PBMs’ questionable rebate conduct, every Plan administrator and fiduciary should consider filing a lawsuit against your PBM seeking an “accounting”.
As a Plan administrator or fiduciary, you’re charged with ensuring your Plan receives all monies your Plan is entitled to receive. Moreover, through an accounting, you’re likely to discover your PBM has been hiding large amounts of monies that, if reimbursed, would significantly decrease your Plan’s costs. And given the amounts your Plan may recover, you’ll likely be able to locate a law firm to file a lawsuit on a contingency basis, meaning the litigation won’t cost your Plan a dime.
Large Amounts At Stake
We previously provided evidence that PBMs may be hiding large amounts of monies from their clients.
In an article based on an Express Scripts’ lawsuit, we showed that Express Scripts negotiated a contract with a small drug manufacturer (Kaleo) that required the manufacturer to pay Express Scripts a paltry amount of “formulary rebates” ($26,000), while Express Scripts was to collect a far larger amount in other monies ($8.4 million) that Express Scripts would likely entirely or largely retain. And those mega-millions were for just a four month period – for just for a single drug (Evzio) – with very limited use!
Other PBMs are probably engaging in similar conduct. After all, virtually all PBM-client contracts contain boilerplate language that explicitly allows PBMs to retain an undisclosed amount of monies out of the total amounts PBMs collect from drug manufacturers.
These facts cry out for you – as a Plan administrator and fiduciary – to investigate your PBM’s conduct in a legal proceeding where the full facts about your PBM’s rebate conduct can be obtained. After all, even your PBM must act equitably and cannot simply re-label “rebates” with another name in order to escape the PBM’s contract obligations to pass through rebates to your Plan.
To help you understand what you need to learn about your PBM’s rebate practices, our firm has located three publicly available Express Scripts’ contracts to use as examples of PBM-contracting practices: Contracts drafted for a Michigan County (Genesee County), a California County (Ventura) and an Oklahoma City municipal trust. We’ll focus on the Michigan County contract, as it’s the most recent.
Express Scripts’ Disclosures About Monies It is Retaining
Like many PBM-client contracts, the Michigan County contract contains a “Financial Disclosure” that provides lengthy descriptions of numerous types of monies that Express Scripts is likely retaining in whole or in part. These monies include the following:
Formulary Rebates: Express Scripts states that it contracts with manufacturers to be paid “formulary rebates.” While Express Scripts’ clients may assume that they receive all such “formulary rebates,” Express Scripts’ Financial Disclosure indicates that Express Scripts “often pays an amount equal to all or a portion of the formulary rebates it receives to a client based on the client’s PBM agreement terms.” See Michigan County contract, Exh. D at 28, emphasis added.
As a Plan administrator or fiduciary, you need to find out whether your Plan is receiving “all” or “a portion of” the formulary rebates that your PBM obtains from manufacturers. And if the latter, the percentage of total rebates that your PBM is retaining, and how much in total you might otherwise save if your PBM passed through one hundred percent of all formulary rebates.
Finally, you need to ascertain whether your contract terms actually allow your PBM to retain those formulary rebates that it is failing to pass through.
Manufacturer Administrative Fees: Express Scripts’ Financial Disclosure also makes clear that Express Scripts is paid fees for numerous services it purportedly performs for manufacturers.
According to Express Scripts’ Financial Disclosure, Express Scripts’ administrative services “include, for example, maintenance and operation of the systems and other infrastructure necessary for managing and administering the PBM formulary rebate process and access to drug utilization data … for purposes of verifying and evaluating the rebate payments and for other purposes related to the manufacturer’s products.” These “administrative fees are calculated based on the price of the rebated drug or supplies along with the volume of utilization and do not exceed the greater of (i) 4.58% of the average wholesale price [AWP], or (ii) 5.5% of the wholesale acquisition cost [WAC] of the products.” See Michigan County contract, Exh. D at 28.
The above means that when there’s an increase in either the volume of a drug sold – or the drug’s price – the money that Express Scripts collects in manufacturer administrative fees likely also increases. If a drug’s volume and price both increase, Express Scripts likely hits the jackpot.
But this represents an obvious conflict of interest, as well as underscores that Express Scripts may be collecting far more in administrative fees than its actual services justify. Express Scripts’ listed “administrative services” are largely computer-based, which means Express Scripts’ cost of providing those services is unlikely to correlate with an increase in a drug’s volume or price. Therefore, if Express Scripts has not reduced the percentage fee that Express Scripts collects over time, Plans have good reason to challenge the amounts that Express Scripts collects as nothing other than re-labeled rebates.
Notably, the stated “caps” on administrative fees in Express Scripts’ 2015 Michigan County contract – 4.58% of AWP and 5.5% of WAC – are considerably higher than the stated “caps” that are in Express Scripts’ publicly available 2008 Oklahoma contract, which were 3.5% of AWP. See Oklahoma Contract, Exh. E at 30. Thus, rather than reducing the amounts it is collecting over time, Express Scripts may actually be increasing those amounts.
Express Scripts also states in its Michigan County Financial Disclosure that Express Scripts receives administrative fees for other services it performs, including for “formulary compliance initiatives, clinical services, therapy management services, education services, medical benefit management services, and the sale of non-patient identifiable claim information.”
Based on the above, Express Scripts is certainly performing a lot of different services for manufacturers! Other PBMs may be acting similarly. As a Plan administrator or fiduciary, you should determine what services your PBM is performing, and whether those services are actually in your Plan’s interests, or contrary to them.
Express Scripts indicates that all monies it collects for all the above administrative services are not part of formulary rebates or the other manufacturer fees that it collects. As a Plan administrator or fiduciary, you should find out how much in total administrative fees your PBM is collecting, whether your PBM is passing through any of its manufacturer administrator fees to your Plan, and whether your PBM’s retained amounts bear any rational relationship to the actual services your PBM is performing.
After all, if your PBM is simply relabeling “rebates” with a label related to purported administrative services, but performing little (if any) work in connection with those services, your PBM is arguably engaging in a rebate re-labeling game that could constitute fraud.
Subsidiary Mail and Specialty Drug Pharmacy Discounts and Fees: In its Financial Disclosure, Express Scripts also states that its subsidiary pharmacies contract to receive “purchase discounts off the acquisition cost of … products … [from] manufacturers and wholesalers in the form of either up-front discounts or retrospective discounts. These purchase discounts, obtained through separate purchase contracts, are not formulary rebates paid in connection with our PBM formulary rebate programs.” Express Scripts further states that its subsidiary pharmacies contract “for these arrangements on their own account.” See Michigan County contract, Exh. D at 29.
But what’s the difference between a retrospectively paid “formulary rebate” – or retrospectively paid “purchase discount” – other than the label that the PBM places on the money in its contracts with manufacturers?
As a Plan administrator or fiduciary, you should determine the amount of “rebates” that your PBM is negotiating with each manufacturer – and the amount of “purchase discounts” – and how much your Plan is receiving of each.
After all, what might a court conclude if your PBM is negotiating a 3% “rebate” on certain high-cost Specialty Drugs that cost tens of thousands of dollars per script, but a 6% “purchase discount”? Even more intriguing, what might a court conclude if your PBM is negotiating a 1% “rebate” and a 10% “purchase discount”?
Based on an equitable analysis, a court might conclude your PBM is engaged in a rebate re-labeling game and committing fraud and might order your PBM to reimburse your Plan.
Patient-Assistance Programs: Express Scripts’ Financial Disclosure also states that Express Scripts’ subsidiary pharmacies may also “receive fee-for-service payments from manufacturers or wholesalers in conjunction with various programs or services, including, for example, patient assistance programs….” Express Scripts also discloses that it “maintains other lines-of-business that may involve discount and service fee relationships with pharmaceutical manufacturers and wholesale distributors.” Among these is United BioSource Corporation (“UBC”), which among other matters, “partners with … pharmaceutical companies to … support … access to pharmaceutical products…. UBC also works on behalf of pharmaceutical manufacturers to provide … reimbursement assistance, and other support services to the patient public at large.” See Michigan County contract, Exh. D at 29.
Express Scripts’ disclosure should raise serious questions for every Plan about Express Scripts’ activities, especially given the recently published Bloomberg article captioned “Charity Funded by Drugmakers Draws IRS Probe on Tax Exemption.” The article indicates the government is investigating whether certain drug manufacturers may be making financial contributions to a charitable organization, which may then be using virtually all the money it receives from each manufacturer to fund patients’ “cost shares” when they purchase the same manufacturer’s drugs.
As a Plan administrator or fiduciary, you should find out whether your PBM is assisting manufacturers’ patient assistance programs or coupon programs. After all, all such programs end-run your Plan’s cost share structure, and often incentivize your Plan Beneficiaries to use high-cost drugs that your Plan is trying to avoid.
You should also determine if the amounts paid to your PBM bear any rational relationship to the services your PBM is actually providing to the manufacturers, given that your PBM could instead label the amounts it collects as “rebates”, which would reduce your Plan’s costs.
Your Plan’s Next Steps
We urge every Plan administrator and trustee to carefully read your existing PBM contract to identify any language that reflects that your PBM may be retaining third party monies and/or potentially operating against your Plan’s interests.
Thereafter, we urge your Plan to review the three Express Scripts’ contracts that we’ve highlighted in this article.
Then draw up a list of every potential PBM activity that you want to investigate, contact your PBM, and start asking questions.
If you don’t get satisfactory answers from your PBM (which is the likely result), it’s time for you to consider filing an accounting proceeding.
Please note: Given the amounts at stake, it’s reasonably certain you can locate attorneys who will file such a proceeding on a contingency basis. Therefore, the cost of filing litigation should not deter you from obtaining the information that you need to know as a Plan administrator or fiduciary.
If you need help with any of these activities, please contact our firm. Without wanting to brag, we’re considered among the nation’s leading experts in PBM contracts and PBM industry practices. Accordingly, we can provide invaluable assistance in reviewing your contract and helping you understand its implications. We are also in contact with several top law firms that are knowledgeable in this area and well positioned to file an accounting proceeding on your behalf.
The PBM marketplace will change when PBM clients take steps to change it. As a Plan administrator or fiduciary, we urge you to take those steps, especially because you may recoup large amounts of money for your Plan by doing so.
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