The giants of the health care industry are getting bigger and wielding more control than ever over their member’s health care choices. This is particularly true when it comes to accessing customers who use prescription drugs. Americans currently spend roughly $1 billion per day on prescriptions drugs—a number that is expected to drastically increase over the next decade. In recent months, mega-deals between CVS-Aetna and Humana-Kindred Healthcare were announced. There is also the continuous speculation that Amazon will enter the prescription drug arena by possibly acquiring Express Scripts. The consolidation strategy being implemented by industry leaders like CVS follows that of the uber-successful UnitedHealth Group, which owns a wide array of health care businesses, including its own pharmacy benefit manager and mail-order pharmacy—both of which CVS also owns. Mega-deals and integration, however, are not the only means being used to consolidate and obtain a dominant market share.
This point was underscored this week as pharmacy benefit manager (PBM) behemoth Express Scripts scored another major victory when a federal court held that it had a right to immediately terminate an independent pharmacy for mailing prescriptions to its out-of-state patients in violation of its contractual agreement. Express Scripts had conducted an audit and found the pharmacy was operating as a mail-order pharmacy and mailed drugs to members in states where it did not maintain active licenses. Prior to providing the initial audit results to the pharmacy, Express Scripts without warning or presenting the opportunity to make a correction terminated the pharmacy.
The means employed by PBMs to trim independent pharmacies from networks is becoming more hyper-technical and appear to be carefully crafted to ensure they fall within the bounds of contractual agreements with the pharmacies—but also in line with the PBM’s business interest in augmenting its own participation in its network. Recently three independent pharmacies filed a lawsuit against UnitedHealth, its PBM Catamaran/OptumRx, and its specialty pharmacy companies Salveo and BrioviaRx (collectively UHC). The lawsuit alleges UHC is using economic extortion and anti-competitive conduct to eliminate them from the pharmacy business and steer customers to UHC’s pharmacy. The alleged tactics, familiar to any independent pharmacy competing in the “big” networks, include:
1) Prohibiting the pharmacy from filling prescriptions by mail, contrary to state law and the practices of the PBMs themselves.
2) Conducting audits that result in “findings” uncovering minor discrepancies or discrepancies based on use of over- or under-inclusive data and seeking complete recoupment.
3) Requiring promises/attestations from the pharmacy not to engage in certain practices, which may be used as “second-strike” evidence of a contractual breach to support termination.
4) Finding a “material” breach of the agreement for failure to update the pharmacy’s credentialing profile with information such as other owner-affiliated, non-contracting pharmacies without regard to any wrongdoing that affects the health and welfare of customers.
5) In cases of proposed terminations, improper notice and contact with pharmacy customers, which diverts those customers to in-house pharmacies.
These tactics are often accompanied by the PBMs’ complete disregard for contractual or statutory network participation and/or due process rights. It is critical to routinely review your network agreements and manuals to ensure compliance and to keep abreast of your statutory rights and protections. Likewise, when your pharmacy is targeted, having legal counsel to advocate on your behalf and to protect your relationship with customers can be the difference between continued operation or a shuttered business.