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This week I want to offer you an illustrative video “Pharmacoeconimics”prepared by a pharmacy owner – Loren Pierce – describing how DIR fees are killing his business.
In the video, Loren explains and shows his financial reports illustrating that in:
2017, the pharmacy paid a total of $212,000 (1.2% of sales) in DIR fees; 2018, $642,000 (3.8%); andJanuary, 2019, PBMs withheld $76,000 in DIR fees, which constituted 5.1% of his total sales.
If you are a pharmacy owner, your DIR reports show similar numbers. DIR fees are rising without any justification and proper accounting.
PBMs explain that DIRs are mandated by federal requirements to lower medication cost and improve adherence. However, DIRs are not accomplishing these goals. Medication costs are still rising and PBMs report increased profits each year. Independent pharmacies – on the other hand – are going out of business or sell files to chains who can absorb the loss due to the volume. Many pharmacies are facing a dilemma: to accept these PBM contracts reimbursing below cost or turn away Medicare beneficiaries, who constitute a large chunk of business. The video could be accessed here.
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Please join me for a live webinar, "Opioids and Other Controlled Substances: Minimizing the Risks in Prescribing, Dispensing and Administering" scheduled for Wednesday, April 17, 1:00pm-2:30pm EDT.
I will be speaking on new regulations and practices pertaining to TeleHealth and e-prescribing. My co-speakers include: Kerry B. Harvey, Member at Dickinson Wright; Lindsay P. Holmes, Attorney at BakerHostetler and Dennis A. Wichern, Managing Partner at Prescription Drug Consulting.
Currently, I have 10 complimentary passes for clients and colleagues. To take advantage of this offer, please email me directly (nmazina@pharmhealthlaw.com) and I will provide you a code to join. Hope you can tune in and take advantage of this great program.
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Last Thursday, a federal judge dismissed a lawsuit brought by pharmacies alleging that Express Scripts, Inc. (ESI) used prescription data to forcibly switch patients from their retail pharmacies to ESI’s own mail-based pharmacies. The judge ruled that ESI used the patient data appropriately under the agreements with the pharmacies.
Pharmacies brought claims against ESI for (1) attempted monopolization, (2) unfair competition, (3) breach of contract, (4) breach of implied covenant of good faith and fair dealing, (5) interference with prospective economic advantage, (6) violation of the uniform trade secrets act, and (7) fraud. The core of all the claims was ESI’s conduct of collecting and using prescription data to boost its mail-order operations.
The judge, however, held that the conduct was not prohibited and in fact was expressly allowed under the terms of the agreement with the pharmacies.
ESI’s agreement with the pharmacies (including pharmacy manual, collectively "Agreement") states that ESI is the owner of all information it obtains through the administration and processing of any and all pharmacy claims submitted by pharmacies. The agreement also identifies ESI’s “mail service dispensing” and provides that pharmacies shall cooperate in coordinating pharmacy benefits.
Breach of contract claim
Pharmacies asserted numerous HIPAA violations when ESI used the patient data to switch those patients to mail order. The complaint alleged that patients did not authorize a switch to mail order, but only learned that their prescriptions were switched to mail order when they attempted to refill the prescriptions at local pharmacies. Pharmacies argued that ESI has breached the Agreement, which provides that the parties shall comply with all applicable laws.
The judge dismissed this claim holding that no private cause of action exists under HIPAA, even under a contract claim.
2. Breach of implied covenant of good faith and fair dealing
Pharmacies alleged that ESI breached its duty of good faith and fair dealing owed by using the patient information supplied pursuant to contracts’ requirements in order to take customers away and move them into ESI’s mail order pharmacy.
The court dismissed the claim holding that the agreement with the pharmacies permitted ESI to fill mail order prescriptions through its own mail order pharmacy.
3. Attempted Monopolization
Pharmacies alleged that ESI’s conduct eliminated competition by barring pharmacies from competing for refills and prohibiting patients from purchasing their refills from local pharmacies. Pharmacies claimed that ESI ensured that only its mail order could refill patients’ prescriptions by switching patients to mandatory mail order. Pharmacies pointed to the fact that ESI has quintupled its mail order revenues and quadrupled the number of prescriptions they fill via mail order in just 4 years.
The Court dismissed the claim holding that pharmacies failed to plead enough facts to establish this claim. It also found “nothing inherently anticompetitive in [pharmacies] purported inability to compete with ESI for refills.”
4. Fraud
Pharmacies argued that ESI’s omission of the information that ESI intended to switch patients to its mail-order service constituted fraud by omission. The court dismissed holding that pharmacies failed to properly allege fraud.
5. Tortious Interference
The Court held that pharmacies did “not allege any unauthorized actions by Defendants that caused Plaintiffs harm. Rather, as outlined, Defendants’ actions were sanctioned by the parties’ agreements, particularly the Provider Manual’s provisions giving ESI ownership over the customer information.”
6. Unfair Competition and Uniform Trade Secrets Act
Pharmacies alleged that customer information is a protectable trade secret. And ESI used pharmacies confidential information “to compete unfairly with Plaintiffs.” The court dismissed holding that customer lists and customer information do not constitute protectable trade secrets. Moreover, as the court previously held, ESI was the owner of and had the right to use this information in the manner alleged.
It is unclear whether the pharmacies plan to appeal the decision. Considering a long string of negative cases holding for PBMs in similar contractual disputes, it seems unlikely.
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Several PBMs now require their in-network pharmacies assisting prescribers with Prior Authorizations (PAs) to have written policies and agreements with the prescribers on how PAs are prepared and submitted.
Preparing PAs is a time-consuming and tedious process. Often, prescribers are not willing to invest their staff’s time and resources into preparing and submitting them. To streamline the PA process and to ensure the continuity of care, many pharmacies offer PA assistance. Pharmacies, however, are also financially interested in PAs being timely submitted to PBMs and their reimbursement directly depends on which medication is dispensed. PAs are usually necessary for more expensive medications or medications that are not on PBMs’ formulary lists. Therefore, several PBMs have conducted – and are still conducting – audits targeting PAs and medical necessity of medications prescribed.
During these audits, PBMs discovered cases of (1) improper monetary compensations for signing or preparing PAs; (2) pharmacies that sign PAs on behalf of prescribers; (3) prescribers that sign PAs for patients they have never seen. As a result, some pharmacies have lost their contracts with PBMs and facing monetary recoupments and even criminal investigations. Many PBMs require an agreement between the pharmacy and the prescriber describing the PA procedure.
What PBMs are looking for: there should be a legitimate medical need for PAs. Needless to say, no money should be exchanged between the prescriber’s office and the pharmacy for preparing PAs. PAs should be prepared for the benefit of mutual patient only. Often PBMs scrutinize PAs on whether other alternatives were available and how PAs were prepared. Therefore, the pharmacy should have a clear policy on how to prepare and submit PAs.
The PAs policy and procedure (and the agreement with the prescriber) should specify that the pharmacy is acting as the prescriber’s agent in preparing and submitting the PAs (creating “limited agency”). At no time, a pharmacy should sign a PA. It can prepare and prepopulate the form but never sign it, even if authorized by the prescriber.
The policy should also describe emergency situations when a PA may not be practical to obtain and when a pharmacy may dispense first and obtain the PA at a later date.
Improperly performed PAs may also implicate kickbacks. In 2010, the Office of Inspector General (OIG) issuedan opinion focusing on PAs. The opinion described that preparing PAs free of charge for prescribers may violate the anti-kickback statute:
"When a party in a position to benefit from referrals provides free administrative services to an existing or potential referral source, there is a risk that at least one purpose of providing the services is to influence referrals,"
The OIG concluded that as long as no payments (or any other rewards) are made to physicians, no assurances to physicians or patients are made that the PA would be approved, and the service is provided for the benefit of the mutual patients only – the provider [pharmacy] has a legitimate business interest in offering uniform pre-authorization services.
While pharmacies may continue witnessing enhanced PA reviews by PBMs, proper policies and agreements with the prescribers may help avoid terminations, recoupments, and possibly government investigations.
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I am pleased to announce that I will be speaking in an upcoming Strafford live webinar, "Opioids and Other Controlled Substances: Minimizing the Risks in Prescribing, Dispensing and Administering" scheduled for Wednesday, April 17, 1:00pm-2:30pm EDT.
Because of your affiliation with my firm, you are eligible to attend this program at half off. As long as you use the links in this email, the offer will be reflected automatically in your cart.
Our panel will guide healthcare counsel on the legal challenges and liability risks facing practitioners and pharmacists related to prescribing and dispensing controlled substances. The panel will discuss the enforcement environment and steps to minimize legal risks.
After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.
I hope you'll join us.
For more information or to register >
Or call 1-800-926-7926 Ask for Opioids and Other Controlled Substances on 4/17/2019 Mention code: ZDFCA
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The FDA has issued its first warning letterunder the Drug Supply Chain Security Act (DSCSA) to
McKesson Corp. for tampering with opioid medications.
The FDA said the distributor didn’t address several instances of reported drug tampering for medications including opioids and treatments for HIV, seizures, bipolar disorder and high blood pressure.
The warning letter to McKesson outlines violations observed during inspections of McKesson’s San Francisco corporate headquarters and an Oregon distribution center. The violations include failing to:
- sufficiently respond to notifications that there was illegitimate product in their supply chain;
- quarantine and investigate suspect products; and
- maintain records of investigations of suspect product and disposition of illegitimate product as the law requires.
The warning letterexplains that in one instance, McKesson was notified by a pharmacy customer that multiple of their pharmacy locations received bottles that were supposed to contain potent opioid pills. However, once opened, the pharmacies discovered that bottles at three pharmacy locations did not contain the correct medications, and the opioid pills were missing, having been replaced with other non-opioid medications.
The pharmacy customer notified McKesson about the discovery of illegitimate products. While McKesson’s internal investigation noted that it was likely the opioid medication was replaced while in their possession or control, McKesson did not sufficiently respond to the notification that they may have distributed illegitimate products. McKesson could not demonstrate that they took efforts to identify or quarantine additional illegitimate products that may have still been in their distribution facilities. Additionally, McKesson did not notify other pharmacy customers who may have received products with the same lot number or National Drug Code to make them aware of potential illegitimate product in the supply chain. Additional examples are given in the warning letter of similar failures by McKesson to: respond to illegitimate product notifications; quarantine and investigate suspect and illegitimate products; and maintain records as required by DSCSA.
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I have previously covered a case of HM Compounding Services LLC, which sued Express Scripts for contractual termination. To remind, Express Scripts terminated the pharmacy for misrepresenting during a re-credentialing process that it never waived or discounted member copayments. In return, HM sued Express Scripts asserting various statutory and common law claims. See my blog post covering the case.
Now – after four years of litigation – the pharmacy not only lost the case but also agreed to pay $20 million to Express Scripts. How did this happen... that the pharmacy asking for $120 million in breach of contract claims had to pay $20 in counter-claims to the PBM?
Looking at the case pleadings and records, I can see several tough roadblocks that the pharmacy had to overcome and which eventually tripped it along the way.
Roadblock No.1: Waiving co-pays. During the litigation, Express Scripts presented ample evidence that the pharmacy was in fact not collecting some of the required co-pays. Waiving copays is a violation of state and federal anti-kickback laws and PBM contracts.
Roadblock No.2: Misrepresenting information on its application. Because Express Scripts was able to prove that the pharmacy was waiving copays, it was easy to show that the pharmacy misrepresented this fact on its re-credentialing application. This constituted a breach of contract warranting immediate termination.
Roadblock No.3: Aggressive litigation by Express Scripts. It’s not easy to litigate a PBM case. Litigation records show that every time a pharmacy sues a PBM, the case is aggressively litigated by the PBM, causing financial difficulties to the pharmacy, which is often forced to settle early or dismiss the case all together. In this action, however, Express Scripts went a step further by bringing multiple counter-claims, motions for sanctions, motions for dismissing the case and summary judgment.
Roadblock No.4: Early unfavorable rulings. The judge in this case refused to consider the antitrust claim brought by the pharmacy and decided to focus on the breach of contract claims first. Eventually he sided with Express Scripts and the pharmacy never got to argue its anti-trust claims. The judge ruled on the summary judgment motion holding for Express Scripts: “no reasonable jury could find HM substantially complied with its contractual obligation to collect copayments.” Because the judge dismissed pharmacy’s breach of contract claims, the trial would have focused only on Express Script’s counter-claims. Therefore, the pharmacy was forced into an unfavorable settlement.
Roadblock No.5: Pharmacy’s attorneys tried to back away from the case. Two weeks before the trial, the law firm representing the pharmacy filed a motion to withdraw from the case citing “irreconcilable differences” with the client. The motion was denied because it would have left the pharmacy unrepresented at the trial. But you must agree that having an attorney who wants to get out is not a good thing in the middle of litigation.
Roadblock No.6: Sanctions and procedural misconduct. The pharmacy failed to meet many filing deadlines and misrepresented facts during the discovery stage. The judge ordered monetary and evidentiary sanction for “gross misconduct.” This misconduct led the judge to exclude most of the pharmacy’s evidence from the case.
As a result of these roadblocks, was filed under which the pharmacy is to pay $20 million to Express Scripts with 9% annual rate. The consent judgement constitutes the final judgment and may not be appealed.
The case reinforces the notion that litigation with PBMs is extremely risky, costly, and often unfair. This case, however, teaches many lessons. Some of them are: scrutinize the facts prior to suing anyone, choose a right litigation team, meet all the deadlines and cooperate with the court and other parties. Despite this unfavorable precedent, a successful case could nevertheless be brought against a PBM – it all depends on how prepared you are and your ability to tolerate the risk.
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Anthem has announced a launch of its own PBM – IngenioRx. The decision came shortly after Cigna’s acquisition of Express Scripts, which provided pharmacy services to Anthem’s members since 2009. Due to the merger, Anthem decided to terminate the contract with Express Scripts. It anticipates that operating its own PBM will result in annual savings of more than $4 billion.
Anthem had already operated its own PBM company, which it sold to Express Scripts in 2009. But with a trend of in-house PBMs, Anthem decided to reconsider the move. For example, United Health operates its own PBM, and Aetna and Cigna also process pharmacy claims internally. Reportedly, these moves result in multi-billion dollar savings to the plans and patients. And controlling health care cost is a new mantra in the healthcare arena. Also, controlling, maintaining, and collecting health data is an invaluable tool, which major payors do not want to share with outside companies. They claim that in-house health data can help manage care and improve health outcomes.
CVS Health will help Anthem administer the program by processing claims through its own PBM for the initial five years.
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Earlier this year, I posted an update that a uniquely serialized number attributable to a prescriber must appear on California prescription forms for controlled substances. The new requirement became effective on January 1, 2019. The Enforcement Committee, however, recommended to the California State Board of Pharmacy to allow for grandfathering time until June 1, 2019.
Meanwhile, many pharmacists were caught in a difficult position having to decide between providing needed medication to patients versus compliance with the law.
Then, the Department of Justice announced that the new prescription pads were not available and it could not determine when the new forms will be available.
Recognizing the difficulty that this ambiguity created for the providers, the legislature amended AB 149postponing the date of implementation of the new law until January 1, 2020. The bill specifies that any prescription written prior to January 1, 2019 on a form approved by the Department of Justice constitutes a valid prescription that may be filled, compounded, or dispensed until January 1, 2021. It also requires a barcode that may be scanned by dispensers.
Anticipating further delays, the legislature allowed the Department of Justice to extend the deadline for additional 6 months (if there is an inadequate availability of compliant prescription forms).
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Starting January 1, 2019, a new security feature must appear on California prescription forms for controlled substances. The legislature amended Health & Safety Code § 11162.1 by adding the 15th security feature: a uniquely serialized number attributable to a prescriber.
Most prescribers still use their old prescription forms, which do not have a serialized number. If a CII is dispensed based on a non-compliant prescription, such dispensing may be deemed invalid and in violation of state law.
Two years ago, when California State Board of Pharmacy rolled out a requirement that secure blanks must have the statement “Prescription is void if the number of drugs prescribed is not noted” many prescribers continued using their non-compliant blanks. This caused many pharmacies substantial fines and citations from the Board of Pharmacy. To avoid any citation or fines from the Board or the DEA this year, assure that the forms are compliant with the new requirement prior to dispensing.
The Board’s Enforcement Committee recommended that the Board does not take any actions against pharmacies dispensing on old blanks prior to July 1, 2019. Nevertheless, train your pharmacy staff to spot prescriptions that do not comply with Health & Safety Code § 11162.1. It requires:
A latent, repetitive “void” patternA watermark “California Security Prescription” on the backA chemical void protection paperA feature printed in thermochromic ink.An area of opaque writingA description of the security featuresSix quantity check off boxesA Statement printed on the bottom of the prescription blank that the “Prescription is void if the number of drugs prescribed is not noted”The preprinted name, category of licensure, license number, federal controlled substance registration number, and address of the prescribing practitionerCheck boxes for the number of refills The date of origin of the prescription A check box indicating the prescriber’s order not to substituteAn identifying number assigned to the approved security printerA check box by the name of each prescriber when a prescription form lists multiple prescribersA uniquely serialized number attributable to a prescriber.
A controlled substance security prescription form that does not bear all 15 security features will be presumptively invalid.
Remember that prescriptions for terminally ill patients and emergency prescriptions do not have to comply with the above requirements as long as they comply with their own rules (Sec. 11159.2 for terminally ill patients and Sec. 11167 for emergency prescriptions).
Here is a link to a California Medical Board announcementregarding new prescription forms, which you can forward to practitioners and advise them to change the forms.

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