Another Year, Another PBM Legal Settlement


By Douglas Hoey, RPh, MBA

Ask a community pharmacist for a list of professional pet peeves and odds are good that pharmacy benefit manager (PBM) audits will rank near the top. In this process, PBMs pore over a pharmacy’s books and look for any excuse to take money back from the pharmacy.  What’s done with that recouped money and how much is shared with health plan sponsors is anybody’s guess. Turnabout is not fair play as PBMs consistently resist similar oversight from their clients. A new PBM legal settlement brings this issue into focus.

In 2006, five compounding pharmacies decided they’d had enough of what they felt were abusive auditing practices on the part of Medco Health Solutions, Inc. They filed a complaint against the PBM in arbitration through a class action that grew to 1,000+ pharmacies. NCPA helped fund the research that ultimately produced the complaint. We’re grateful to those five Texas and Ohio pharmacies that led the way.

The pharmacies challenged Medco’s audit practices regarding compounds and its findings of “overpriced compounds” over eight years and thousands of audits. They asserted that Medco would re-price the compounds at the time of audit, finding an arbitrarily lower price and later retract money from pharmacies.

Medco agreed to settle in June 2009, committing to pay $2 million into a settlement fund; to forgive 200 open audits (valued at $1.3 million), to pay about $1.5 million in partial attorneys fees and expenses; and to change certain business practices related to audits, in favor of pharmacies. The settlement checks were just recently distributed.

Pharmacies that were not part of the class action will also benefit. Medco agreed to institute a number of new business practices as a result of the arbitration.

First, Medco’s most recent Pharmacy Services Manual (PSM) eliminates the binding arbitration clause.  That clause required a pharmacy to file a complaint with the American Arbitration Association (“AAA”) and to pay AAA’s significant fees and to pay ½ of each arbitrator’s significant hourly fees.

Second, compounders can now challenge any unilateral Medco determination of an “overpriced compound” following an audit.  Pharmacists can mount a challenge by providing back-up paperwork, such as compound recipes and AWP prices. The PSM also now defines previously ambiguous terms like “cost” and “professional fee”, and permits an optional submission of compound formulas to support the price charged.

Third, Medco pledged to make revisions to its in-house audit methods that will benefit compounding pharmacies.  Much of this area is confidential and subject to a protective order.

This settlement adds to a growing body of complaints and financial damages resulting from the heavy-handed tactics of many PBMs. In the past five years, a coalition of more than 30 state attorneys general brought five enforcement actions against the major PBMs for allegedly fraudulent and deceptive conduct, such as switching patients to higher-cost drugs to pad profits. To date, these actions have secured over $370 million in damages.

More broadly, meaningful PBM regulation and transparency requirements would be positive steps for patients and health plan sponsors.

3 Responses to “Another Year, Another PBM Legal Settlement”


  1. 1 Jim Fields January 22, 2010 at 1:43 pm

    This is a very good first step.

  2. 2 James Dykes (Cullen Care Pharmacy) January 26, 2010 at 4:30 pm

    I’m Glad to see that the PBM’s are finally being held accountable. I can’t seem to grasp the fact that I stand on my feet for over ten hours per day servicing the community, and when I tie up money on inventory to be ready to service my customers, the PBM’s seem to make more money than me when I’m the one who invested in the first place; but will often learn that when I subtract the cost of a medication, I often times am reimbursed less than two dollars. Now imagine the drug cost you one hundred dollars but the PBM’s only allow you to make two dollars while they make much much more off of your sweat and investment. The PBM’s take money from pharmacies but who’s watching them rob us of a decent profit. The same drug I make two dollars on, you here about CVS making hundreds on the same products. All Independent pharcies throughout the Country should form a coalition and go after such bad practices on all PBM’s.

  3. 3 Sandi January 17, 2011 at 6:15 am

    I agree completely with James D. PBM’s are robbing pharmacists blind with their self-serving unscrupulous tactics, and arbitrarily low take-it-or-leave-it contract offerings that DECREASE EVERY YEAR! We are almost at the point of paying our patients to take their medicine, because the acquistion cost of the drug is hardly covered, with nothing left for normal business overhead expenses. This may be the last year for our 63 year old family pharmacy.

    Why isn’t this article linked to PBM information on Wikipedia? The public needs to know the “dark side” of PBM’s, and the harm to pharmacies and the patients we serve, that are being dragged into mail order or PBM owned Chain pharmacies like CVS, against their will!


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