Court rules Arrowhead Pharmacy owes substantial debt to Sawtooth Mountain Clinic

On Sept. 20, a judgement was ordered in the Cook County Courthouse that Arrowhead Pharmacy Services owed the Sawtooth Mountain Clinic in Grand Marais more than $429,000.

The ruling had to do with insufficient compensation to Sawtooth Mountain Clinic regarding drugs dispensed at Arrowhead Pharmacy.

The situation dates back to early 2012, when Sawtooth Mountain Clinic and Arrowhead Pharmacy entered into an agreement to use the federal 340B Drug Program.

According to Cody Wiberg, the executive director of the Minnesota Board of Pharmacy, the 340B Drug Discount Program is a U.S. Federal Government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices. The intent of the program is to allow covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive service, Wiberg told WTIP.  

However, in the case of the 340B arrangement between Arrowhead Pharmacy and Sawtooth Mountain Clinic, something went awry. According to former minority owner, and now former manager of Arrowhead Pharmacy, Chris Goettl, the complexities of the 340B Drug Program are the primary source of the financial troubles that arose between the clinic and pharmacy. The specifics of those financial hardships are difficult to sort out, Goettl explained, using the phrase “it’s a complex equation.”

And as far as who is to blame for the financial mishap, Goettl said that answer is equally, if not more complex.

Mike Schwartzwald is the former co-owner of Arrowhead Pharmacy. He points the blame for the financial mishap between Arrowhead and Sawtooth Mountain Clinic toward both the 340B program itself and a company known as RxStrategies. Sawtooth Mountain Clinic contracted with RxStrategies to manage the 340B program and its relationship with Arrowhead Pharmacy.

Schwartzwald told WTIP that his legal counsel described the agreement between Sawtooth Mountain Clinic and RxStrategies “as the most one-sided contract he’d ever seen.”
 
“RxStrategies, in my opinion, did everything they could to set up the program for themselves to make as much money as possible,” Schwartzwald said.  

Based in Boca Raton, Florida, RxStrategies describes its business platform as providing “accountability, transparency and value-based solutions for the Federal 340B Drug Pricing Programs.” An extensive search of court and news records by WTIP for other claims against RxStrategies similar to those made by Schwartzwald yielded no results. In fact, the company’s 340B program is “specifically designed to ensure inventory management, inventory replenishment, billing and program management.”

Regardless of who or what program is at fault, what’s certain is that Goettl and his wife Terri are no longer minority owners of Arrowhead Pharmacy. Furthermore, Goettl, who grew up in Lutsen and graduated from Cook County High School in 1983, is out of a job.

Until the business sold this fall, the Goettls owned 49 percent of Arrowhead Pharmacy Services. The majority owners were Mike and Laura Schwartzwald of Brainerd, who own numerous pharmaceutical businesses in Minnesota.

And while Chris Goettl is out of a job and ownership in a local business, Sawtooth Mountain Clinic is due $429,821 that it potentially might never see. The judgement by Judge Michael Cuzzo from Sept. 20 indeed ruled that the money should be paid from Arrowhead Pharmacy Services to Sawtooth Mountain Clinic, which would include reimbursement for the sale of drugs, legal fees and interest.

Rita Plourde, the chief executive officer of Sawtooth Mountain Clinic, said in a statement prepared for WTIP that “Arrowhead Pharmacy has not made any payment on the judgment against it.  Instead, its majority owners have sold the pharmacy and left the community, leaving the clinic with many questions, including whether they intend to make payment to the clinic and the circumstances under which the pharmacy was sold to a former employee of the Schwartzwalds without making arrangements to pay the clinic.”

Arrowhead Pharmacy Services, as the business was formerly known, essentially no longer exists.  Though for now the plan is for the business to operate at the same location, eventually it will be renamed North Shore Pharmacy under the direction of the new owner and manager. The new owner’s name is Corey Malstrom, who is also a former employee of the Schwartzwalds. The Schwartzwalds sold the business to Malstrom essentially wiping their hands of the business and any debt it carried with it.

“That debt is out there, and I feel awful that it’s there,” Mike Schwartzwald said. “If I won the lottery that’d be the first thing I’d pay off.”

Plourde said Sawtooth Mountain Clinic, at the end of the day, is owed money it has not yet received from the now defunct Arrowhead Pharmacy Services.

“The pharmacy did not turn over substantial proceeds that it should have turned over to the clinic,” she said. “The clinic attempted for years to work with the pharmacy on payment of what is owing the clinic, only resorting to litigation as a last step.”

Plourde noted that Sawtooth Mountain Clinic no longer has a 340B program with Arrowhead Pharmacy, or what is soon to be known as North Shore Pharmacy. However, Sawooth Mountain Clinic does continue to operate the 340B program with Grand Marais Pharmacy, another local business.  As of Nov. 11, the program appears to be operating well and payments are being made from Grand Marais Pharmacy to Sawtooth Mountain Clinic with regard to the 340B program. Plourde said the clinic “does still contract with RxStrategies to serve as the Pharmacy Benefit Manager and does manage Sawtooth Mountain Clinic’s existing 340B program.”

And while there remains speculation, or perhaps uncertainty around what happened to make the debt reach six figures between the pharmacy and clinic, Goettl said the writing was on the wall for years. Goettl told WTIP that he advised the Schwartzwalds that the 340B program was not functioning properly at Arrowhead Pharmacy and that something needed to change. Goettl said his pleas were ignored and that he and Terri feel like “pawns” with regard to the financial hardship and legal process between the pharmacy and clinic, which had been ongoing for at least 18 months prior to the sale of Arrowhead.

For his own part, Schwartzwald said he too claimed on numerous occasions that the 340B program was not working properly between Arrowhead and Sawtooth Mountain Clinic. Schwartzwald said Arrowhead came within days, or even hours of closing for good on several occasions. At one point, he added, Arrowhead Pharmacy’s attorney offered the pharmacy as a business to the clinic at no cost, an offer which was refused, according to Schwartzwald.

Regardless, as ruled in a court of law, Sawtooth Mountain Clinic is owed more than $429,000 by Arrowhead Pharmacy.

“Sawtooth Mountain Clinic had hoped that once the court rendered its decision that Arrowhead Pharmacy would make good on its debt to the clinic,” Plourde said, “and is disappointed that the pharmacy has not chosen to honor its financial responsibilities to the clinic as determined by the court.”

Furthermore, an audit by the firm CliftonLarsonAllen Wealth Advisors supported the clinic’s findings, according to Plourde.

“That audit validated the clinic’s claim to the exact penny,” she said.  

Ultimately there appears to be no clear answer as to why the funds were not paid to the clinic on time and why, or exactly how this debt came to be other than lack of payment. Schwartzwald scoffed at the notion that the money was being funneled into other businesses he and his wife own, or that any inappropriate use of the funds occurred.

“If you follow (the clinic’s) logic, if we were making so much money out of Grand Marais that we could funnel it to our other stores, why wouldn’t we pay our bills to keep that gravy train going?” Schwartzwald said. “It makes absolutely no sense to say that or even think that as a possibility.”

Laura Schwartzwald, Mike’s wife and former co-majority owner of Arrowhead Pharmacy, was appointed to the Minnesota Board of Pharmacy in 2010 by Governor Tim Pawlenty and reappointed in 2014 by Governor Mark Dayton.

Wiberg, who is the executive director of the Minnesota Board of Pharmacy, told WTIP any board member of the Minnesota Board of Pharmacy who becomes involved in “illegal or unethical behavior” could potentially be removed from their position on the board by the governor. 

“We treat matters that involve any illegal or negligent behavior very seriously,” Wiberg said. “Members of the board are here first and foremost to serve the public.”

After the sale of Arrowhead Pharmacy, Mike and Laura Schwartzwald still have business ties in Cook County. The building that houses Arrowhead Pharmacy is owned by a company registered as the Grand Marais Holding Company, which is owned by Laura Schwartzwald. And while the Schwartzwalds’ role along the North Shore has greatly diminished, Mike acknowledged that the issue has strained the business relationship with many once-trusted parties, including the Goettls.

“In the end bad things happen to good people, like what happened to us and what happened to Chris and Terri.” Schwartzwald said. “We did everything we could do to avoid it.”

Meanwhile, the non-profit Sawtooth Mountain Clinic and its board are left to wonder about the $429,821 they are owed. And Chris Goettl hopes to find a new job in Cook County so that his family can remain in the community.

“We put our hearts and souls into the business,” Chris said of the work he and his wife did at Arrowhead Pharmacy over the past four years. “It’s really sad this all had to happen like this.”

WTIP's Rhonda Silence contributed to this story.