A Philadelphia-area hospital that closed last year after its sale fell through has filed a federal antitrust class action against healthcare conglomerate CVS over its 340B contract pharmacy policies.
The same shuttered hospital has been challenging in state court its loss of its local property tax exemption as a charity, including for a 15-month period during which it was enrolled in 340B. A state appeals court held in February that a lower court “did not err in finding [the] hospital failed to prove it operated free from a profit motive.” An attorney for the hospital did not immediately respond to a request for comment.
Brandywine Hospital LLC, which was part of the health system Tower Health, sued CVS Health and subsidiaries April 17 in federal district court in Philadelphia on its own behalf and potentially “thousands of class members” nationally, its complaint said. The hospital alleges that CVS illegally uses its market power to coerce 340B providers that wish to contract with CVS retail and specialty pharmacies to use CVS’s 340B third party administrator Wellpartner as their exclusive 340 TPA for the relationships.
CVS Health said in a statement yesterday, “We believe the allegations are without merit and intend to defend ourselves vigorously.”
“CVS’s tying arrangement harmed, and continues to harm, competition,” Brandywine’s complaint said. “The tie has foreclosed other TPAs from competing to provide TPA services to covered entities using CVS contract pharmacies.”
Brandywine seeks for itself and the national class triple the amount of maximum damages allowed under federal antitrust law with interest, payment of its legal fees and costs, and other relief as the court sees fit. It asked for a jury trial.
Last month, a New York State judge dismissed a comparable antitrust lawsuit against CVS filed by the state attorney general. That case alleged that CVS violated state, not federal, law. The state attorney general’s office said it was considering its options.
In 2019, CVS reached a settlement with 340B TPA Sentry Data Systems (now the Craneware Group), which sued CVS in federal district court in Florida alleging violations of state and federal antitrust laws. In 2020, CVS settled a similar antitrust suit filed in federal district court in Florida by 340B TPA RxStrategies.
Brandywine was founded as a nonprofit hospital in 1983, acquired by a for-profit hospital company in 2001, then sold in 2017 with five other hospitals to Tower Health, which set each one up as an LLC with Tower as its sole member.
According to the federal 340B program database, 340B OPAIS, Brandywine participated in 340B from Oct. 1, 2020, until its closure on Jan. 31, 2022. The database shows it had eight contract pharmacy arrangements, three with CVS.
NPR affiliate WHYY described Brandywine as being located in an area with a majority population of people of color and a large senior population. In its story on Brandywine’s closing, it pointed out that the hospital had the only inpatient behavioral health facility in Chester County.
On Feb. 10, a state appeals court denied Brandywine’s appeal of four school districts’ denial of its and three other Tower Health hospitals’ property tax exemptions for tax years 2018 through 2021. In an opinion that drew much attention in the state, a county court upheld the denial in 2021. The judge said Brandywine and the other hospitals did not qualify as tax-exempt charities under state law.
Brandywine, a disproportionate share hospital, was enrolled in 340B during the last quarter of 2020 and all of 2021, federal records show—a period during which, the county said and state courts agreed, it was not tax-exempt.
According to the appeals court ruling, the trial court found that Tower charged Brandywine and the other hospitals excessive management fees and paid Tower executives excessive compensation. “The trial court also rejected [Brandywine’s] position that it renders a substantial portion of its services gratuitously,” the appeals court said.
