On August 1, five pharmacies joined together and filed a class action lawsuit against Express Scripts Inc. (ESI), alleging ESI systematically stole customers to boost its mail order business. Initiated by Trone Health Services, Inc. (Idaho), Reddish Pharmacy, Inc. (Idaho), Jabos Pharmacy, Inc. (Tennessee), Oak Tree Pharmacy (Oregon), and Amrut JAL, LLC (Indiana), the lawsuit was filed in United States District Court Eastern District of Missouri on behalf of the plaintiff’s and all others similarly situated. The Plaintiff’s estimate the class action would include approximately 50,000 pharmacies. To download a copy of the complaint, click here.
The complaint alleges ESI improperly used customer information and prescription data to divert customers to its own mail order pharmacy business. ESI is the largest Pharmacy Benefit Manager (PBM) in the U.S., responsible for processing prescription drug benefits of more than 25% of insured patients, processing an estimated 1.4 billion prescriptions per year. ESI has contracts with many of the largest providers of insured and pre-paid prescription drug benefits, including for example, the Department of Defense (TRICARE), UnitedHealth Group, and Wellpoint. Allegations against ESI include unfair competition, breach of contract, breach of implied covenant of good faith and fair dealing, interference with prospective economic advantage, violation of the Uniform Trade Secrets Act, and fraud.
ESI’s PBM contracts give them access to customer data to verify that beneficiaries are eligible for prescription coverage and to collect insurance payments. The lawsuit alleges that ESI has improperly used this information to divert pharmacy customers via a practice of prescription “slamming,” a practice that has generated billions of dollars in illegal profits for ESI and denied the pharmacies of revenue. (“Slamming” is a situation in which a consumer’s service is switched without the consumer’s permission, a practice the Federal Trade Commission has deemed illegal in the telecommunications industry.) Pursuant to the PBM contractual language and HIPAA regulations, ESI’s use of the customer data to divert business to its mail order pharmacy violates the both the PBM contract and HIPAA regulations. HIPPA requires that personal health information (PHI) data be used only for the purpose for which it was provided and, PBM contractual language states the PHI data is for two purposes: (1) confirm eligibility, and (2) collect payment for filling the prescription.
ESI’s mail order pharmacy business has tripled since 2009, largely due to its “mail conversion program,” which generated 41.8 million prescriptions in 2009 with a revenue of $8 billion and grew to 141.2 million prescriptions with revenue of $37.6 billion in 2013. The lawsuit alleges all or nearly all of the $37.6 billion collected by ESI’s mail conversion program in 2013 would have been collected by retail pharmacies.
ESI’s contracts require pharmacies to provide customer and prescription information that is not actually necessary to confirm eligibility or collect payment. According the complaint, ESI has used the data to identify the most profitable prescriptions for their mail conversion program in order to switch refills without the customer’s knowledge or consent. Brand prescription drugs, particularly name brand drugs for chronic conditions, generally produce more net profit than generic drugs. Pharmacies understood that PBM contracts required the filling of generic drug prescriptions at very little profit or in some cases, at a loss. However, they also understood and relied upon the profitability of filling prescriptions for brand name drugs. By converting the more profitable prescriptions to mail order, ESI has effectively harmed the pharmacies ability operate a profitable business and in some cases, may have driven small independent pharmacies out of business.
Pharmacies and customers typically learn that a prescription has been converted to mail order when a refill is requested by the customer and submitted to ESI by the pharmacy. However, rather than receiving a confirmation that the prescription is covered by the customer’s insurance, as was the case when the prescription was originally filled, pharmacies are notified that the prescription has been switched to “mandatory mail order” and that only Express Scripts will be permitted to fulfill the prescription’s refills. The customer has no recourse to convert the prescription back to the retail pharmacy.
ESI’s mail order conversion program does not benefit customers or insurers according to the complaint. In fact, the program benefits only ESI. State “Any Willing Provider” laws prohibit ESI from requiring patients to pay different co-pay, co-insurance or deductibles based on whether they fill a prescription at a local pharmacy or via mail order. Insurers do not gain any financial benefit either because the “Any Willing Provider” laws dictate that a licensed pharmacy that is willing to accept the same financial terms as ESI, must be allowed to fill the prescriptions.
Also included in the complaint is the efficacy of mail order prescriptions due to exposure to temperature and humidity levels higher than FDA regulations for storage of the same drugs. Most prescription drugs are supposed to be stored at temperatures between 68 and 77 degrees Fahrenheit and kept in relatively dry conditions, standards that cannot be controlled when mailing prescriptions.
This is not the first lawsuit filed against ESI for unfair practices. In January several independent compounding pharmacies filed a lawsuit against ESI, CVS Caremark, OptumHealth, Inc., and Prime Therapeutics LLC, alleging they caused more than $100 million in damages and alleged the focus of their anticompetitive conduct was to drive the pharmacies out of business in favor of ESI’s mail order business. The complaint was later amended to ESI as the sole defendant. A copy of the amended complaint can be downloaded here.