PBMs Wrongfully Increase Scrutiny of Pharmacies Due to “Gray Market” Diabetic Test Strip Suppliers

In the wake of the recent litigation involving Abbott Laboratories and “gray market” diabetic test strips, pharmacies are facing increased PBM scrutiny over their purchases from certain pharmaceutical distributors, including secondary wholesalers. On November 4, 2015, Abbott Laboratories won a court order barring certain pharmacies and distributors from selling what it claimed to be “gray market” versions of its diabetes test strips in the United States. In the litigation, Abbott alleged that several wholesale suppliers imported FreeStyle glucose test strips to the United States at lower, foreign prices and resold them to United States customers. The injunction relied upon the assertion that these products were likely to confuse consumers and harm Abbott’s reputation. 

Despite the fact that the Abbott litigation appears far from over, many PBMs have begun to use these developments to justify targeting of pharmacies over purchases of glucose test strips from anyone other than the manufacturer or primary wholesaler of record, even when there is no evidence that such testing strips were diverted or misbranded. Under applicable law, it is entirely permissible for licensed, secondary wholesalers to acquire legitimate products from a variety of lawful sources, and then resell them to licensed pharmacies. Moreover, many States’ laws do not have a mandate that suppliers of over-the-counter devices supply a pedigree – or a formal document delineating the transaction history of a particular batch of a drug or device – when transferring such products. 

In spite of this, several major PBMs have used Abbott’s initial successes in the unrelated litigation as a boon to justify heavy-handed audits of pharmacies regarding their purchasing sources of these diabetic suppliers. In this vein, PBMs have required pharmacies to produce additional documentation and information above and beyond standard wholesaler invoices or purchase history records, demanding that pharmacies provide pedigrees or manufacturer lot numbers in order to get credit for purchases properly made and paid for from duly-licensed wholesalers. These PBM actions have led to massive recoupments and even termination in some instances.

The PBMs’ actions are without proper basis in law or in contract.  If your pharmacy has purchased from a supplier indicated in the Abbott litigation or is facing PBM action based on these types of purchases, contact Frier Levitt today.