Life Science Compliance Update

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January 11, 2016

Pharmacy Benefit Managers Begin to Cut Ties With Specialty Pharmacies

Specialty pharmacies have been around since the 1970s, when they started to pop up to deliver products that required special handling to doctors' offices and hospitals. Some of the first specialty pharmacy products included therapies for cancer, HIV/AIDS, or hemophilia. Fast forward to today, when specialty pharmacies are used for a lot more, including complex, high-cost drugs for rare or chronic diseases.

Pharmacy Benefit Managers Cut Ties

Pharmacy benefit managers (PBMs) are starting to crack down on those specialty pharmacies, with at least eight specialty pharmacies cut off from reimbursements over the past few weeks. PBMs are focusing on pharmacies with close ties to certain drug makers, such as Valeant Pharmaceuticals and Horizon Pharmaceuticals. The PBMs are claiming that the relationships between drug makers and specialty pharmacies leads to a favoring of brands over generics, which can raise health spending and is prohibited by reimbursement rules.

The specialty pharmacies, on the other hand, state that they are helping patients get access to the drugs they need, oftentimes with help from copay assistance programs founded by pharmaceutical companies.

This crackdown comes after the Valeant-Philidor relationship became a topic of discussion. Adam Fein, president of Pembroke Consulting states, "The Valeant-Philidor relationship woke payers up to potential problems in their pharmacy networks. We are now seeing much greater scrutiny of the independent pharmacies that may not be complying with payer requirements." As a result of that relationship, all three major PBMs have stopped doing business with Philidor.

Express Scripts, CVS Health, and Optum Rx (the UnitedHealth PBM) are three of the PBMs who have cut off ties to multiple specialty pharmacies. These terminations come from PBMs who manage drug benefits for over 100 million Americans. Express Scripts, which is the nation's largest PBM, has gone so far as to change the algorithms it uses in audits to find pharmacies that have a heavy focus on one drug manufacturer. As a result, Express Scripts has cut off business ties to Linden Care, a pharmacy tied to Horizon Pharmaceuticals, along with five other specialty pharmacies.

CVS Health, the second largest PBM, responded to a Reuters email saying they are reviewing the pharmacies with ties to drug manufacturers and will remove those pharmacies that are falling short of their contract.

This recent crackdown, which is all-but-sure to continue growing in the coming weeks, is a continuation of the battle between PBMs and drug makers that use copay coupons to boost sales of their prescriptions. PBMs have said that drug makers were using copay discounts to their benefit to "circumvent their own tiered formulary rules designed to steer patients to lower-cost generics."

Specialty Pharmacy Pushback

While it may seem as though the PBMs are trying to help the consumer by cutting of ties to these specialty pharmacies, specialty pharmacies want to highlight the fact that Express Scripts, CVS, and OptumRx control more than two-thirds of the market through their own mail-order operations. It is speculated that the PBMs could be trying to curb the explosive growth of smaller, independent pharmacies, and protect their own bottom line.

Horizon Pharmaceuticals Chief Executive Timothy Walbert is sticking to his guns and attempting to further the aforementioned theory as it relates to Express Scripts and Linden Care, "Our philosophy of ensuring that patients get the medicine their doctors prescribe is threatening Express Scripts' profiteering and exposing what we believe is a lack of care for patients and respect for physicians."

Walbert is not the only specialty pharmacy head who harps on that point, either. Both Linden Care Pharmacy and Irmat Pharmacy allude to the idea in their lawsuits, mentioned below.

Lawsuits on the Horizon

These actions by PBMs are leading to legal recourse taken by the specialty pharmacies. Linden Care Pharmacy has sued Express Scripts, while Irmat Pharmacy sued OptumRx for moving to terminate their contracts.

Linden Care Pharmacy

Linden Care Pharmacy filed their suit against Express Scripts on November 10, 2015. Linden Care requested a temporary restraining order (TRO) against Express Scripts for dropping Linden Care from Express Scripts' network earlier this month. On November 25, 2015, a U.S. District Court denied that TRO, stating that Linden Care failed to make "a clear showing that it was entitled to the relief requested" or that "extreme or very serious damage will result from a denial of preliminary relief."

Marc Wiener, chief executive of Linden Care issued a statement, saying, "We are disappointed in this ruling and believe we will prevail in arbitration proceedings."

Irmat Pharmacy

Irmat filed their suit against OptumRx on November 12, 2015. Matthew Cantor of Constantine Cannon, Irmat's attorney, issued a lengthy statement summarizing their belief that "OptumRx's actions are nothing more than a cover for what we believe is an illegal and anticompetitive termination of Irmat's contract."

Conclusion

As these cases continue to wind their way through the courts, it is unknown if they will be joined by others. However, what is known is that all pharmacies can likely expect greater oversight after the disclosures of Valeant and Philidor.

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