PBMs are on the docket for legal fights in 2024

By William Richards

NCPA is leading the charge to return millions in DIR fees to members and help them arbitrate.

PBMS are on the docketIn recent years, DIR fees have gone up by more than 107,400 percent (that is not a typo), a trend that has been devastating for independent community pharmacies, especially ones already on the brink of insolvency, who pay hundreds of thousands of dollars each year in what the suit claims are wrongful, back-end penalties. But, the last half of 2023 has been a watershed moment for independent pharmacy in the fight against PBMs and DIR fees—now in the legal crosshairs, thanks to NCPA's leadership.

On Sep. 26, attorneys for Berger Montague PC and Cohen & Gresser LLP filed a class action lawsuit against vertically consolidated CVS Health, Caremark, and Aetna on behalf of NCPA member and Iowa pharmacy owner Matt Osterhaus, which aims to recoup for independent pharmacies millions of dollars in what the lawyers say are wrongful back-end penalties for Medicare Part D prescriptions that constitute DIR fees. The suit claims that Caremark—the largest PBM in the country and a subsidiary of Fortune 6 corporation CVS Health—has been assessing pharmacy DIR fees in violation of federal antitrust laws and state laws governing contracts.

What is a "claim" in this context?

First, it's not what you think. The insurance claims you file in your everyday work as a pharmacist are different than the "claim" that this lawsuit represents, which is your right to sue. So, when you see language in the coming weeks and months about members "assigning their claims" in TRUST LLC, it means asking a group of attorneys—empowered by your individual right—to wage a legal fight on behalf of the pharmacy location you've signed up to arbitrate.

Importantly the suit bears Osterhaus' name and does not require anything from members, in contrast individual arbitration, which will require members to act if they wish to join the fight. (More on that in a moment.)

NCPA applauded the Oct. 26 broadside, which was the result of nearly year of consultation between NCPA and the attorneys representing the class, who appeared at the 2023 NCPA Annual Convention to explain its scope and purpose to members. At the Oct. 15 General Session, NCPA General Counsel Matthew Seiler, welcomed them to the stage and interviewed Katie Funk, an attorney with Baker Donelson, John Roberti, an attorney with Cohen & Gresser, and Josh Davis, an attorney with Berger Montague PC.

"After starting at NCPA," said Seiler, introducing the panel, "I came to realize that we need to find an industry solution to combat DIR fees. Once we brought these firms and NCPA together, we have worked tirelessly over the last 12 months."

The lawsuit also challenges CVS' agreements to arbitrate claims as being unfair and unenforceable, explained Berger Montague's Davis.

"The most notable provision that folks sign with PBMs are these arbitration provisions—forced arbitration provisions—and what my firm does is to take on righteous cases like this one against a bad actor that we believe is acting unlawfully," he told a packed ballroom at the Orange County Convention Center. "We think there is over-reaching going on and we believe a court will call them unconcealable, which will give us our day in court. That allows us to move forward on a class basis."

The only caveat is time. The attorneys who appeared on stage noted that class action lawsuits are not usually resolved quickly and that this one, owing to the legal position and aid PBMs have, could take several years. PBMs have deep pockets and time on their side, as the song goes, with dispute-resolution processes that makes it a true David versus Goliath situation.

Since it will be such a long battle, NCPA has created a second attack strategy to fight back against oppressive PBM business practices by setting up TRUST LLC, a legal entity that will potentially arbitrate or litigate on behalf of individual pharmacies, most of which could never afford to do so on their own, and more expediently than a class action lawsuit.

It allows individual pharmacies to assign their rights to sue or arbitrate to TRUST LLC which will in turn try to recoup DIR fees. It also allows those individual pharmacy owners to potentially proceed against a PBM at no cost to member pharmacy locations. When and if a financial award is granted or a settlement is reached, the fees and costs of the attorneys' fees will come out of the recovered money, and the remaining money will go to the prevailing pharmacy.

NCPA member locations may join the trust for free today, while non-member locations will cost $1,000 per store to join Learn more at www.fightpbms.com. (To sign up, scroll to the bottom of the page and review and sign the assignment agreement.)

Arming members for the fight ahead

Later in the day on Oct. 15, the same attorneys met with members during open office hours along the main concourse of the Orange County Convention Center, where a steady stream of curious and committed pharmacists dropped by for more information.

"I wanted to learn more about the methodology for giving my members a sense for how to get into, and learn more about, what is going on with this class action suit," said David Mayper, executive director of Pharmacy Owners Alliance. "I understand this is going to be a long-term slog, but it should have some opportunities to improve reimbursement for independent pharmacy."

The groundwork for the lawsuit has been several years in the making and is defined by a few specific events. In 2021, an arbitrator awarded a judgment of $23 million to the AIDS Healthcare Foundation, finding that Caremark breached the covenant of good faith and fair dealing in implementing its DIR practices. A district court in Arizona confirmed the award in 2022.

In 2022, an arbitrator awarded a judgment of $2.1 million in wrongfully collected fees, plus an additional $1.5 million in attorneys and interest, because Caremark's contract was unconscionable. A district court confirmed the award in 2023. Despite these two awards, Caremark has done nothing to change its ways, other than to modify its dispute resolution processes to make it more expensive and more difficult for pharmacies to bring claims against them.

"These are only a few arbitrations that we know about," said NCPA CEO Douglas Hoey. "The arbitration process keeps these cases secret. That allows Caremark and the other PBMs to continue to treat pharmacies unfairly and illegally extract junk fees. We are hoping this lawsuit helps to bring these unlawful practices into public view."

Members who attended the convention briefings with Berger Montague and Cohen & Gresser attorneys agree.

Mary Giamartino is a pharmacist from Newfane, Vt., who sold the pharmacy she owned for 41 years in January. The Hotel Pharmacy, Inc. was located in a Methodist church in Brattleboro, Vt., originally built in the 1880s and restored by Giamartino and her late husband. Even though she's no longer an owner, she's committed to improving the playing field for pharmacists.

"I want to help anyone else I can. If I can, I'll do it, and that's why I'm here," she said. "These fees have been going on for years and getting worse and worse—exponentially worse. I think these attorneys have something, and they've done their homework."

Theresa Tolle, owner at Bay Street Pharmacy in Sebastian, Fla., and past president of APhA (and longtime NCPA member), she pointed out she came to the office hours because she wanted to learn more about the process. "I was inspired by the other owners in the meeting who were asking great questions about strategy and we were able to brainstorm," she said.

Tolle was joined by her resident at Bay Street Pharmacy, Gabby Perez, who said she was eager to attend to find out more about why DIR fees are so impactful on the bottom line for independent pharmacies. "I'm learning a lot and I'm discouraged by DIR fees, of course," she said. "But I'm also hopeful that there are people out there who are trying to do the right thing, take action, and do right by independent pharmacies."

One critical dimension of a national conversation

The anticompetitive practices of PBMs, and vertical integration as a deleterious business practice generally, are also gaining traction in the media. On Oct. 26, USA TODAY published an exposé entitled "Prescription for disaster: America's broken pharmacy system in revolt over burnout and errors," which connected the dots between working conditions at chain pharmacies and the dire consequences they can have, from burnout to dispensing errors—a story that has played out in national media and continues to draw public concern.

For the report, Emily Le Coz, an investigative journalist at the paper who has been involved in other industry-shattering stories about discrimination against women in higher education and systemic racism in Florida courts, interviewed dozens of current and former retail pharmacists, patients, patient advocates, and industry leaders. What Le Coz calls "a prescription for disaster" is the unsustainable pressures that oath-bound pharmacists who work at retail chains face in their everyday jobs that force them "to choose between that oath and their job."

As you might have guessed, her reporting led her right back to PBMs, their anticompetitive practices like patient steering, and their stranglehold on the industry. "It's all coming home to roost," Le Coz quotes NCPA's Hoey as saying about the reckoning against unchecked power of PBMs. "It has overloaded the system," Hoey went on, "and also that corporate mentally of just, ‘we're going to work the workers to death,' I think that's coming home to roost, too."

Taking an even broader view of the influence of PBMs, the Washington Post published a wide-ranging article on Oct. 22 about the nationwide chain pharmacy closure crisis, for which NCPA's Ronna Hauser offered the last word on the systemic effects for independents—the front-line providers for many Americans and vital anchors for America's communities. "Cash flow is going to be a real concern," Hauser told the Post, forecasting the economic woes attached to the first two quarters of 2024. "We are concerned that there could be closures due to this cash flow crunch […] and we're very concerned about access points for patients." The article, entitled "Drugstore closures are leaving millions without easy access to a pharmacy," written by business reporters Aaron Gregg and Jaclyn Peiser, revealed the troubling scope of pharmacy's shift today.

On one hand, mail order drugs through Amazon and dispensing at Walmart have created the illusion of convenience for patients, while also eroding the foundations of pharmacies as community institutions, and the role of pharmacists as trusted, personal advisers. On the other hand, Rite Aid's corporate implosion, the pitiable working conditions at CVS and Walgreens, and the public health backlash for disenfranchised communities across the country have created uncertainty for consumers.

"The pharmacy giants have sought to shore up their positions through consolidation and by syncing up with insurance companies in ways that steer patients back to them," report Gregg and Peiser. They go on to quote Mariana Socal, a Johns Hopkins public health expert as saying, "The landscape of vertical integration of businesses across different services has put pharmacies who cannot participate at a huge disadvantage."

NCPA continues to fight the effects of vertical integration that allows PBMs to operate in such a damaging way, so stay tuned to America's Pharmacist® for more in the coming months. In the meantime, navigate to www.fightpbms.com to find out how you can get involved.