An Iowa pharmacy has sued CVS Caremark for violating antitrust regulations and unlawfully collecting fees from pharmacies filling Medicare prescriptions.
Medicare Part D is not provided within the traditional Medicare program and offers outpatient drug coverage to beneficiaries. It is administered through private health plans called Part D sponsors, which enter into contracts with the federal government. Part D sponsors are run by big health insurance firms that contract with PBMs to administer their Part D prescription drug benefits.
When an individual covered by Medicare Part D approaches a pharmacy for drugs, the pharmacy fills and dispenses the prescriptions, receiving reimbursements later on.
PBMs act as intermediaries between Part D sponsors, pharmacies, and drug manufacturers. Part D sponsors own or hire PBMs to negotiate drug pricing with manufacturers, and to determine the amount pharmacies will be reimbursed for dispensing the drugs.
Part D sponsors and their PBMs can adjust the amount of money they reimburse pharmacies depending on the quality of performance of such pharmacies. These adjustments can be made weeks or even months after the drug sales.
The lawsuit claims that Caremark delays the adjustments without a legitimate reason and that the fees it collects from pharmacies violate federal antitrust laws and state contract statutes.
The lawsuit accuses CVS Caremark of forcing independent pharmacies into signing one-sided contracts so as to stay in its network and dispense drugs, thus placing the pharmacies at a competitive disadvantage. It is seeking class-action status.
Much of the performance criteria metrics used by CVS Caremark “make no sense for pharmacies,” the lawsuit states.
“Not only are many of the metrics nonsensical, but so are the ways in which CVS Caremark applies them. Application of performance metrics is at CVS Caremark’s complete discretion—a discretion CVS Caremark exercises in bad faith,” it claims.
Pharmacies cannot opt out of CVS Caremark’s network as it would “severely limit a pharmacy’s access to a critical mass of patients.” As such, independent pharmacies “have no practical choice but to participate in the CVS Caremark network.”
“PBMs control every facet of the pharmaceutical filling and dispensing industry. They decide which pharmacies can dispense drugs in Part D Plan networks, which drugs those pharmacies will dispense, and the prices, discounts, and other terms of sale applicable to reimbursement of pharmacies,” the lawsuit states.
“Unfortunately, CVS Caremark, like other PBMs, abuses its control of the industry.”
The Arbitration Issue
The lawsuit alleges that CVS Caremark shields its “unlawful conduct” from being challenged by making independent pharmacies agree to a “forced arbitration clause with several unconscionable terms.”Such terms include giving CVS Caremark the power to unilaterally change the terms of the clause and to impose “prohibitive costs” on independent pharmacies that initiate such arbitration.
For instance, the company requires that pharmacies place an amount not less than $50,000 into escrow to ensure payment to CVS Caremark for attorneys’ fees and other arbitration expenses.
“That amount can easily exceed the profits for an Independent Pharmacy for a year,” the lawsuit stated.
In a Sept. 27 news release, the National Community Pharmacists Association (NCAP) applauded the lawsuit. “It’s payback time,” said NCPA CEO B. Douglas Hoey. “PBMs have been gaming the system for a long time, and it’s time to turn the tables.”
PBMs and High Drug Prices
The lawsuit comes as lawmakers in Congress have put PBMs under scrutiny amid high drug prices. A May 23 hearing of the House Committee on Oversight and Accountability put the spotlight on the practices of PBMs.Chairman James Comer (R-Ky.) and his colleagues contended that PBMs must be held accountable and should operate with more transparency as they fulfill their role as middlemen between pharmacies and manufacturers. The public must be made aware of the business and pricing arrangements, they argue.
“Today, health care premiums have increased faster than inflation,” said Mr. Comer in his opening statement. “List prices for prescription drugs have gone through the roof, even though net prices have declined.”
“And despite this increase in health care costs, life expectancy has remained stagnant. That means someone is benefiting, and it isn’t patients. Look no further than PBMs or pharmacy benefit managers.”
Several bills are being moved through Congress to deal with the issue of PBMs and their role in high drug prices. One bill proposes a flat fee for PBMs rather than their pay being determined by the price of a drug. The aim is to remove PBMs’ incentive to pursue higher-priced drugs.
