation of the statute. It was only because WAGDCO requested discussions with the OIC
about the Denial Letter that any discussions were had at all. Thus, because of the nature of the
denial, the OIC failed to provide the required opportunity to address any deficiencies in a timely
manner.
IV. Third Grounds for Appeal: The Justifications Cited iu the Denial Letter Have No Statutory or Regulatory Basis, and the Denial is Contrary to the Purpose of the Law.
16. Response to the Denial Letter's position with respect to Part I Requirements is
set forth below:
Y{QQ§LleLIJ1ere is .m1"staj,L1t9_1y $llJ:ll29.l1J&rJ! den i'1Lni'.Jh.e E;rmI!QtitiJHl bs:cause WA0QCJ) dolt!!.. not own th1?.~JpmgJn name_,
17. The Denial Letter states that "RCW 48.155.020(6) [sic] requires that, prior to
Jicensure by the Commissioner, each discount plan shall establish an i.ntemet web site in order to
conform to the requirements ofRCW 48.155.070(2)(a)." On the Application in Part I, Section 8,
WAGDCO provided the website -'c\'~YY\'.,.lY\U,L!J:~l\~&QllllrfillJ!YiJJ,g:tt;J.\lh. The Denial Letter found
that, because this domain is registered to WAGDCO's parent, Walgreens, and there was no
contract submitted establishing that WAGDCO manages and controls its content, that W AGDCO
did not satisfy this statutory requirement. The Denial goes on to state that the OTC did not even
review the submitted internet website for compliance.
18. The OIC's finding has no basis in Washington statute or regulation.
RCW 48.155.020(7) requires only that "each discount plan organization must establish an
6
842l:l-0002/LEGAL133767941.J
internet website in order to conform to the requirements ofRCW 48.155.070(2)." The statutory
language requires only that WAGDCO establish a DPO website. It does not stipulate whether it
may be done by or through an affiliate or other company, whether orally or in writing. Nor does
the statute require that the DPO itself "manage" or "control" the website's content other than
ensure that the list of providers is updated at least every 30 days per RCW 48. I 55.070(2)(a).
Also, there is no apparent regulatory goal served by so requiring, when the DPO and website
administrator are all in the same family of companies. On November 17, 2016, Ms. Baker
explained that she selectively viewed WAGDCO as, in her words, "a silo." This analysis defies
the reality and substance of the relationship between W AGDCO and Walgreens. While the
Denial Letter imposes this "silo" view for purposes of the website, it ignores that view in other
aspects of the Denial Letter, as the Denial Letter relies upon relationships to which WAGDCO is
not a party, such as the impending transaction between Walgreens Boots ALiiance, Inc. and
Rite-Aid, to deny the Application.
19. The Application requested only the website address, which WAGDCO provided,
and the OIC did not even review the wehsite for compliance with RCW 48.155.070(2). To the
extent that the OIC had questions regarding the content of the website, WAGDCO would have
answered any such questions. Whether WAGDCO or its parent company owns the domain
name, however, is completely irrelevant to the inquiry of whether WAGDCO meets the statutory
requirements :for licensure because the statute contains no such requirement.
20. Response to the Denial Letter's position with respect to Part II Requirements is
set forth below:
A .. ~rn!cment ~tengrnJb'J;l.escribing the amilicant.;,_ W /';.GDC:J:Xs status as an "administrator" is not a basis for denial of the Aruili£lltlfii1_"""_____________ ----·-------------·--------------·--··-·-
21. The Denial Letter states that the requirements ofRCW 48.155.020[(2)](b)(xi) are
not met because WAGDCO is "only" an "administrator" of the discount plan and thus does not
7
&42 l.J.0002/LEGAL! 33767941.3
qualify for licensing. This finding has no basis in the language or meaning of the law. There is
no reference to an "administrator" in this law, regulation or in subregulatory guidance; nor is
there any suggestion that this undefined status renders the applicant unqualified. The law defines
what entities may not be DPOs in RCW 48.155.01 O(S)(b ), but "administrator" is not an10ng
them. And certainly, by law, W AGDCO, which holds discount plan organizations licenses in
number other states, is qualified to hold the DPO license as the implementing regulations define
an "applicant" as "any discount plan organization applying for license under these regulations,
and includes a discount plan organization or person holding a license or other form of authority
from another state to operate as a discount plan organization." WAC 284-155-010.
22. There was no rationale put forth as to why whatever the term "administrator"
means in this context renders tbe applicant unfit to operate a DPO. If tbe Insurance
Commissioner wishes to create new standards, the Administrative Pmcedures Act requires that it
be done by promulgating regulations, which has not been done here. In short, there is no basis in
the law for denying the license because W AGDCO administers the PSC.
23. The Denial Letter also states that WAGDCO provided no contract that clarifies
how the day-to-day administrative and operational functions of WAGDCO's business is
managed, aside from an agreement with WBS to perform various administrative functions of the
PSC. RCW 48.155.020(2)(b)(xi) requires that an applicant provide "[a] copy of the form of any
contract made or to be made between the applicant and any person, corporation, partnership, or
other entity for the performance on the applicant's behalf of any function, including marketing,
administration, enrollment, and subcontracting for the provision of health care services ... "
There is no implementing regulation.
24. WAGDCO provided two contracts with its Application, one with a Pharmacy
Benefits Manager tbat performs the formulary management and pricing function for the PSC,
and an agreement with WBS, in which WBS staffs all other functions for WAGDCO. In a
8
84213·11002/LEOAL l:H 767941.3
March 25, 2016 lctter to Ms. Slocum, WAGDCO explained that to the OIC. The Denial Letter
states that this representation is somehow inconsistent with the WBS agreement, but it does not
explain the substance of any inconsistency or offer any basis upon which to address it. 'l11e WBS
agreement states that WBS is to provide services such as "filing necessary state discount card
registration, forming a participating provider network, collecting membership fees, processing
member enrollment, issuing identification numbers and cards, adjudicating discounts on sales
transactions, and performing advertising and marketing activities." This contract was filed with
the Insmanee Commissioner with the Application. Not only is the staled deficiency wrong, but it
is untimely with no opportunity to respond provided.
He11IQ1 caJ:s;Jlrpvider an9J,1rovider 11.\;1\.YQJ'k .c011SJ:l!.91~~ Thg £!1.nl!ll\l!1Lll.LQ.\iid!"dJ>;v_:W AGm;;_Q_£lm sur11gj5in:t for apJl!OVJ;JI gfi\lJ f,pplis;_sition.
25. WAGDCO submitted two contracts, a Participating Pharmacy Agreement
between WAGDCO and Walgrecns ("Walgreens Participating Pharmacy Agreement") tmd a
Provider Agreement between W AGDCO and Take Care Health Systems, LLC ("TCH"), a
wholly-owned s\lbsidiary ofWalgrecns (the "TCH. Provider Agreement").
a. 1YiiI!!lll!i'.l1lll'.m:ti c:iJ2<.filt\lll'h<tmm«Y.AW\<m.Qnl
26. With respect to the Walgreens Participating Pharmacy Agreement, the Denial
Letter states it "was not acceptable because it failed to comply with all req\lired provisions of
RCW 48. I 55.070 and the Chapter, and had other contract\lal issues." Certain alleged
deficiencies are identified, some of which are described as "unclear" and others, from a plain
reading of the statute, appear on their face to be wrong or fail to suggest that the Wal greens
Participating Pharmacy Agreement does not meet statutory req\lirements.
27. With respect to the contractual issues, the Denial Letter questions the Walgreens
Participating Pharmacy Agreement because it includes Duane Reade Pharmacies "as pharmacies
owned by Walgreens per Article l .2," but that the analyst is "\lnclear whether the contract is
9
R4213-01102/LEGAL133767941.3
properly executed" because Duane Reade "is actually a subsidiary and should have been a
signing party." The OIC never previously raised those issues, much less in a timely manner as
required by law and thus, its lack of clarity on the point is its own doing from failing to ask or
failing to perform a corporations search on the internet.
28. The Denial Letter also says that if Duane Reade is a subsidiary, to meet the
requirements ofRCW 48.155.070(l)(d), Walgreens would have to have a contract with Duane
Reade that complies with RCW 48.155.0?0(l)(d). But the Walgreens Patticipating Phannacy
Agreement is clear on its face as it was entered by Walgreens "on behalf of itself and each of its
participating pharmacies," and "pharmacy" is defined to mean "each Walgreens and Duane
Reade retail pharmacy location." In other words, only the Walgreens Participating Pharmacy
Agreement must meet the requirements ofRCW 48.155.070(l)(d) because Duane Reade
pharmacies are in the same position as Walgreens pharmacies in the agreement. There is no
legal requirement for a separate agreement between Duane Reade pharmacies and Walgreens
under RCW 48.155.0?0(l)(d). There is also no legal basis to differentiate Walgreens pharmacies
from the Duane Reade pharmacies. Again, the lack of clarity reflected in the Denial Letter
apparently is a function of a failure by OTC to accurately read the contract submitted with the
Application.
29. The Denial Letter also says that the Walgreens Participating Pharmacy Agreement
did not satisfy the requirements under RCW 48.155.070(1)(b)(i) & (iii) and (c)(ii) & (iii) because
usnal and customary prices were not provided to demonstrate the discount amount. However,
the cited statutory provisions nowhere require that usual and customary prices be shown in the
agreement. RCW 48.155.070(1)(b)(i) requires that the health care provider agreement between a
discount plan organization and a health care provider must provide "a list of the health services
and products to be provided at a discount." R.CW 48.155.070(1)(b )(iii) requires that the health
care provider agreement between a discount plan organization and a health care provider mu~t
10
8421 J-0002/LECIAL I JJ76794 I J
provide "[ t]hat the health care provider may not charge members more than the discounted
rates." RCW 48. l55.070(l)(c)(ii) requires that a health care provider agreement must
"[a]uthorize the health care provider network to contract with the discount plan organization on
behalf of the health care provider." RCW 48. 155.070(1 )(c )(iii) requires that a health care
provider agreement must "[r]equire the health care provider network to maintain an up-to-date
list of its contracted health care providers and to provide the list on a monthly basis to the
discount plan organization."
30. None of the cited provisions require that usual and customary prices be set forth
in the agreement. RCW 48. l 55.070(l)(b)(ii)-a provision not cited in the Denial Letter for this
purpose---specifieally provides that the health care provider agreement between a discount plan
organization and a health care provider must provide "the amount or amounts of discounts or,
alternatively, a foe schedule that reflects the health care provider's discounted rates."
[Emphasis added]. Thus, under the plain language of the statute, the list of discounted rates is
sufficient, which was submitted. Moreover, these are Wal greens wholly-owned pharmacies that
have no right to independently price the drugs or services contrary to Walgreens' determination.
In that way, they are unlike other Dl'Os that have no such relationship among the parties and
where identification of contractual discounts with specificity is desirable. Again, there is no
regulatory purpose served by the OIC's extra-legal and incorrect requirements for usual and
customary foes.
31. The Denial Letter also states that the contract includeq medical devices, related
supplies, and immunizations, but those items could not be located on the list of products. This
statement ignores WAGDCO's statement that the attached list includes the "value-price
medications offered under the program," but that "[a]dditional benefits of the program include
discounts at the Walgreens pharmacies on compounded drugs, diabetic supplies, nebulizers and
most immunizations and services at Healthcare Clinics in select Walgreens stores." To the
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84213-0002/LEGAL 133 76794 l .3
extent that this statement was insufficient or the OIC had questions, it failed to timely notify
W AGDCO of these "deficiencies" under RCW 48.155.020(5), nor did it provide a timely
opportunity to address them.
32. The Denial Letter also states that there is no arms-length negotiation for the
amount of discounts for drugs and other products because of the relationship between WA GDCO
and Walgreens. While that is an interesting observation, there is no requirement in the statute,
specifically under Rew 48.155.070, that the amount of discount offered be reached by arms
length agreement. The Denial Letter appears to be under the misapprehension that the PSC, and
Walgreens and its pharmacies are all managed and operated independently and without reference
to the other. That position defies what the Ole knows to be true, but leads to the denial on bases
that provide no protection to anyone, least of all consumers.
33. The Denial Letter also states that Walgreens is able to unilaterally control the
discount amonnt and W AGDCO docs not have the contractual capacity to offer a stated discount
amount to members or the ability to enforce the provisions of Rew 48.155.070 to protect its
members. While Walgreens may modify the items and services included on the PSC formulary
list, this does not mean that W AGDCO does not have the contractual capacity to honor its
contracts with its members. The OIC did not look at the terms and conditions of a PSC
membership to determine the terms of the agreement. Instead, the ore assumed that a stated
discount amount must remain static under the terms of the PSe member agreement. Instead of
assuming, the Ole should have, pursuant to RCW 48.155.020(5), timely requested additional
information from W AGDCO if it had questions about whether W AGDCO could honor its
contractual obligations to PSe members and given WAGDeO a timely opportunity to address it.
The OJC did neither.
34. The Denial Letter also provides "Article 2.5 that states 'PSe is not an insurance
prnduct but merely a program offering discounts on a cash basis' is inconsistent with Article 3. l,
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8421J-0002/LllGAL133767941.3
which states 'Pharmacies shall bill Members for Pharmacy items and services at the discounted
pricing."' There is no explanation provided for how this is inconsistent or how offering a
discount makes this "insurance" or why that is relevant to the denial. Moreover, again, to the
extent that this was a concern, the OIC did not timely request additional information and
provided no opportunity to address this stated concern.
b. Take Care lfoalllll':i_)'.!ltem Provig1;r AgreemenI
35. Witl1 respect to the TCH Provider Agreement, the Denial Letter specifies two
issues. As described, TCH is a practice management company that is wholly owned by
Walgreens and that operates the Walgi:eens Healthcare Clinics. The OIC appears to take issue
with the Agreement without considering its January 9, 2014 amendments, which were submitted
and plainly in force and effect starting more than a year before the Application was submitted.
The OTC takes issue with the lack of usual and customary prices to demonstrate the discount
amount, despite that the amendments contain the services and rates, are executed on behalf of
TCH providers and otherwise conform to the requirements ofRCW 48.155.070. As described
above, the OIC's complaint .is both without basis and is late as there is no legal requirement that
the contract identify usual and customary pricing.
36. The Denial Letter also says "that the contract amendments m·e inconsistent with
the contmct because they are between TCH and Walgreens (not WAGDCO)." Again, the OIC
appears to have. not read the TCH Provider Agreement which expressly provides that it is made
"by m1d between Walgreens on behalf of itself and its wholly-owned subsidiary W AGDCO."
Moreover, the Denial Letter provides no statement about why this wrong reading of the contract
is even relevant to denial of lieensure in the context of a parent/wholly-owned subsidiary
relationship, nor does .it provide an opportunity to address the mt1tter.
13
84213-0002/LEGAL 13376794 t,3
c. C~Lrnrulutf'ro,,e,Lru;51; w AQ!d(;I!Ji Appli.Q!ltillJl 9.slIJJOt!BlJ.:atcd_ltl!.!k~.~JlJJffis;.!5111J compl11i11t procedure in place, uncl it is jrrel<i_'fillll thi1! a fooler sc111t9J?Slll1191lJJllUt£;'i:'.'.W_'lJ.!!.!'Cens Pr9_P-rictai:i;,~'.
37. The Denial Letter says that the complaint procedure submission "could not be
accepted because" the header states "PSC Customer Servicer Procedures" but the footer states
"Walgrccns Proprietary" and W AGDCO is not otherwise mentioned. It also states that there is
no contract provided by WAGDCO that shows who services this f\mction.
38. RCW 48.155.020(2)(b)(xiv) provides that an applicant must provide "[a]
description of the member complaint procedures which must be established and maintained by
the applicant." "PSC" is the name of WAGDCO's discount plan and thus, there should not be an
issue with that header. There is nothing legally wrong with a footer that states "Walgreens
Proprietary." Fwiher, tbis is not a document submitted to the public, and it should not matter to
the consumers what the footer states. As for who provides the services for the complaint
procedure, the WBS contract states that WBS will provide "toll-free telephone, interactive voice
recognition, Internet aud mailing address support to assist Members with ... complaints and
other related Member support services." Thus, the contract between WAGDCO and WBS
answers the question, which again, the OIC appears to have not accurately read and not timely
flagged for response.
d. A comJlll"t!Ul'2-sS:JiJl"tjg_rLQf_tb.i;;J2l:9M1!!sl methods gJ mar~gtiqp.;_W AGDCO J}_,6Jlplic,1limtru:.QYl\l~.>L~trrficL"'1l1 .lnfi11~1llc\Q9JLLfai!mllng mw:k.§,t\rui"
39. The Denial Letter states that the Application discusses Walgrcens' marketing
activities through its website, marketing materials, and stores, but notes that there is no
marketing contract between Walgreens and W AGDCO in the submissions. This statement
ignores the submitted information that Walgreens pharmacies are part of the Walgreens
Participating Pharmacy Agreement. Marketing such as a pharmacy handing out brochures to
customers or having posters displayed in waiting areas at a pharmacy among wholly-owned
14
842\3-0002/Ll1GAL13376794 I .3
affiliates should not require a separate agreement beyo11d the participating pharmacy agreement.
W AGDCO provided the information requested in the Applicatio11, and the OTC does not point :to
any statute or administrative rule that requires more information. RCW 48.l55,020(2)(b)(xi)
only requires that an applicant provide "[a] copy of the form of any contract made, , . for tlie
performance on the applicant's behalf of any fonction, including marketing, ... " This issue,
which the Commissioner presumably knew about from the outset, was not timely raised nor was
W AGDCO given a timely opportunity to address it. Moreover, the interpretation offered by the
OIC does nothing to further consumer interests.
40. The Denial Letter also says that there is no information to clarify whether WBS is
actually performing any marketing services, despite the WBS contract and the statement in
WAGDCO's March 25, 2016 letter that WBS "is the entity that employs the individuals who
work at the Walgreen Co. headquarters and who provide the day-to-day support and operations
for WAGDCO." It is unclear why the OIC requires more information regm·ding the marketing
services provided by WBS and, to the extent further information was ne.eded, why the OIC failed
to make a timely request for it or provide m1 opporttmity to address it.
e. Jd eu!if.i&tcti.QJLO f sub_q_Q!llI£1 .. 1lli.!11u1J1Jti .Qi1;, .. J]g;_11!2pJ]i;g,t i o !! nrovi(jl?d the rq_q]!)l:lLd information.
41. The Denial Letter states that the idcutification of all subcontracting parties was
not met under RCW 48.155.020(2)(b )(xi) for two reasons.
42. First, the Denial Letter states that it did not review the submitted agreement
between Walgreens and Catalyst Rx because it was an agreement with Walgreens, not
WAGDCO. Because it failed to read the contract, the OIC's failure to know its terms is
understandable. Had itrcad the contract it would have noted that W AGDCO is included in the
definition of afliliate, tmd thus the agreement applies with full force to WAGDCO. There is no
requirement under tl1e statute that WAGDCO be tl1e signatory. Again, the OIC is applying extra
legal requirements to W AGDCO's Application that serve no salutary purpose. To the extent that
15
842l:J.Oll02/LEGAL1 Jl'/67941.3
farther information was needed from WAGDCO with respect to this contract, the OIC violated
RCW 48.155.020(5) by not informing WAGDCO of any such deficiency.
43. Second, the Denial Letter takes issue with the WAGDCO and Walgreens
Business Services LLC administrative agreement, claiming that no provisions satisfy
WAGDCO's responsibility for WBS's activities as marketer per RCW 48.155.080 to ensure
compliance wilh Washington Jaw, But there is no requirement that this statutorily imposed
responsibility be memorialized in the contract. Instead, RCW 48.155.080(2)(c) itself provides
that "[t]he discount plan organization is bound by and responsible for the activities of a marketer
that arc within the scope of the marketer's agency relationship with the organization." In other
words, as a matter of statute, W AGDCO is legally responsible. The imposition of an extra-legal
requirement does nothing to protect consumers as the compliance responsibility is imposed by
law.
44. The Denial Letter also says that the contract did not contain any pro:vision
requiring WBS to comply with RCW 48.155.090, or other provisions of the statutory chapter and
therefore is not acceptable. RCW 48.155.090 does not require that a contractor comply as, in the
Denial Letter's terms, "a discount plan administrator," a term found nowhere in the statute.
Instead it sets forth requirements for communications with regulators and consumers. There is
no statutory provision that requires that contracts with subcontractors require compliance with
certain provisions ofRCW 48.155.001 et seq.
f. YlbJJPC.Q.J;!gcmm±~trated :th!!! it has adi;\guate 11~scJ,li. in tl:ii:; fornLQf a_,~.5 rnjllill.11.r'2<¢tlY£ill!£Ll!l..L1:!l.lluc,tii.9JLtll1!1f!£iliLs!:!lt~mL\?'ll$ nm!JJJ!ier misce]lQJl~m.~QTC~si!'ijJ:lctio1!§ am nufQJ!!lded"
45. The Denial Letter states that WAGDCO did not meet this requirement under
RCW 48.155.030 even though it has a $55 million receivable from Walgreens on its 2014 and
2015 Audited Fimmcial Statement, because this receivable "has not been contractually securnd."
On their face, the Audited Financial Statements of WAGDCO demonstrate more than a $150,000
16
84213·0002/LEGAL 1337679•11.J
of net worth. The receivable is an asset ofWAGDCO as it is payable on demand and
recognized as an asset on the audited financial statements.
46. It is unclear why the ore is questioning whether a wholly-owned subsidiary of
Walgreens, a multi-billion dollar, Fortune 500 company, has the financial wherewithal to meet
its financial obligations to provide discounts on items sold in Walgrccns-contrnlled pharmacies
and in-store clinics. There is no statutory or regulatory requirement that the assets take any
particular form, for instance suggesting that the $55 million is inadequate.
46. The Denial Letter also takes issue with some of the expenses booked and how
these line up with the contracts submitted. T11e statute does not appear to authorize speculative
scrutiny of'WAGDCO's audited financials. WAC 284-155-020 provides standards that the
audited financial statements must meet, and WAGDCO's submitted financial statements plainly
meet those criteria.
47. The Denial Letter also says that a pending merger transaction between Walgreens
and Rite-Aid precludes the Application, as filed, from further consideration, stating that the
effect of a corporate merger transaction has the "potential to be far-reaching with substantive
changes to the filings that have been submitted for re.view. Therefore, the pending merger
transaction precludes the application, as filed,.from further consideration." 'I'hcrc is no legal
basis whatsoever for this determination. A merger or acquisition ofihis scope is subject to
federal antitmst scrutiny under the Hart-Scott-Rodino Act, 15 U.S.C. § 18(a), and legally may not
be consummated until clearance is given. Specifically, any such action would amount to "gun
jumping" and may subject the parties to federal sanctions. There is no state statutory or
regulatory dictate that precludes issuance of a license due to the pcndency of a merger or
acquisition that may or may not occur or may or may not affect the licensee's operation in
question. Nor is there any provision of the state law that tolls the 90-day issuance/denial
17
84213·0002/LEGAl.133767941.J
requirement based upon a possible merger or acquisition, The objection on that basis is legally
unfounded, untimely and without apparent benefit to consumers.
Completeness of the Application Part II Requirements
0._crvlv.lL\t(PJ'.QQQss design~tion: WAGDCO has always stqg.Q n::JL1[)i_ to address tll1Y.J&~.tC!L!2:L!!Jl!ll£;9.9..\:hlf.!9..iency l\nsLill?£cn t.i!ic1tlY. J1 c15tI121Ll'l:<1YJ~i on of a11~~11rni l ticl&l rcss fQLfrC.D'!\'&.ill.J.lQ.L!!.YiE!hJQ j Vs!Ulf?J:llim:t!5ll'.. d enJAL9.LYJQ i\12P.li&alim.1,
48, The Denial Letter faults W AGDCO's submission of the Service of Process
designation because W AGDCO did not provide an email address for service in tl1e space
provided on the form. To the extent iliat an email address is required, the OIC violated
RCW 48. !55.020(5) by not informing WAGDCO of this deficiency and allowing it tl1c
opportunity to timely address it by submission an email address for service.
lJi!ll!XllJ;iJ1[c;rrJ..Affii;J!li'i.!~jiJL9.Lt!ie directors of W A!}DCO ~\!9.lll[ltcd bittli\r!lJ?.bJ9al gf!J1i~tYit~1.liL>lP.nimL9ft!l!'l..£1P.!lli£tiJ.i on i!i m.tl'.l'aniuJl~>i [email protected].:?..m11c ..lltt!lQ. bi ogi:rn2hical nffidavi ts WQK.9~911 J?J:iJJr vqrn.[Qns ol'jlfQ_[:lAIQ_E2r111_
49. The Denial Letter states that none of the biographical affidavits submitted by
W AGDCO were acceptable because iliey were not on the current NAIC Form "Revised 8/18/l 4"
edition; they were "stale"; and "each bio had incomplete and/or illegible information." All oftl1e
biographical affidavits submitted by WAGDCO were on an approved version of the NA!C Form
11. WAC 284-1 .55-015 provides that "[a]pplicants must folly complete and file only forms
approved by the commissioner." To the extent that there was a requirement to use the most
recent version of the NAIC Form 11, the O!C violated RCW 48.155,020(5) by not timely
informing WAGDCO of this deficiency and allowing it the opportunity to timely address it by
submitting biographical affidavits 011 iliat version of the form. Moreover, there is no statute or
regulation regarding the date upon which the biographical affidavits must be signed. Similarly,
to the extent that any of the biographical affidavits were incomplete or illegible, the O!C violated
RCW 48. 155.020(5) by not timely informing WAGDCO of this deficiency and providing an
18
84213-0002/LEGAL IJJ767941..J
opportunity to address it. These issues were in the Commissioner's possession immediately
upon submission of the Application and no mention of these as an alleged deficiency was made
until the Denial Letter.
!rn;l911mjty_: ___ YfAClDC~Q_p.rgxkl2d tlie r!J_guir£.c!.Jiurp_ty bond, and if !!§)sed, could haV£JJJ}ivic\gd cvidcu~hat \!:!s:J2gmLJYas SW'l'C11t. J!li~_is not__~_yi abl_g_J)_gfii~ for_ denial ..
50. The Denial Letter states that, although W AGDCO submitted a bond written by
Liberty Mutual Insurance, issued on July J 7, 20 J 3, there was no submitted documentation
demonstrating that the bond is currently in force. RCW 48.155.040(1 ), the regulations at WAC
284-155-025(1) and (2), and the application form do not specify that an applicant must provide
an ongoing requirement to continuously demonstrate that the submitted bond is then currently in
force. The OIC added a requirement not fom1d in the rules and not requested in the application
itself'. Moreover, there is no information that the Commissioner relies upon to suggest that the
bond is not in force. It is in force, and had the OIC timely asked, it would have known that long
before issuing the Denial letter. To the extent that WAGDCO was required to provide such
documentation, the OIC violated RCW 48. 155.020(5) by not informing WAGDCO of this
deficiency, which could have been resolved quickly.
V. Fourth Ground for Appeal: None of theidentified Reasons !'or Denial Protect Consumers or Otherwise Serve the Purposes of the DPO Statute.
51. RCW 48.155.003 provides:
The purposes of this chapter are to promote the pub Lie interest by establishing standards for discount plan orgnnizations, to protect consumers from unfair or deceptive marketing, sales, or enro I Lrncnt practices, and to facilitate consumer understanding of'tlle role and function of discount plan organizations in providing discounts on charges for health care services.
52. W AGDCO and its parent and affiliates are committed to protecting consumers
through transparent marketing and sales of prescription drugs. W AGDCO has not been accused
of unfair or deceptive marketing or other impropriety in its relation to its customers. W AGDCO
19
842t3"0002JLEGAL133 767941 J
has demonstrably provided benefits to Washington consumers on the order of$51 million.
During the time that W AGDCO voluntarily ceased operation in Washington at the request of the
OIC, it had little idea that the licensure process would violate the statute and deprive Washington
consumers of those savings over now a J 7-month period, only to be denied on technical grounds
that find scant support in the statute and serve no purpose beneficial to the consumers that the
OIC and W AGDCO both serve. W AGDCO believes 1liat it is time to restore 1l1ose benefits to
Washington's consumers.
VI. CONCLUSION
53. The denial of WAGDCO's Application violates Washington law, otherwise
serves no purpose in protecting Washington consnmers and, as demonstrated above, is arbitrary
and capricious. W AGDCO respectf\.tlly requests a hearing on these issues by the Commissioner,
that W AGDCO be granted a DPO license, and the denial of the Application be reversed.
DATED: December 8, 2016
84213-0002/LEGAL133167941.3
PERKINS
By: C. David B. Robbins, WSBA No. 13628 DRobbi @perkinsco.ie.com Kristina J. Holm, WSBA No. 47477 [email protected]
1201 Third Avenue, Suite 4900 Seattle, WA 98101-3099 Telephone: 206.359.8000 Facsimile: 206.359.9000
Attorneys for WAGDCO, LLC
.20
Exhibit A
I I , I ' : I I
I
.,,. ;,. ' •• ·'' ·< • •'
RECEIVFJJ
SEP 12 2016 Pt:mrn~~ com 1..ui
David B. Robbins, Attorney Perkins Cole :1201 Third Avenue Suite 4900 Seattle WA 98101-3099
or FlCF fH:
rN::iUHitNCE 1 .. :0Ml\ill!::'';fONl'.'H
RE: WAcmco, LLC. /11501018 .. Healthcare Discount Plan application under Chapter 48,lSS RCW
Dear Mr. Robbins:
Th•mk you for your application, supplemental submissions, 1111d correspondence through 8/16/16, After reviewing all the Ollngs, we ore not able to qualify WAGDCO, LLC (WAGDCO) forthe Healthcare Discount Plan Organization license. The reasons WAGDCO Is not found qualified are as follows:
Part 1 Hequirements; 8. Website: RCW 48.155.020(6) requires that prlol' 10 llcenslll'o by the Commissioner, '"'ch dlsoount plan ot'ganlzatlon shall
establish an lntel'net web site In ordet' to conform to the requirements of l\CW 4B.!55,070(2)(a). The application Identified the webslte: Y.i:W~W.,.tvJt!flr.\~~lf~ .. ~;.i,u.nbJt~li.~~].l:;-g~.;_(;.!J,d) l~S the appllc;;r'lt's website. Howeveri Information 1;>btained by lhls Of-flee conflr111~ that dom::1ln Is reglstl'!red to W~lgreen.co, rather th!.lf\ WAGDCO. There was 110 contract i;iubmlsslon found' that 12St~bllsbed that WAGDCO n)anages and controls the content of th~ website to ensure comp Ila nee VI" Ith th~ chapter. Therefore, WAGDCO has not derno11strated th~t It ha.~ S(ttlsfied thl.~ requ11·en1ont, Given these find1ne:s1 the website wa.'> nc!t reviewed for con1plh~nce wlt)1 the Chapter for purposes of thhl applfcatlon.
P<irt I! Requlre111entf;~ I. A statement generally desc;rlblng thr~ applicant: th!s subn11sslon (as well as other subtr1lsslans) states that 11WAGOCO, Ll.C. ls
a who\ly .. owned subsfdlary of Walgreon Co, th<=lt admlnlstGl'S the Prescription Saving.:. Club" {PSC). The disclosure describes the~ '1Presctlptlon Savings Club1
' as the discount plan that Is belng offr~rer:I only In Walgreen Co, retail pharmaclHs, Worth noting ls that the applicant ls ~H;tuully a dlrect wholly~owned S\Jbsldlary of Walgreen Ph~rmacy Sr.rvices Midwest, LLC1 and was a very Indirect subs!dlary of WalgrEH:ns Co, based on goV~!rnance documents and the organizatlonal chart On 12/3'1/:L41 Boots Alllance, lnc. bect1n1e the ultln1at~~ parent. But1 more lmpo~·tantly, the staternent that WAGDCO \s thEi odmlnlstrator1 precludes It fr-01ri being licensed beca\Jse there Is no ptovlslon under the Chapter for llc;enslng entHles that are on~y ild111lnlstr~tors. This appllc:atlol'! ltern required lnfonnatlo11 speclftc to WAGDCO, Its focllltles1 personnel, and oel'vlces to be offered. There was no Information Offered about the applicant, but rnther Walgreen co. and .the PSC that Is offered through their retail ph1.1rmades, Mr, Robbins' letter of S/?.5/16 st<ites "'Nalgreens Buslni:iss services Is the entity that employs tho lndlvldwils who work at the Walgreen Co. headquarters and Who provide the day to '''Y support a11d opcrntions l'ol' WAGllCO". On 5/10/J.G, Mr. Robbln.s conflrm(1d verbally by phone that WAGDCD has no employees a11d conducts all of lts business through contracts. However1 ex.i;ept far the submlsslon (the Wnlgreens 8us1ness sei·vlces, LLC contrtict) dlscu,)sed under "0 11 below, no cor~~~act was found In the aµpl!cat!on submissions th~t contractuully c!ur!fled how the day-to-dvy ad1nlnlstn1t.lve and (Jper1:1tlonfil functions of WAGDCO's business Is managed. The Walgrl':.'mis B~1slness serv1ces1 LLC contrcict Is 011ly for se1·vlce.c; related to ridmrnlstratlon of PSC {which contract ls l11conslstent with the above staten1ent mad~). Therefore1 the requlrernents of RCW 48.155.020(b){xl) h;;ive not been 1i1et, and WAGOCO us an ad111l11lstroto1 only, does not qualify for licensing,
J, Herllth care provider and provldGr network contr~cts; The following contr11cts were submitted for revlew-l) Part1clpatlng r1wrinacy Agr~~ement~ This agreerne11t Is a provider network ngreernent between Walgreen Co. (nnd Its partklpatlng pharrnucles owried by Wnlgr0en Co. lncludl!\g Duane Rer:ide pharrni:icles) and WAGDCO, LLC, which was
lhige 1of4
i·l .Ii,· · < .. ,,
executed 0117/l/!2, !Ind subsequently ornended on 9/19/13and1/9/14. on 1·evlew of the contract, It was not acceptable because it failed to cornply with all required pl'Ovlslons of RCW 48.155.070 and the Chaptat', end had other contr:ictual Issues as follows:
Altl1oug\1 Duane Reado pham'lacles are lnclt1ded as pharrnacles owned by W!ilgreon co. per Article 1.2, this entity was not otherwise d\sclosoct In uny other submissions, and It Is undear If the entity ts actually a subsidiary and should have been a signing party In this contract, therefore It Is unclear If the contract Is properly executed. Related td the above, It Is also unclear If the contract must rnoet the requirements under .070(:t)(d). If Dl1ane Heade Is a sub~!dlm·y, then Walgu1mn Co. would ht:i reiqulre:d to have a co1~tH1ct Uu1t C(Hnpl!ms with those st<ituto1·y r'1qulreme1,t:"., Tho ,contrnct did not .,.tisiy tile roqulrorn"rrts un'oer .07Cl,(1)(b)(I) & (Ill), and (.1))(111 & (Iii). Althou~h a list of discounted dru/t,s was provided, the ~1sual t1nd customary prices WP.l'a not ptbvlded to de1ncns.trnite tha di9r;:ount nr11ou11t. Addltlon~llY1 the contract Included medlcnl devices, related supplles1 and h'r'ln1unlz.atlons1 but those types of Items could not be located In the list of products. Although tho contre,ct recltt!ls stute that WMDCO oFrGrs the PSC, Wolgrnlm (:0. retained tho rlaht to \Jnllllterolly chcnse tho list of available prodlli;tn •nd control the amount ofthe dlseounts u11tlor Arl;lcle 1,4. tvlt'. Mann and Mr. Fellsh ore executives In both companies and slgned the contract rind titl'nendm~nts HiHifHtlctlveily, Glven tl'les1~ "fawtorsr Jt.l!lppoar::. that there ls no arms·length negotiation of the amoun,t of the discounts for drugs >llld othe1· products, Be"'1use the provider network owned by Walgreen Co, Is able to unilaterally control the discount amount, WAGDCO does not hove contractual capacity to offer a stated d.lscount amount to merribers or prospectlva me1ribers, 01· the ablllty to enforce the provisions of R<;w 4.!l.:i.SS.o70 fo1· the prtll:ectlon of lls 111ernbers. Al'tlcle 2.51 which stiil'tes- 11 PSC Is not .an lns.\H'fH1ce product-but ml1rmJy a program iaffo~rlng d\:;counts on a t-Ush basis", Is lnconslltent with Article 3,1, Which states "Pharmocles shall bill Members for Pharmacy !terns and servlce1: at the discounted prlcina .. ;'
2) Pr<:;vldel' .Agn:i.r..rnent: This agrmEm1et)t 1$ !.I provldar nmtwork m_greement betwet1n ·rake. Care \1ealth Syste1ns1 LLC (anl1 oac:h of Its 1~·ovltl•rs) wlm Is an nfflllot~ •n<fWAGDCO, LLC, w1·1\ch was executed 7 /U12, onri subsequently arnended on 9/!!J/l,S and J./9/14. On review of th<1 co11trnct, It w>1s t\OUe<:eptahlll becau"' It failed to comply with all requl1·ed provisions of t1CW 48.155.070 and the Chapter1 und h-ad Other r.ontractual Issues as fDllows:
None of the requirements of RCW 48.155.070 were contained In the controd. Althouuh the l/9/14 arnendment contained a Hst of servlces1 it did n~>t provide the usual and customary prices to dertionstrate the discount EHYlOUnt,
The contract anlend111ents are Inconsistent with the contn1ct because they are betw<:i.en Walgreen Co, (not WAGOCO) 3nd Take Care H1~alth Systetns, L~C.
I.. A f~111 dei!:icrlptloi~ i'>f the mc'HnhL~I" cornphl'lnt p·ro.cech1re1 WAGtJCO-ls ni.,qi1lr00 to establish r.i·ntl rr1nlntaln cxHnplalnt procedures p•r RCW 4B.Bli.02D(b)(xiv), Th.e proc11dur'• s1lbm\1utwi ¢OllkJ not be accepted be<:auoe <11 th<J followh1~1
'rhe head.er Gf the tl'ocu1'h~1nl; ·s1'.l-lte.t 11P:SCC~rnton-rer Service Proc(1.ctures111 but the ft~.q-ter of the clocumrtnt
s:.t-at:es "W.alg:reens Pr~>p.l'leitary", There ~sni:i melltlon oPWA~rt)CO anywhere lr.1 ·th(]· pnn;e.dures. Havlng no err1ploy1~e!i-, WAGL)CO woul:d bi:ftiixpr~ctwd l'tl t11tll'Hlf.{lil \'his function tfwo1.!gh a contract However, there was no i::ontni.i:t fou.n<l am(inm. thQ si..rbrnlss-lons. Jt \'lou!d JH;it be ecooptablo for Wtt!g!"'ean Co., whlh:1 openrtlng ln l:hti capacity or thOi pharmacy provld~r netWOl'.k, tu control WAGtlCO's camplo.lnt procodurci. It would boa conflict of!nt.,1·0,,t f:o1· Wal{!l'o•ms cu., M~ not provide th• expected onristm1er protections tl'ltl\ WMiDCO Is expected to pr"vtcio \n the best Interest of It& 1nernbers iH1d prospective rnmn1be1·s, Walgi:,101'1 Co/:; &llbrnlsslo"n cannot bo substituted, Tliernfore, WAGDCO has not satlsfl'1d this requirement.
N. Marko ting Contrncts: RCW 4$,1S5.020(2)(b)IKI) l'ot1Ulrms, In part, that.the applicant provide a copy of the form of any rna1·1w.tlng contrar.r rnndo ono be m•ci'1. flCW 48JS5.fJ80 make' the dlS<;ount plan orrnanlz'<tlon lllrectly rnspM,lble for Its nHH'l<et~r~;, and SHctlon· ,OS0{2)(a) re.quires tile dlJICOt111t plan organlr.atlon to have an ~1xecut0dwr\tten agreement with o rnarl(ttt()r prior to thH 1narkt~h~r's rnnrk~tt1~r~1 1>roni0Unn1 selllng, or cilstrlbut.ln8 the discount plan organlzat!on1s discount plarrn, Although a sob1nls!;lon dlsr.uss~~s Wi;ilgn1en C<,,'s rn1~1'ketlng actlvlt.le.s through Its w~bslto1 mat'ketlng materlals1 and stores, no n'l'.arketlng contract bl!ltween W·<il~,rern1 Co, arv;I WAGDCO was found In the subtnlss\ons. The submls:>lon notes thGl'e is an ar.Jmltll.str~ t\VG! i:rnrvlc·t>~S ~wreeni.rant betw~H:'.!t'\ W?ilgn~r~ns Busl11ess Services, Ll.C (WBS)1 an tifflllate, ancl WAGDCO thM Includes some marketing support services. There was no lnformit1lon Pt'OVltled that would <larlfy lfWDS Is actually performl1\g any n~or1<et111g servlc~is. That contract ls dl,.,cussell under 110" below. Therefore, this requlret~ent has n()t been met1
o. Identification of all subcontracting parties Involved In the administration or enrollment of any plan. The requirement under RCW 43.155.020(2)(b)lxl) has 11ot been met clue to the following:
P1\ge 2 of 4
1) Walgreen Co, and Catalyst Rx, a Nevada corp (Amended and Restated Ancillary Services Agreement. Becacise WAGDCO ls not a ~arty to this agreement, It wus not reviewed. HowevGr, It Is noted tlJat Catalyst Rx, Is now opernting under the name of Cata marnn, and ts a Pharmacy Benefit Ma11ager. 2) WAGDCO, LLC end Walgreens Business Services Ll.C (WHS). This Is an administrative services agreement that was executed on ri/1S/1.0l.2. Under Al'tlcle 3, WBS ls contracted to provide reglstratlon/llconse services for discount plan llconses and renew<ll!l; prcvlder network ctevelopn1ent; asslstnnce with developing and rnanaglng the formulm"Y for dn.~gs and medical devices, and nogotlatlng price d\scoonts with participating providers; contracting with ph•miaceutlcal cornpanles 'for rebf'.ltesi marketing; mernbar enrollmc~nt and collectlon and deposit of meh1bershlp fees; transuctlon processing; nnd custoinor service. on review, there were no provl$lons found In the contract that satisfied WAGDCO's responsibility for WllS's activities as a rn•rketer p<>r RCW 48:155,080 to ensure cornpllance with WA laws. Additionally, th era was no provision found tlrnt requlrod WBS to comply as a discount plan administrator with l\CW 48. lSS.090 and Chapter r'equ!rernents In n~spect to discount plan adrnln!stratlon. Thercfore1 the contract Is not ucceptBble,
Q, Applicant's most rncent audited f111nnc:lil statement: Tho 2015 audited lln•nclal statements were received on o/23/16, which wus the final submission on this application requirement. RCW 48,1.55,030 requires that WAGDCO demonstrate that It has and maintains at toast $150,000.00 In net worth. WAGDCO has falllld to demonstrate that It meets this requirement for the follow!ng rensons! t-.21.u.~J~: The only asset of the con1puny ln 2014 and 2015 Is a "Recelvi;ible from re!nted pal'ty11
, Mr, Robbins' 3/25/16 letter explains that Walsre.en Co. records th~ collected membership fees on Its awn books and 1•ecords lt as a ri~celvable en WAGllCO's books. Further, Walgree11 co, records a corresponding related-party payable on Its books. It waa 11oted as of 8/31/!S, that the parent Is 11ow Walgreens Boots All lance, Inc., and based on Note Z, under tho heading of "Cash", It Indicates that this. arrangair1ent continued through 2015 with ~he c~1sh generated fro111 dayHto-day operations now being transferred Into bank accounts that are owned and 1nonaged by the new parent. We expressed a concern abolJt wh;;qt recourse WAGPCO had to acccm these funds should tho parent run Into financial dlfflculty, In Mr. Robbins' lettar of 3/2.\/16, he stated "We do not 11avo In place a formal lntercompa1w arireement that specifies tho handling of fond transfors between Walgreen Co. and WAGDCO", Additionally, In his S/2S/16 lottor, Mr. Hobbins stated "Given that WAGDCO Is wholly-owned by Walgreen Co., WAGDCO does not require or hold a promissory note for Walsreen's liability for th'1 rnen1bershlp fees11
, Given that WAGDCO does not own, manage, or have at::cess to lts cash1 and the 1'RecelVabk.1 from relate<:! party1
' 1 b(~1ng 01~ only ass~t, Jtas nt't been co11ti·a<:ttHilfy sei:anad, the clemonstl'fftlf)n of the rn1nln1u.m nHt worth reqttlrii!n1ent has ntn 1:HHHl rrnit.. Thm po rent's a/:~:t/14 lOk 'filing With thr~ sec was pr1JYlde.ci to dcn1omltrllte It<; own r\et worthi but r;m1not bt1. 11ubst!'tuted to s:!ltlsfv the irppll<wnt1s n~q_tdrerri.ant .S .• \.~~m~m.Lr1lim.n1J.o.r.:t1: Selling, genornl and administrative expenses were booked In tho mmunts of $2, 787,317 .oo alld $1,-061,000.00 In 2014 and 7.0:1.5 respectively, However, the only foes that'"" supported are those ldontlflod In the WBS contra'ct, Article 2.9, wl1lch In part states 111n c:onsideratlon tor (:ervictis rr~1·f-onnmd hera1Jnclar, wigs shJtll bo cornpensat(ld by DCO on an 1'.lnnual basis an amount equal to Fffty Thousand Dollars {$501000)," WAGD('Jj, l.LC ls lda!Ytlfh~d au 11 DCO" In 1;!"1~t f!nit dnuse of the contn1ct. T11erefore., the staten1ent a1n~iunts (lo not reconcile ta the contr'act\WI rem~ agre1;1.d to betw.eHn the p1:~rt1!'!ls,
1:111JJ.tfil,.~w.!<5.J~111.1J:11lJ~~11r.1il; This note discusses that on to/27 /1.5, WAGDCO entered Into an Agreement and Plan of Merg<IY with Rite Aid corpol'atlon nnd Victoria Morger Sub, Inc. a wholly-owned subsidiary of the Parent. A\ the time that the 2015 aodlt was prepared, the effects of tlw merger on WAGDCO were still being evaluated. Although this appllcotlon has been pending with this Office since 8/:L7 /1S 1 and the audit report was <.:0111pleted on 3/29/1.5, dlsclos~1re of this material and signlflr.ant corporato transaction was not dlsclo!leci to this Of flee. l'hls was discovered by t111s Office on n;v!ew of th~i 6/23/1G submission of the 20J.S audited financial statements. T11e effect of a corporate merger tran1acllon 1111> the potentl<il to be fa1·-reachlng with substantive chonges to the f!llngs that have beEin suhmltted for review, Therefore,·the pending mergf~r transaction precludes the application, as fllod, from furiher consideration.
The appllc11·t1un had other dctficlencles, Whll,;i, It Is reasona.ble to e.xp!Sl.ct that WAGDCO could have cu rod then1 had l:he above lssttes not prevonted the appllcatl1m from proceeding, the application ls ln<:omplete os follows:
Part ll roqu!rernents: . D, Thfl service of Procesri forn1: the form falled ta contain the requisite en1all acldrl.'}ss for service. F, Bf(g;:; None of the blographlccil affldavlts were acceptable. None were on the curn'!llt NA\C form 11 Ri~vlsod 8/18/1'1- 11 edition;
each blCJ was e!the1· pnst one yen!' old fro1n dote r.>f signature at thno of submission or shortly aftor submlsslon, which ri;=tndered them too stale to ;1ccept; and ~wch b~o h11d Incomplete and/or Illegible lnforrriatlon.
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R, Indemnity: A bond written by Liberty Mutu,l lnsumnco ond l"ued on 7/17/13 was scibmltted, However, there was no cioct1mentatlon to demonstrate that the bond b currently In force,
.DElfil.Q,l'.ll The application for WAGDCO, I.LC Is heroby denied because It Is not operating In conformity with Chapter 48.lSS RCW a< to Its tllsr.ount plan and Its discount plan organl,;itlon, and the appllcatlo11 Is lne<J1n)1lete, Tl1erofo1-., WAGllCO, I.LC (lndudlng Its aftll1aC·es1 rnarkotars1 represent11tlvas, and ugonts1 etc,) ls proh!b1ted f!'om conducting any heal.th crin~ d!scot.rnt ple:in ac.:t.ivltlt~s and operations to which this Chapter applies.
finally, WMillCO rllsdo<ed that It had ~ngaged In tlie unauthorlrnd sale of discount plans prior to and since tha application was flied, wlilr:h ac1lvltl•s will be addre5'ed by separata rnsulatory action,
Susan Baker company licensing Specialist Company Supel'vlslon Division Wa&hlngton Office of the lnsuran1;e Corninlssloner PO BO< 40255 Olympia WA 98504··0?.55 Dlrnct: 060·725·7232 l~ax: .?00~586~2022
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