The FTC approved the ESI-Medco Merger, Now What? A Call For Uniform State Laws Protecting Pharmacies (Any Willing Provider; Prompt Pay)

The Federal Trade Commission (FTC) approved the merger between Express Scripts, Inc. (ESI) and Medco Health Solutions, Inc. (Medco), two of the country’s three largest Pharmacy Benefit Managers (PBMs). What can pharmacies do to curb abusive PBM audit practices, the growth of PBM mail-order and specialty pharmacy, all of which erode independent pharmacy profits?

The independent pharmacy community can expect continued changes in the areas of network reimbursement, mail order encroachment and pharmacy auditing. ESI-Medco will generate a new provider manual, altered and modified networks, and different policies and procedures relating to all topics such as audits, retractions, billing, dispensing standards, terms barring pharmacy mailed prescriptions and reimbursement rates. The merger will drastically increase ESI-Medco’s ability to exert power over independent pharmacies. As the biggest PBM in the country, ESI-Medco will have unprecedented power and control to manipulate every aspect of the contracting relationship with the pharmacy, including:

  • reimbursement rates for network pharmacies
  • audit practices and procedures
  • drug and reimbursement rates
  • network admission practices and procedures
  • network termination practices and procedures
  • mandatory use of PBM proprietary mail-order pharmacy
  • terms barring independent pharmacies from using “mail” to deliver prescription drugs
  • delineation of “specialty” drugs, use of proprietary specialty pharmacy and keeping independent pharmacies outside the PBM’s “specialty pharmacy networks”
  • general contract terms (i.e., location and form of dispute resolution)

In approving the merger, the FTC’s Statement focused mainly on the potential effects on competition regarding entry into the PBM market by other PBM competitors, and the ability of ESI-Medco to engage in anticompetitive behavior with respect to the plan sponsors. Ironically, the Statement noted that the investigation was focused on the merger of Medco and ESI as “buyers” (i.e., engaging the services of retail pharmacies to be in their network), and not as “sellers” (i.e., selling PBM services to plan sponsors). Despite this pronouncement, the FTC Statement overwhelmingly appeared to be focused largely on the competition among PBMs from the perspective of the health insurers and plan sponsors. Concerns of the retail pharmacies were given short-shrift by the Commissioners in the Statement.

The Statement seemed to concede that ESI-Medco will be able to exercise monopolistic power over the pharmacies, though ESI-Medco would not necessarily have such power over Plan Sponsors. The FTC’s Statement addressed the specialty pharmacy market but did not comprehend that ESI-Medco will be able to funnel medications into the restricted specialty pharmacy networks and away from independent pharmacies. ESI-Medco is likely to widen the classification of high margin drugs as “specialty” and divert them to in-house PBM mail-order through their “exclusive specialty pharmacy networks.”

What Must Pharmacy Organizations Do to Protect Independent Pharmacies?

Well drafted State law can protect independent pharmacies from the new ESI-Medco giant. The answer is uniform State laws and regulations that curtail ESI-Medco (and other large PBMs) from engaging in abusive and anticompetitive practices vis-à-vis independent pharmacies. This merger highlights the importance of uniform State laws governing PBMs. Do you know that it takes a “team” of lawyers just to figure out if some State laws even apply to PBMs? Some State laws that are not well drafted apply only to HMOs, PPOs, or other health insurance plans only, and do not extend to PBMs. Others still specifically exempt pharmacies altogether from certain benefits such as the any willing provider requirements or prompt payment of claims. Many of these laws do not acknowledge the unique landscape presented by the proliferation of PBMs and must be updated and streamlined.

Currently, different States have widely different versions of laws regulating PBMs. Some States have laws regulating only the PBMs’ actions with respect to the plan sponsors. Some States provide only the basic regulation of timing for payment of clean claims to the pharmacy, and often do so indirectly through regulation of health insurance companies. The various State laws are disjointed and inconsistent. The answer is a set of uniform PBM laws addressing prompt payment of claims, any willing provider requirements, anti-retaliation provisions, abusive audit and network termination practices, and specialty and mail-order networks and classifications. Variations of these laws exist piecemeal in several States. As such, large PBMs like ESI-Medco are able to take undue advantage of the inconsistent regulation from State to State, and incompleteness of regulation within a given State. Often, the large PBMs simply ignore State laws, because so few pharmacies challenge PBMs because of the fear of network termination and/or retaliation. Other industries have successfully mobilized and passed uniform laws. Many States have enacted the Uniform Fraudulent Transfer Act, the Uniform Commercial Code, the Uniform Partnership Act, and the Model Nursing Act. Uniform State laws protecting pharmacies would provide unity and consistency among the States, and would give independent pharmacies a fighting chance against the abusive practices of the PBMs.

The uniform PBM laws would contain sections setting standards and timeframes for payment of clean claims specifically applicable to PBMs, and would provide real consequences for the PBMs’ failure to timely pay. Unreasonable network terminations by the PBMs (with and without cause) would be limited. Any Willing Provider would have to be let into the PBM networks, and exclusion from specialty pharmacy and mail-order networks would be limited by law. Finally, the uniform laws would establish policies and procedures protecting pharmacies from aggressive and abusive audit practices, including establishing reasonable “look back periods” for audits and preventing retractions for mere technical discrepancies. With a comprehensive and concerted approach, independent pharmacies can defray many of the harsh outcomes that would otherwise flow from the ESI-Medco merger.

A uniform State law regulating PBM practices is the independent pharmacy’s only chance at survival in an environment dominated by the large PBMs. Frier Levitt has assisted various States in drafting similar legislation.

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