On July 17, 2024, the Vermont Attorney General (“Vermont AG”) sued Express Scripts, Caremark, and their respective subsidiaries in Vermont Superior Court, alleging that the PBMs have falsely represented to Vermont consumers that they help lower drug costs, when in reality, they do the opposite.[1] This lawsuit is among the first examples of government enforcement following the FTC’s bombshell report on PBM abuses, also released in July 2024. In fact, the Vermont complaint directly incorporates the FTC’s findings (read Frier Levitt’s analysis of the 2024 FTC Report on PBMs here). Further enforcement actions against PBMs similarly relying on the FTC’s and other public reports against PBMs may be on the way. Self-funded plans must take note of this emerging trend of government enforcement, and vigorously audit PBMs. The fact that government agencies are taking the lead in curbing PBM abuses should be a wake-up call to self-funded plans and other plan sponsors who have not considered their own exposure by failing to audit their PBMs.
Factual Allegations
The Vermont complaint reads very much like a compendium of the numerous ways that PBMs are known to increase their profits, including spread pricing, retaining manufacturer rebates, manipulating formularies and drug list prices, steering patients to their in-house specialty pharmacies, and more. All of these added costs are ultimately passed onto the consumer – here, Vermont patients and payors.
The Vermont complaint provides numerous examples of drugs where the prices have increased dramatically over the past decade, including insulin pens, multiple sclerosis drugs, and cancer drugs. The complaint explains how the vertically integrated PBMs, using their market power, drive up higher list prices from pharmaceutical manufacturers while separately negotiating rebates and other manufacturer payments to pad the PBMs’ bottom lines. The complaint further alleges that using opaque contracts and drug pricing terms, the PBMs conceal how much money they allocate to themselves out of the total drug cost paid by payors and plans. As an example, the complaint cites a recent study in the Journal of American Medical Association, which concluded that “the amount of money that goes to the PBMs for each insulin prescription increased over 150% from 2014 to 2018.”
Accordingly, Vermont patients and payors have been overcharged “millions of dollars a year.” At the same time, Vermont pharmacies are struggling to stay open due to the PBMs’ refusal to pay reasonable rates of reimbursement. But, due to the PBMs’ market power, pharmacies are “often required to accept reimbursement rates from the PBM Defendants significantly below their acquisition costs.”
Notably, although much of the complaint’s allegations are directed at the PBM industry generally, the Vermont AG lawsuit only names Express Scripts and Caremark as Defendants. These two PBMs control 95% of Vermont’s PBM market. The PBMs’ market power and geographic reach is not constant nationwide but varies from state to state, with some PBMs having greater market share and dominance in specific regions.
Vermont AG Argues that PBMs Committed Unfair and Deceptive Practices
The Vermont AG lawsuit relies on a relatively novel legal claim, that the PBMs committed deceptive and unfair trade practices in violation of the state Consumer Protection Act. After recounting all of the ways that PBMs raise drug prices, the Vermont AG highlights numerous public statements made by Caremark and Express Scripts claiming that PBMs help lower drug costs. For example, in 2024, Travis Tate, VP of Formulary and Trend Solutions for CVS Caremark, represented that Caremark’s managed formularies “deliver $4.8 billion in client savings and $138 in savings per patient.” David Joyner, the Executive VP of CVS Caremark, also stated in an April 2024 article that Caremark’s “size and scale allow us to go toe-to-toe with drug companies, driving competition and negotiating discounts that make the difference between someone affording their medication or going without.” Executives of Express Scripts have similarly stated that the PBM helps plan sponsors obtain “the lowest possible cost.” The Vermont AG asserts that these statements were false and deceptive because the PBMs “fail to disclose that the amount of ‘savings’ they have generated is calculated based on the list prices which the PBM Defendants are directly responsible for driving up.”
The lawsuit also asserts that the PBMs abused their market power to drive up prices, which is unfair, oppressive, and unscrupulous. Patients and payors in Vermont had no choice but to pay the inflated drug costs, and Vermont pharmacies had no choice but to accept the low-ball reimbursement that often does not cover even the drugs’ acquisition costs. The relief requested in the complaint includes statutory penalties ($10,000 per violation), disgorgement of profits, as well as restitution to Vermont payors and patients affected by the PBMs’ abuses. Thus, should the Vermont AG prevail, the court could potentially fashion relief that results in some form of monetary relief to Vermont pharmacies, patients, and payors. Moreover, by focusing on the PBMs’ near-monopolistic market power, the Vermont AG suit takes on the flavor of an antitrust suit, like the case recently brought by the AIDS Healthcare Foundation against Express Scripts.
Using a state consumer protection statute to bring an antitrust-type claim is an interesting new angle, and this lawsuit may serve as a bellwether case to test whether similar suits can be brought under the laws of other states. This new “tool” for combatting PBM abuses could potentially be used by plan sponsors as well, since most state consumer protection laws allow private parties to bring suit against violators for unfair and deceptive trade practices.
How Frier Levitt Can Help
Frier Levitt represents both self-funded employers, governmental payors, independent pharmacies, and other entities in the healthcare and life sciences industries in their dealings with PBMs. Our attorneys have decades of experience assessing contract terms, reimbursement rates, and network agreements, and litigating unfair PBM practices. If your self-funded plan, pharmacy or practice has experienced patient steering, low-ball reimbursement, or other unfair practices by PBMs, contact Frier Levitt today. Self-funded plans must audit to uncover PBM retained rebate, formulary decisions, spread pricing, and other unfair PBM practices.
[1] It should be noted that the information in the complaint, which are discussed in this article, are allegations.
