In our last post, we addressed a few key points regarding the possible use of drug coupons and co-pay cards by Medicare beneficiaries in connection with purchases of Part D covered drugs.   As our readers know, this issue was the subject of an OIG report and Special Advisory Bulletin that called into question whether drug manufacturers have implemented sufficient safeguards to ensure that Medicare beneficiaries do not use coupons or co-pay cards to obtain drugs paid for by the Part D program.

We also indicated in our last post that we would address at a later date separate legal developments that could impact the use of drug coupons and co-pay cards.

Today is that day, and it’s a good thing we waited because some significant court proceedings concluded earlier this week in a case involving the use of drug coupons and co-pay cards by commercially insured populations.

As some industry watchers may recall, several welfare benefit plans serving union members filed a proposed class action lawsuit in 2012 against Merck challenging Merck’s co-pay subsidy programs that utilized drug coupons and co-pay cards.  The suit, styled Plumbers and Pipefitters Local 572 Health and Welfare Fund, et al. v. Merck & Co., Inc., No. 3:12-cv-01379 (D. NJ), alleged that Merck’s co-pay subsidy programs caused the benefit plans to pay more for Merck branded drugs when less expensive generic products were available, and did this by subverting the cost sharing provisions in applicable PBM contracts with network pharmacies.    

The suit alleged two bases of liability.  First, the plaintiffs alleged that Merck’s co-pay subsidy programs constituted insurance fraud by use of US mail and wires, and therefore violated the Racketeer Influenced and Corrupt Organizations Act (RICO).  Second, the plaintiffs asserted that Merck, through its co-pay programs, wrongfully interfered with contracts between the unions’ PBM and the PBM’s network pharmacies.  The argument was that Merck’s co-pay programs interfered with the pharmacies’ purported contractual obligation to collect co-payment amounts directly from covered members.     

On June 30, 2014, the court dismissed the RICO claims, joining a growing number of federal courts that have addressed similar RICO issues involving challenges to manufacturer co-pay card and coupon programs.  New England Carpenters Health and Welfare Fund v. Abbott Laboratories, No. 12-cv-1662 (N.D. Ill. 2014); Am. Fed’n of State, Cnty. & Mun. Emps. Dist. Council 37 Health & Security Plan et al. v. Bristol-Meyers Squibb Co. et al., No. 12-cv-2238, (S.D.N.Y. 2013);  New England Carpenters Health and Welfare Fund v. GlaxoSmithKline LLC., No. 12-cv-1191 (E.D. Pa. 2014). 

However, the court left the plaintiffs’ tortious interference claims intact.  In particular, the court applied certain legal principles and accepted certain key facts alleged by the plaintiffs as true:  (i) that the PBM performing services for the plaintiffs had “valid and enforceable contracts” with retail network pharmacies that required the pharmacies to collect co-payments directly from patients; and (ii) that Merck, despite its knowledge of the pharmacy network contracts, induced the pharmacies to participate in its coupon and co-pay card programs which had the effect of causing the welfare benefit plans to spend more money on Merck branded drugs, as opposed to less costly generics.  

Curiously, as Merck’s attorneys argued in the company’s pleadings, despite repeated requests, the plaintiffs actually never produced any copies of the pharmacy network contracts that Merck’s coupon programs allegedly interfered with.  Throughout the litigation, the precise terms of the pharmacy network contracts remained unknown, including the provisions that plaintiffs asserted required the pharmacies to collect co-payment amounts directly from covered members (and therefore precluded pharmacies from accepting coupons). Even a casual observer would expect that the plaintiffs would be required, at some point, to produce a copy of an actual contract that now was at the heart of the case, right?  

At the beginning of October 2014, however, Merck’s attorneys discovered what would become the silver bullet to end the litigation.               

Likely during the course of researching case law, one of Merck’s attorneys uncovered a number of recent legal decisions that contained copies of pharmacy provider contracts utilized by the plaintiffs’ PBM.  And lo and behold, those network pharmacy contracts directly refuted the allegations made by the plaintiff welfare benefit plans.

In particular, not only did the pharmacy provider contracts permit network pharmacies to redeem manufacturer coupons and co-pay cards to offset the cost of a patient’s co-payment, but the contracts required the pharmacies to do so.  In a section of the network contract fittingly entitled “Coupons,” the PBM actually required its network pharmacies to “accurately apply all coupons to a Member’s claim, including the Copayment, if applicable.” 

So much for plaintiffs’ allegations that the pharmacy network contracts required the pharmacies to collect co-payment amounts directly from covered members, and therefore prohibited pharmacies from accepting coupons.  Game, set and match on the tortious interference claim.

Merck’s attorneys quickly brought the contents of the pharmacy provider agreements to the court’s attention via a motion for judgment on the pleadings.  The end result, after some back and forth between the attorneys, was the entry on November 3, 2014 of a joint stipulation for the voluntary dismissal of all claims in the action, with prejudice

So while the dismissal with prejudice ends this particular lawsuit, some observers may ask whether this the end of the issue regarding the use of drug coupons and co-pay cards by commercially insured populations? 

We think not. 

In particular, the result in this case appears to be based on the specific contractual language in pharmacy network contracts utilized by one specific PBM.  Other PBMs and third party payers may take a more restrictive view on coupon use, and could incorporate contractual prohibitions in pharmacy provider contracts and/or manufacturer formulary rebate agreements.  Further, even if a particular PBM or payer does not currently preclude member coupon use (or pharmacy redemption), it is entirely possible that the PBM may revise its network agreements to prohibit the practice. Industry observers need only look to the approach taken by UnitedHealthcare to prohibit the redemption of drug coupons and co-pay cards for certain specialty drugs by pharmacies in its specialty pharmacy network.

So for now, interested industry participants may wish to review relevant contractual language and be cognizant of these issues as contract negotiations continue to play out.