On May 23, 2023, Blue Cross Blue Shield of Michigan (“BCBSM”) filed a lawsuit against its former Pharmacy Benefits Manager (“PBM”), Express Scripts, Inc. (“ESI”) in the Eastern District of Michigan to recover thousands of dollars in manufacturer rebates allegedly withheld by ESI in violation of the parties’ contract and long-standing practice. The complaint alleges that ESI used spurious tactics to avoid paying BCBSM the rebates including:
- Systematically undercounting claims subject to the rebate guarantee;
- Falsely classifying claims to make them appear as though they were properly excepted from the rebate provision;
- Using its mail-order pharmacy to effectuate the misclassification of claims.
BCBSM further alleges that ESI wrongfully withheld the rebates as “deal leverage” to pressure BCBSM into renewing its contract with ESI in exchange for ESI’s agreement to release the rebates. BCBSM ultimately declined and ESI never returned the Manufacturer Rebates. In addition to numerous breach of contract claims, ESI faces fraudulent inducement, conversion and equitable estoppel claims. If proven, this case will be yet another example of PBMs using predatory and anticompetitive practices to bolster their bottom line.
What Are Manufacturer Rebates?
Manufacturer rebates are payments made by manufacturers to PBMs in exchange for placement of their drug on a PBM’s formulary. Formulary placement increases the chance that providers will prescribe that drug to patients, and in turn, increases the overall revenue to the manufacturer. The contract between plan sponsors and PBMs often require PBMs to collect and remit manufacturer rebates to their plan sponsor clients.
How do PBMs Abuse Manufacturer Rebates?
In addition to the unfair and unlawful tactics alleged against ESI in the BCBSM lawsuit, PBMs also use “Rebate Aggregators”, which are companies commonly owned or affiliated with PBMs, to delegate their responsibility for collecting and remitting manufacturer rebates. These Rebate Aggregators help boost the profits of PBMs by falsely underreporting the total amount of rebates collected from manufacturers. Other lesser-known tactics PBMs employ against plan sponsors concerning manufacturer rebates include:
- Refusing to allow plan sponsors to review claim-level rebate information through regular reporting or auditing;
- Failing to ensure rebates collected are keeping pace with increasing drug prices;
- Using intentionally ambiguous contract language to suppress their obligations to share rebates with plan sponsors; and
- Disguising rebates as other fees or expenses.
Plan Sponsor Exposure
Plan Sponsors should be extremely wary of these tactics. As illustrated in BCBSM v. ESI, plans risk losing substantial sums of money if their contract(s) with PBMs do not contain ironclad provisions describing the duties and responsibilities of PBMS as they relate to manufacturer rebates. Medicare Part D plans should be particularly mindful due to their annual reporting obligations to the Centers for Medicare and Medicaid Services (“CMS”). CMS considers manufacturer rebates to be Direct and Indirect Remuneration, that must be disclosed to CMS regardless of whether the plan receives those rebates. Failure to accurately report rebates to CMS may result in fines or, worse, forfeiture of the ability to administer Medicare benefits on behalf CMS. It is absolutely critical that plan sponsors retain experienced legal counsel to steer clear of these pitfalls.
How Frier Levitt Can Help
Frier Levitt’s Plan Sponsor Practice Group provides a panoply of legal services to plan sponsors including, but not limited to, ensuring PBM compliance with contract terms and applicable law, drafting and negotiating of contracts, and litigation to recover damages caused by unlawful PBM conduct. If you are a plan sponsor that has been subjected to any of the aforementioned predatory PBM conduct, contact us to speak with a Frier Levitt attorney today. Our team is ready to assist you.
