Tuesday, September 22, 2015

Can payers and plan sponsors be held responsible for questionable pharmacy benefit manager practices?

There has been, in recent news, a slew of public incidents where leaders of prominent organizations have unwittingly put profit above all else. These companies placed profit above fairness, lawfulness and in some cases life itself. Here are a few examples.

Volkswagen, the world's largest carmaker, admitted to installing a "defeat device" to trick U.S. regulators into believing its cars met Clean Air Act guidelines for emissions.  This device allowed it to cheat emissions tests potentially exposing people to harmful pollutants at levels 40 times the acceptable standard. The violations could expose Volkswagen to up to $18 billion in fines.

Yesterday a federal judge sentenced Stewart Parnell, former head of Peanut Corporation of America, to 28 years in federal prison. His crime? He knowingly shipped peanut butter tainted with salmonella. The resulting salmonella outbreak killed nine people and sickened hundreds more. It is the toughest punishment in U.S. history for a producer in a food-borne illness case.

In 2014, General Motors admitted it allowed an ignition switch defect to linger for more than a decade. The ignition switch defect caused small cars, mostly from GM's pre-bankruptcy era, to turn off suddenly when jostled, cutting off engine power and disabling airbags. Today, General Motors is close to announcing it has reached a deal to resolve the federal criminal investigation into its handling of the deadly defect blamed for more than 120 deaths and massive expenses related to recalls.

Pharmacy benefit managers for the state-employee health insurance program are challenging an attempt to require them to repay $39.2 million to the Florida Department of Management Services.
Medco Health Solutions, Inc. and Express Scripts, Inc., which are subsidiaries of the same holding company have filed a series of legal petitions. Documents indicate the Department of Management Services is seeking to recoup $39.2 million in what it considers "plan overpayments" and that it decided to withhold payments to the companies as a result.

Pharmacy benefit management giant Catamaran Corporation engaged in a scheme against pharmacies to boost its own profits, Kmart claims in a lawsuit. In a complaint filed Monday August 31, 2015 in Cook County Circuit Court, the retailer claims Catamaran "improperly manipulated prescription reimbursements owed to pharmacies ... inflating profits to make Catamaran a more inviting acquisition target." Kmart says it has incurred at least $38 million in damages thanks to Catamaran's allegedly illegal practices. Catamaran, on the other hand, has "experienced explosive growth" reporting revenues of $5 billion in 2011 to $21.6 billion in 2014, the complaint claims.

A PBM's standard of care should be of prime concern to payers and plan sponsors as they assume the burden of getting a fair and honest deal for plan participants. Payers are relied upon to research, evaluate, and recommend PBMs. Payers and plan sponsors who are aware of imprudent PBM practices run an enormous risk by dealing with them.

Those who claim that they are not aware of such practices (e.g., regarding the creation of formulary and drug pricing) will not be excused. All forms of remuneration received by PBMs should be disclosed and justifiable with respect to the level of services rendered. All compensation paid to PBMs should be reasonable.

Under federal and state anti-kickback statutes, rebates, discounts or other remuneration paid by drug makers to an ERISA plan or its PBM may be deemed payment in exchange for arranging or recommending a particular item.

If these monies are not properly reported, a plan may face exposure under the Federal Civil False Claims Act or the state equivalent; many questionable practices and policies of PBMs may be prohibited under common-law theories of fair dealing.

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