For years, PBMs have targeted independent pharmacies for dispensing products that have high reimbursement rates, which is often the only means by which a pharmacy can offset the losses associated with dispensing numerous drugs below cost and maintain a level of profitability to operate the business—a primary reason so many mom-and-pop pharmacies are disappearing across the United States. Pharmacies dispensing these high reimbursement drugs have been cited for breaching unwritten dispensing limitations, often leading to pharmacy audits, receipt of cease and desist letters, or terminations for filling prescriptions that are on formulary or otherwise properly prescribed and even approved in advance. In recent months, Barclay Damon has identified a concerning uptick in PBM activity relating to “outlier” dispensing practices of which pharmacies should be aware.
In 2019 and 2020, Barclay Damon alerted independent pharmacies of the implementation of CVS Caremark’s contractual amendment to implement its “Aberrant Product List” that strictly prohibits independent pharmacies from dispensing more than 25 percent of the products identified on the list by claims or dollars, as determined by Caremark. Since the list’s implementation on January 1, 2020, numerous independent pharmacies across the United States have received breach and termination notices for violations of these provisions. Attempts by pharmacies to cure the breaches (per contractual cure provisions) or to avoid violations through claims reversals have largely been ignored by Caremark as it continues to strictly enforce the provision—leaving open the question whether the rule is being applied equally and fairly to the pharmacies within Caremark’s own network.
In recent weeks, a significant number of pharmacies also received notices from Express Scripts that seems to be following suit, citing pharmacies in its networks for failing to use “best efforts to achieve formulary compliance” and claiming that the violating pharmacies were “substantially below the average formulary compliance rate” across the network. Critically, Express Scripts does not publish any information or provide any tool for pharmacies to track compliance. “Best efforts” is also undefined, creating chaos and risk for a pharmacy trying to comply with unwritten thresholds applied to certain classes and manufacturers of targeted drugs. We have noted trends in other PBM audits that appear to be using unwritten thresholds for certain products or classes of products in their audits.
By trimming “outlier” pharmacies that are dispensing profitable medications from certain manufacturers or those manufacturers that offer patient assistance, PBMs maintain the ability of their affiliated pharmacies to capitalize on the dispensing of profitable items while curtailing and limiting access to those same drugs by their independent competitors. Many associations and pharmacy advocates question the propriety and legality of what appears to be a blatantly anticompetitive and retaliatory practice that denies independent pharmacies the same access to patients as the PBM-related pharmacies. Regulators have been slow to respond and step in to provide independent pharmacies protection from the powerful and integrated PBMs. It is extremely important that independent pharmacies continue to support and advocate for expanded oversight and private rights of action for violations with monetary penalties.
Barclay Damon’s Health Care Controversies Team assists independent pharmacies across the United States with developing policies and procedures to reduce audit risk and avoid terminations. The team’s attorneys have also developed strategies to challenge breach notices, audit findings, and terminations for alleged violations. We encourage independent pharmacies to retain and consult with knowledgeable legal counsel who can provide guidance and best practices on how to respond to audits and terminations.
If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Team leader, at lclark@barclaydamon.com; Brad Gallagher, partner, at bgallagher@barclaydamon.com; Mary Connolly, associate, at mconnolly@barclaydamon.com; Jen Cruz, associate, at jcruz@barclaydamon.com, or another member of the firm’s Health Care Controversies Team.