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.