In an alarming trend, a manufacturer of diabetic test strip has taken actions against pharmacies alleging that they purchased the manufacturer’s test strips (the “Test Strips”) from unauthorized distributors or wholesalers. The manufacturer further claims that it pays rebates to Pharmacy Benefits Mangers (“PBMs”) only on claims from pharmacies that purchased the Test Strips from the authorized distributors or wholesalers. The manufacturer demands that pharmacies: (i) pay the alleged financial losses suffered by the manufacturer; or (ii) provide documentation demonstrating that the pharmacies purchased the Test Strips from authorized distributors or wholesalers (and such purchases should substantiate the claims submitted for rebate reimbursement by the PBMs). Additionally, the manufacturer warns that failure to comply will result in reporting to the PBM of the pharmacies’ failure to purchase the test strips from authorized distributors and withholding of future rebates for the pharmacy. To the PBM.
Importantly, the manufacturer rebates are not paid to the pharmacies. Instead, these rebates are paid by the manufacturers to PBMs. As we have previously discussed in our previous articles, manufacturers pay rebates to have their products to be placed on drug formularies that are, in many (if not all), developed and maintained by the PBMs. Indeed, the gross-to-net bubble (i.e., the dollar gap between sales at brand-name drugs’ list prices and their sales at net prices after rebates) was estimated at $250B in 2022.[1] Pharmacies do not receive any financial benefit from the manufacturer rebates and they do not have any contractual relationship with the manufacturer. It is quite disturbing that the manufacturer is placing additional burdens on pharmacies – considering the significant challenges they already face due to the actions of PBMs. Instead, the manufacturer should seek remedies from the PBMs who may have already recouped the reimbursement paid on the claims for the Test Strips from the pharmacies.
Many PBMs have a strict policy in place that mandates pharmacies to obtain diabetic testing supplies only from authorized distributors. These distributors are essentially approved wholesalers that have a contract with the manufacturer to sell and distribute their products or testing supplies. The definition of an authorized distributor may vary from one manufacturer to another, but the underlying principle remains the same. It is important to note that this requirement is not limited to PBMs alone. Some states, like California and New Jersey,[2] have also implemented similar regulations. Under California law, pharmacies are obligated to purchase nonprescription diabetic testing supplies exclusively from authorized distributors.[3] Failure to do so constitutes unprofessional conduct under California and New Jersey Board of Pharmacy rules.
Although many PBMs and several states require purchase of test strips from authorized distributors, there is no requirement under the Drug Supply Chain Security Act (DSCSA) for pharmacies to purchase test strips from authorized distributers (or directly from manufacturers).[4] However, pharmacies who are purchasing from unauthorized distributers should always request and obtain T3 documentation from the wholesalers even though such documentation is not required under the DSCSA. This precautionary measure is essential due to the occurrence of numerous lawsuits against pharmacies involving adulterated or misbranded test strips. Examples of such issues include strips labeled as ‘not for retail’, durable medical equipment (DME) strips, expired or counterfeit products, as well as diverted international tests strips. Additionally, large settlements have reached in cases where pharmacies were engaged in false claim adjudication, such as billed incorrect National Drug Code numbers (NDC) numbers.
How Frier Levitt Can Help
It is crucial for pharmacies stay informed about existing rules and regulations and take proactive steps to ensure compliance with State Board of Pharmacy rules and regulations, as well as PBM terms and conditions. By doing so, pharmacies can avoid potential financial recoveries and penalties. If your Pharmacy has been subject to a monetary recovery from a manufacturer of diabetic testing supplies, contact us for assistance in responding and mitigating any penalties associated with the recovery process.
[1] Four Trends That Will Pop the $250 Billion Gross-to-Net Bubble—and Transform PBMs, Market Access, and Benefit Design, Drug Channels; available at: https://www.drugchannels.net/2023/04/four-trends-that-will-pop-250-billion.html#:~:text=We%20estimate%20that%20the%20gross,Our%20latest%20data%20appear%20below.
[2] P.L. 2019, c. 388, N.J.S.A. 45:14-83 to 86.)
[3] See Cal. Business & Professions Code § 4160.5.
[4] P.L. 113-54.
