Walgreens $360 Million Settlement with Humana Sheds Light on Dangers of Reporting Incorrect U&C Price

In early January 2024, the District of Columbia dismissed Humana’s civil lawsuit with prejudice against Walgreens Boots Alliance (“Walgreens”) after the parties reached a $360 million settlement agreement. Humana originally received a $642 million award in private arbitration for its claims that Walgreens artificially inflated prescription drug prices for years, resulting in excessive reimbursements.  After Walgreens filed an action requesting the $642 million award be vacated, the parties negotiated the $360 million settlement and ended the dispute.  Although Humana’s claims against Walgreens may be resolved, the settlement and underling allegations shed light on a larger industry trend and provide valuable lessons for independent pharmacies and prescription benefit plan sponsors alike. 

Humana’s Allegations Against Walgreens

Humana brought its action against Walgreens and claimed that the chain pharmacy giant inflated drug prices by failing to report the prices offered through its prescription discount program when reporting its Usual and Customary (“U&C”) Price.  Since most Pharmacy Benefit Managers (“PBMs”) include provisions in their contracts with network pharmacies that state pharmacies will be reimbursed at the lesser of the contracted rate (typically average wholesale price minus a certain percentage) or the pharmacies’ U&C Price.  When pharmacies artificially inflate their reported U&C Price, pharmacies may receive higher reimbursements than they were entitled to under their agreement.  Ultimately, insurers, patients, and prescription benefit plans are left to pay these artificial prices.  Thus, by failing to include the lower prices offered in Walgreens’ prescription discount program, Humana claimed Walgreens received hundreds of millions of dollars in excessive reimbursement.

Lessons for Independent Pharmacies

Although the definition of U&C Price may vary slightly from contract to contract or state to state, it is generally defined to mean the lowest price a pharmacy offers a cash paying customer for a given prescription on a given day.  Disputes, such as the one between Humana and Walgreens, typically revolve around whether a pharmacy is required to consider the prices offered through prescription discount programs as the “lowest price” offered and whether a patient enrolled in a prescription discount program is considered a “cash paying customer” or member of the “general public.”  Thus, the determination of a pharmacy’s U&C Price is dependent not only on how U&C is defined in the relevant contract or statute, but also the structure of the discount program itself. 

A nine-figure settlement is not the only risk for pharmacies that inaccurately report their U&C Price, as inflated U&C Prices also impact government-funded programs like Medicare and Medicaid.  To illustrate, when pharmacies report an inaccurate U&C Price and receive excessive reimbursement from Medicare or Medicaid, it could be equated to the submission of a false claim in violation of the federal False Claims Act and any state law equivalents. It is also worth noting that PBMs may view inflated U&C Prices as a violation of their PBM Provider Agreement and Manual. 

Independent pharmacies are urged to review, analyze, and understand their obligations to PBM contracts and applicable law.  By doing so, pharmacies are better positioned to review any prescription discount programs they may offer, and whether the prices offered through such programs should be considered the pharmacy’s U&C Price.

Lessons for Prescription Benefit Plans and Plan Sponsors

Humana-Walgreens settlement demonstrates how one simple omission by a major chain pharmacy can artificially inflate drug prices, passing on excessive costs to prescription benefit plans and beneficiaries.  As fiduciaries to these plans, plan administrators are encouraged to take affirmative steps to analyze whether inflated U&C Prices stemming from similar programs to Walgreens’ prescription savings program are unduly increasing the plan’s total drug spend.  Humana’s settlement with Walgreens illustrates that the amount of excessive reimbursement is potentially substantial and forcing the plan to spend far more than appropriate. 

Of note, plan sponsors and plan fiduciaries are often provided with audit rights in their contracts with PBMs or third party administrators.  While these audit rights may seek to restrict the scope of an audit of pharmacy claims, the Employee Retirement Income Security Act of 1974 (“ERISA”) provides plan sponsors with protections that render restrictions on the plan’s right to audit impermissible and allow plans to access prescription claim data to identify improper payments such as those caused by artificial reporting of U&C Price.  Specifically, ERISA prohibits contracts between prescription benefit plans and PBMs from directly or indirectly restricting the plan’s ability to electronically access de-identified financial data for each plan participant on a per-claim basis.[1]  Thus, plan sponsors are entitled to (if not required to given their own fiduciary duties) conduct audits of their prescription benefit claims to uncover any improper billing and/or reimbursement due to artificial U&C Prices.

How Frier Levitt Can Help

If you’re in need of assistance protecting your pharmacy or prescription benefit plan from the dangers of inflated U&C Prices, contact us to learn more.  Our attorneys possess the necessary skill and experience to help you comply with your obligations and fight for your rights.

[1] See 29 U.S.C § 1185m(a)(1).

lets NOT advocate suing pharmacies [JL1]