A federal district court in Arizona has upheld a $23 million arbitration award to the AIDS Healthcare Foundation (AHF) against pharmacy benefits manager (PBM) CVS Caremark for unfair drug reimbursement.
In its November 2019 lawsuit, AHF alleged that CVS Caremark “clawbacks” of reimbursement for Part D prescription claims and its subsequent distribution of these funds to Part D plan sponsors was occurring in violation of “the covenant of good faith and fair dealing” contained in contracts between the two parties. An arbitrator agreed with this claim, ruling in favor of AHF in November 2021 and ordering CVS Caremark to pay $23 million in damages and expenses. CVS Caremark then appealed the arbitration ruling. The federal district court upheld the ruling on Sept. 15.
“This case is a major victory for all independent pharmacies,” said AHF President Michael Weinstein. “Most independent pharmacies don’t have the resources or are afraid of retaliation for taking such actions. To be clear, this court found for us in every regard. None of the objections raised by CVS carried any weight with this court.”
“We respectfully disagree with the court’s decision in this matter,” said Mike DeAngelis, Executive Director of Corporate Communications for CVS Health, the parent company of CVS Caremark. Performance-based rebate fees “are fully disclosed in our contracts with network pharmacies, comply with the applicable laws, and help ensure optimal clinical pharmacy performance on behalf of our clients and plan members,” DeAngelis said.
At the heart of the dispute was CVS Caremark’s application of its Performance Network Program (PNP) under which it assessed Performance Network Rebate (PNR) fees or “clawbacks” against its network pharmacies based on certain performance metrics. CVS Caremark began requiring its Part D network pharmacies—including AHF pharmacies—to participate in performance networks beginning in 2016.
Under PNP, CVS Caremark replaced the flat network fees that pharmacies paid it with variable performance-based fees, with higher performing pharmacies paying less. CVS Caremark calculated pharmacies’ scores based on PNP criteria and used those scores to determine the applicable variable rate fee, or PNR.
According to Andrew Kim, attorney at Kim Riley law firm who represented AHF in this dispute, numerous aspects of CVS Caremark’s operation of PNPs were determined to be “unconscionable” in arbitration and on appeal. Kim said one example of “deeply flawed” metrics used by CVS Caremark to measure performance that the arbitrator found particularly compelling was its practice of substituting “average” performance data of unidentified, unaffiliated pharmacies in cases where transaction data from AHF pharmacies was absent.
Weinstein said the largest part of the performance criteria for getting clawbacks reimbursed was dispensing a sufficient amount of generic drugs. However, almost all HIV antiretrovirals used by AHF’s patient population are branded drugs not available in generic form, which made it impossible for AHF to meet this criteria.
These performance metrics are leveraged to “pull Medicare Part D public funds back from these independent pharmacies after they’d already dispensed the drugs,” and give that money to private insurance companies, Kim said. He noted that some of these insurance companies such as Aetna and Silverscript are in fact owned by CVS Caremark. Kim said the Court and arbitrator objected strongly to this “funneling of the fees”—a practice garnering $9 billion industry-wide in 2021—and this became a key factor in their decision.
As part of its original arbitration case, AHF also sought a permanent injunction prohibiting Caremark from operating PNPs, which they were granted.
Weinstein says that market dominance by the “big three” PBMs—CVS Caremark, Express Scripts, and OptumRx—means that pharmacies such as those run by AHF cannot serve “our clients who rely on us for services…if we do not submit to these unfair terms”. He says AHF is currently suing Express Scripts for similar reimbursement practices.
AHF’s general counsel Tom Myers applauded the court’s decision to unseal all documents related to the case and make them available for public viewing, which CVS Caremark “strived mightily” to prevent. He said CVS Caremark requires all cases to be arbitrated because this means such documents are kept confidential. “The only reason you’re hearing about this case is because CVS tried to appeal the decision,” Myers said. He notes that CVS Caremark contracts with 68,000 pharmacies nationwide, and it’s “highly likely that what [they] did to us they’ve tried to do thousands of times,” to other pharmacies.
Myers hopes the case will become a “roadmap” for other pharmacies that do business with CVS Caremark.
AHF operates 62 pharmacies in the U.S., most of which are co-located with their clinics. According to Weinstein, AHF’s pharmacies are its largest source of revenue, which the organization depends on to provide care and other programs.
AHF’s clinics participate in the 340B program and the organization is actively engaged in 340B advocacy efforts including a public relations campaign entitled Let it B.