Life Science Compliance Update

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."


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.

November 17, 2015

States Target Compounding Pharmacies over Claims to Military Health Program

Federal prosecutors in at least four states – Florida, California, Texas, and Mississippi – are ramping up investigations into widespread fraud by compounding pharmacies in claims to Tricare, the health-insurance program that covers 9.5 million U.S. military members and their families. Some pharmacies charged Tricare between $10,000 and $40,000 for a month of compounded medicines.

Justice Department prosecutors in all four states are working in concert with investigators from the Defense Department and other federal agencies to pursue both civil and criminal charges against pharmacies that have billed Tricare, as well as affiliated marketers and doctors. It is alleged that some marketing firms went so far as to search social media websites to identify military members and their spouses to contact them to promote compounded creams. It is speculated that the marketing firms sought out military members because Tricare is known to reimburse compounded drugs more generously than other federal health programs and private insurances.

Tricare paid $1.75 billion for compounded drugs during its 2015 fiscal year, which is 18 times the amount Tricare paid for compounded drugs in 2012; a Defense Department official estimates that 95% of the increased costs were inappropriate.

David G. Miller, the chief executive of the International Academy of Compounding Pharmacists, believes that fraud is only a small reason for the increased use of compounded medicines. He believes a bigger factor is that doctors have become wary of patients abusing opioid pain pills and have turned to alternative, nonaddictive treatments such as compounded pain creams, instead.


Earlier in 2015, the Department of Defense ("DOD") announced a policy shift, indicating that it would be initiating an audit of "all compounding claims in the last 12 months to determine if recoupment is justified in cases where violations of state or federal law resulted in inappropriate reimbursement." In addition, the DOD has been working with Federal law enforcement agencies to target criminal investigations of pharmacies and marketers relating to Tricare claims – focusing on specific marketing groups and pharmacies, mostly in Florida.

The investigations focused on potential false claims, improper auto-refill programs, and potential kickback relationships. Interviews were conducted with individuals at all stages of a claim, pharmacy owners, pharmacy employees, marketing representatives, patients, and prescribing physicians.

Florida Settlements

In June, however, the United States settled a claim for $3.77 million with a MediMix, a Jacksonville pharmacy. A physician allegedly sent hundreds of prescriptions to MediMix, who then billed the U.S. government for them. The physician, A. Desai, was married to a senior vice president at MediMix and the DOH alleged that the claims came from "an improper referral source."

Last month, four Florida pharmacies agreed to pay a combined $12.8 million to settle civil allegations that they falsely billed Tricare for expensive pharmaceutical creams and gels to treat pain, scars, and other ailments. Two of those pharmacies employed sales representatives who paid doctors to write prescriptions to Tricare beneficiaries. Some doctors would even conduct telephone consultations with beneficiaries and then write them prescriptions, despite not having met with the beneficiary in person. Those prescriptions amounted to a violation of the False Claims Act because they were not based on genuine doctor-patient relationships.

One of those pharmacies, Med Match, LLC, paid commissions of as much as 58% of its profit from each prescription to sales representatives employed by a marketing firm. One saleswoman in particular received $190,000 in commissions over just one month for prescriptions filled by the pharmacy. Prosecutors alleged that Med Match should have known that a large number of prescriptions it received from one Jacksonville physician were not legitimate because "the sheer magnitude and volume of prescriptions was far in excess of any other provider," and were all for the same substance, regardless of the specific patient's age or condition.

OHM Pharmacy Services, Inc. agreed to pay $4.1 million to settle allegations that it billed Tricare for an estimated $2.5 million in fraudulent prescriptions written over a five-week period. The vast majority of those prescriptions were written by one Jacksonville doctor, who wrote 150 prescriptions for patients in ten states.

Durbin Pharmacy and WELLHealth, Inc. were the other two pharmacies included in the settlement, agreeing to pay a combined $3.98 million to settle the government's allegations.

The settlements have not yet been formally announced, but the pharmacies are not expected to admit civil liability in the settlement agreements.

CBS News Investigation

CBS News heard about the Tricare prescription scheme and attempted to find out who the participating doctors were. CBS News filled out an online form requesting pain and scar creams from, and two weeks later, they received a package from a pharmacy in California. The package contained pain and scar creams prescribed by Paul Bolger, a physician who runs a weight loss clinic in Davenport, Iowa, and someone the CBS News reporters never spoke to.

Dr. Bolger was confronted by the CBS News reporters and stated, "I'm not going to make excuses for what I was doing. It's not that I had bad intentions, it was that I was under the mistaken impression that patients such as yourself were being spoken with by a qualified medical provider -- someone who's qualified to screen you, do a intake over the phone, and make sure you were safe to have these meds."


Only time will tell how widespread this issue is and how hard the DOD, DOJ, and other relevant federal and state agencies will work to chase down offenders. We anticipate there may be many more settlements in the coming weeks from various pharmacies in the four states mentioned above.

November 06, 2015

Both Houses of Congress Investigating Prescription Drug Prices


There have been numerous media reports referencing dramatic drug price increases after the acquisition or merger of pharmaceutical companies especially on narrow market generic drugs with few competitors. As a result of those news reports, Congress and politicians of all stripes have started to speak out about the topic in broad terms. Just recently, both the House and the Senate have formed groups in an attempt to combat rising prescription prices.

Senate Special Committee on Aging

Senators Susan Collins (R-ME) and Claire McCaskill (D-MO), who together lead the Senate Special Committee on Aging, have announced a bipartisan Senate investigation into pharmaceutical drug pricing. To start their investigation, they have requested documents and information from four pharmaceutical companies: Valeant Pharmaceuticals; Turing Pharmaceuticals; Retrophin, Inc.; and Rodelis Therapeutics.

Each request zeroes in on drugs that have seen recent significant price increases. Valeant's letter focuses on Nitropress, Isuprel, and Cuprimine; Turing's letter asks about the increase in Daraprim; Retrophin's letter references Thiola tablets; and Rodelis' letter inquires about Seromycin.

Each letter asks for a lengthy list of both documents and information, and requests that the responses be delivered to the committee as they become available, but no later than December 2, 2015.

The Senate committee's investigation will include a thorough examination of: substantial price increases on recently acquired, off-patent drugs; mergers and acquisitions within the pharmaceutical industry that have occasionally led to dramatic increases in off-patent drugs; and the FDA's role in the drug approval process for generic drugs, the FDA's distribution protocols, and the FDA's off-label regime.

The Senate Special Committee on Aging has tentatively set an initial hearing on this issue for December 9, 2015, and plans to hold subsequent meetings on an as-needed basis in the coming months.

House Committee on Oversight and Government Reform

Representative Elijah Cummings (D-MD), the ranking member of the committee, has formed a task force – the Affordable Drug Pricing Task Force – to engage in "meaningful action to combat the skyrocketing costs of pharmaceuticals."

The creation of this task force follows previous actions taken by Mr. Cummings, including in May 2015 when he introduced generic drug-pricing legislation in the House (a counterpart to a bill introduced by Senator Bernie Sanders). That legislation was incorporated into the budget agreement approved by Congress in the last week of October.

Cummings made clear during a press conference on Wednesday, November 4, 2015, that he is planning to use fierce rhetoric in an attempt to get public approval of this venture. He spent the press conference not only excoriating drug companies and their executives, but he also brought out posters bearing photographs of J. Michael Pearson, the CEO of Valeant, and Martin Shkreli, the CEO of Turing Pharmaceuticals, turning it into a personal attack against those CEOs.

Cummings commented that, "I believe this [price gouging] unconscionable, and frankly, it's inexplicable. Patients, hospitals, and healthcare providers in ALL of our districts are affected by this price gouging." In August, Cummings sought documents from Valeant inquiring about the widely-publicized Nitropress and Isuprel price jumps; his requests were denied because the information was considered "highly proprietary and confidential."

Representative Cummings called on Republicans to act on high drug prices by saying that a congressional failure to address the "skyrocketing prices of drugs" would be "legislative malpractice."

During that press conference, he called on Representative Jason Chaffetz (R-UT), the chair of the committee, to issue subpoenas to Turing and Valeant CEOs regarding their drug price hikes for Daraprim and two heart drugs, respectively. Chaffetz has said that he does plan to hold hearings regarding drug prices, but has not yet announced a time or produced a witness list. Cummings has asked Chaffetz to then either immediately force Pearson and Shkreli to testify and turn over their documents, or allow Democrats to act on their own and hold votes on issuing subpoenas.

PhRMA Executive Vice President for Policy and Research, Lori Reilly, has commented that while according to a Kaiser Family Foundation survey, 77 percent of Americans identified the increasing prices of prescription drugs as their number one health care concern, that means they do not like the out-of-pocket cost of medications, which plans can lower by reducing cost-sharing. Ms. Reilly states that the Kaiser survey results do not necessarily mean that the public is worried about the prices that drug companies charge. Mr. Cummings and the task force may be confusing overly broad survey results with public opinion.

The Biotechnology Industry Organization has commented that they are disappointed in the task force's focus on drugs prices, "We hope that this newly formed task force organized by a small group of House Democrats will take a balanced approach and focus not only on the question of affordability of medicines, but also on the equally critical need to sustain continued medical innovation for the patients of today and tomorrow. We are disappointed, however, to learn that this task force seems likely to be narrowly focused on the cost of prescription drugs, rather than the enormous value they bring to patients, the healthcare system and society in general."

Only time will tell how honest and serious Congress is about this issue and their investigation, and whether they will use bully-pulpit methods and rhetoric to characterize the entire pharmaceutical industry as greedy institutions or focus on the culprits.


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