New Court Ruling Potentially Revives Independent Pharmacy Class Action Arbitration Against PBMs

Class Action is the most powerful tool in a lawyer’s arsenal to help independent pharmacies force national-scale changes in abusive PBM auditing conduct. In 2009, Frier Levitt obtained a $12+ Million class action arbitration award against one of the nation’s largest PBMs. However, a 2010 United States Supreme Court ruling altered the landscape. The decision made it almost impossible for a small group of brave independent pharmacies to challenge abusive PBM audit practices on behalf of a national class of their independent pharmacy colleagues. However, a very recent ruling may have turned the tide in favor of local pharmacies—permitting class action Arbitrations. 

Arbitration Provision

Most Pharmacy Benefits Managers (PBMs) require that disputes be submitted to binding “arbitration”, by including a mandatory arbitration provision in their Pharmacy Provider Manual. Often times, a single pharmacy cannot afford to arbitrate against the PBM and therefore many pharmacies abandon potentially successful audit challenges. Class action arbitration is often the only hope because thousands of abusive PBM audit practices can be challenged in a single case. 

Prior to April 2010, class arbitrations provided an effective means for independent pharmacies to obtain justice against a PBM. Class arbitrations could “level the playing field”, allowing independent pharmacies with limited financial resources to battle PBMs.

On April 27, 2010, in Stolt-Nielsen v. Animalfeeds International Corp., the United States Supreme Court took the class action arbitration tool away from pharmacies. The Court held that a party may not be forced into a class arbitration unless there is a contractual basis for concluding that the parties agreed to do so. The Supreme Court reviewed the plain language of the arbitration agreement before the Court, which did not expressly permit class arbitration. The parties in that case had stipulated that they did not contemplate, one way or the other, whether class arbitration was permissible. 

The Supreme Court’s holding in Stolt-Nielsendid not involve a dispute between a PBM and pharmacy. Nevertheless, the decision “chilled” independent pharmacy’s ability to challenge a PBM’s audit conclusions in a class action arbitration setting. A recent ruling by the United States Court of Appeals for the Third Circuit in April 2012 is potentially beneficial to independent pharmacies challenging abusive PBM audit practices. 

On April 3, 2012, the Third Circuit distinguished the Supreme Court’s holding in Stolt-Nielsen.  In Sutter v. Oxford Health Plans, LLC, the Appeals Court clarified that the arbitration provision at issue in Stolt-Nielsendid not expressly permit or reject class arbitration. The Third Circuit concluded that although the arbitration agreement at issue did not expressly permit class arbitration, the agreement was drafted very broadly and there was no express prohibition on class arbitration. The court distinguished Stolt-Nielsen, emphasizing that the parties in that case stipulated that they did not have an agreement (one way or the other) as to whether an arbitration could proceed on a class basis. In contrast, the Sutterplaintiff did not so stipulate. While the arbitration agreement did not expressly permit class arbitration, the Third Circuit found that express permission to proceed on a class arbitration basis was unnecessary, and affirmed the arbitrator’s decision to permit class arbitration where the language of the agreement was broad enough to include all civil actions (including class action), and there was no express prohibition on class arbitration.

Sutter represents a substantial change in the body of law regarding class arbitrations. Sutter benefits independent pharmacies by providing binding precedential authority to proceed with class arbitrations against PBMs such as CVS/Caremark that maintain broad arbitration agreements in their Pharmacy Manual, and do not expressly prohibit class arbitrations.

If your pharmacy is involved in a dispute with a PBM that you believe lends itself to class arbitration resolution, contact Frier Levitt today.

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