AIDS Healthcare Foundation Sues Express Scripts

The organization claims that direct and indirect remuneration fees and other clawback programs amount to a breach of contract.

The AIDS Healthcare Foundation (AHF), which cares for more than 100,000 people living with HIV or AIDS in the United States, has filed a lawsuit against Express Scripts, a subsidiary of Cigna. AHF is the owner of the AHF Pharmacy chain of pharmacies, serving primarily people of limited economic means living with HIV/AIDS.

The organization claims that clawback programs — performance network programs, direct and indirect remuneration (DIR) fees and the guaranteed effective annual rate — amount to a breach of contract.

The complaint says clawback programs essentially allow PBMs to take back from pharmacies public Medicare Part D money earmarked to pay for prescriptions for people of limited financial means. This, the suit claims, results in higher prescription costs for patients, less money for pharmacies than the negotiated reimbursement rates, and massive profits for PBMs and their private insurer clients.

“We contend these are violations of various regulations that pertain to the Medicare Part D program, for instance, regulations that require that the terms of any contract be reasonable and relevant,” Andrew F. Kim, an attorney with the firm Kim Riley Law and AHF’s lead counsel, said in an interview with Formulary Watch. “We are claiming that the clawback programs are neither and, therefore, violate federal regulations.”

The lawsuit, which was filed in the U.S. District Court for the Eastern District of Missouri, Eastern Division, claims Express Scripts violated the law in nine states where AHF operates pharmacies. Among the counts cited in the complaint are unfair or deceptive trade or business practices in California, Florida, Louisiana, New York, and Washington state. Five other counts assert violations of any willing provider laws in Georgia, Illinois, Louisiana, Mississippi, and South Carolina. AHF is requesting a jury trial.

“These programs have permitted PBMs, including Express Scripts, to essentially take back from pharmacies money that was reimbursed for filling prescriptions for beneficiaries of Medicare Part D insurance plans,” Kim said. “We have alleged in the case against Express Scripts that the contract itself, particularly with respect to the clawback programs, is unconscionable and should, therefore, not be enforced. And that’s pursuant to Missouri State law.”

The complaint alleges Express Scripts has clawed back a total $10.1 million. Between 2020 and 2021, Express Scripts has taken from AHF performance fees of $3.7 million and is $1.6 million in 2022 so far. Additionally, the suit says Express Scripts has underpaid AHF for dispensing services for Part D beneficiaries $1.4 million in 2019 and $4.4 million in 2020.

The DIR fees are a way to help the Center for Medicare and Medicaid Services (CMS) track rebates and other price adjustments made by PBMs. It is used to help determine how much CMS will pay plan sponsors for providing Part D benefits.

Total DIR reported by Part D sponsors has been growing significantly in recent years, according to CMS. Pharmacy price concessions in the Part D program has been on an upward trend, growing more than 107,400% from $8.9 million in 2010 to $9.5 billion in 2020. Much of this increase began after 2012, when performance-based payment arrangements with pharmacies became more prevalent.

The AHF lawsuit also claims that that Express Scripts is using the Star Rating system that CMS developed to rank performance of healthcare plans to impose monetary penalties on pharmacies. “ESI perverts the Star metrics in the false name of ‘pharmacy performance’ to create and grow a profit center using Part D funds for both ESI and its plan sponsor clients,” the complaint says.

CMS issued a Final Rule in May 2022 that will be effective Jan. 1, 2024, that requires Part D plans to apply all price concessions they receive from network pharmacies to the negotiated price at the point of sale. This ends the loophole in the regulations that allowed for the retroactive DIR fees, or price concessions not reflected at the point of sale for pharmacies. These retroactive fees can be assessed weeks or even months after prescriptions are filled.

CMS officials, in a press release, said this new rule reduces beneficiary out-of-pocket costs and improves price transparency and market competition in the Part D program.

The AHF complaint indicates that there is no alternative for the AIDS Healthcare Foundation if it wants to continue to serve the members of Part D plans in Express Scripts networks. It suggests there is no competitive check on how PBMs, and Express Scripts in particular, administer the clawback programs.

Kim said many patients would be forced to pay out-of-pocket for the medications that are keeping their disease undetectable. “AHF really doesn’t have a choice. They either sign the contracts and are able to treat their patients and pharmacy customers or patients are out of luck,” he said.