What to Know About Working with PBMs

FEBRUARY 20, 2018
Jeffrey S. Baird, Esq.
A Pharmacy Benefit Manager (PBM) is a third party administrator contracted by health plans, employers, unions and government entities to manage prescription drug programs. A PBM acts as a fiscal intermediary between insurers/payors and pharmacies.

There is an old saying, 'Possession is 9/10ths of the law,' and that applies to PBMs. At the end of the day, the PBM 'possesses the pharmacy’s money.' Most, if not all, PBM contracts give the PBM the right to terminate its contract with the pharmacy with, or without, cause. 'With cause' can include misrepresentations by the pharmacy to the PBM, such as answers in a recredentialing questionnaire; failure by the pharmacy to adhere to the requirements imposed by the PBM on its member pharmacies, and a breach by the pharmacy of terms of the PBM contract. 'Without cause' means exactly what it says. If the PBM simply 'does not like what the pharmacy is doing,' then the PBM can terminate the contract.  

PBM Recredentialing

PBMs validate the credentials of pharmacies to ensure they are in good standing with state and federal laws and meet quality performance standards. They will recredential pharmacies every year or couple of years to ensure they meet the PBMs’ participation requirements.

Recredentialing questionnaires inquire about a number of issues, including whether the pharmacy is engaged in mail order or compounding; whether the pharmacy’s marketing reps are W2 employees or 1099 independent contractors; and the collection of copayments.

Recredentialing Questionnaire:  Examples of Questions and Certification  

Questions Pertaining to Mail Order
  • Is 25% or more of your pharmacy business mail order?
  • Indicate the percentage of Rx volume in each of the following settings: Open Door/Retail/Community, Closed Door/Clinic Facility, Mail Order, Nursing Home/LTC, Internet Pharmacy, and Other.
Questions Pertaining to Compounding
  • Does your pharmacy participate in complex compounding?
  • Is your pharmacy registered/affiliated with a compounding supplier?
  • Indicate the percentage income derived from: Medicaid, Medicare, Workers Comp, 340B, Compounds, and Dispensing Physician.
Question Pertaining to Copayments
  • Does your pharmacy ever waive or offer a reduction of member copayments? If yes, provide a copy of your written policy relating to the waiver/reduction of copayments.  
Question Pertaining to Marketing
  • Does your pharmacy contract with or employ a sales force? If yes, describe the activities of the sales force.  
Questions Pertaining to Affiliated Pharmacies
  • Is your pharmacy directly or indirectly affiliated with any other pharmacies?
  • Do any of the pharmacy owners have a direct or indirect ownership interest in any other pharmacy?  
Question Pertaining to Disciplinary Actions
  • Has your pharmacy (or another pharmacy affiliated with your pharmacy) been disciplined by a State Board of Pharmacy, government entity or any other regulatory authority (i.e., State or Federal DEA or State Medicaid Program)? If yes, please attach explanation of action taken, Board order letter, and any other supporting documents from the State Board of Pharmacy, government entity, or other regulatory authority.  
Questions Pertaining to Legal Compliance 
  • Does your pharmacy use or provide pre-printed prescription forms for any of your compound preparations? 
  • Does any person with prescriptive authority have a direct or indirect financial interest in your pharmacy? A 'financial interest' includes, but is not limited to, any direct ownership, ownership by an immediate family member (spouse, child, etc.), paid consulting relationship, waged or salaried employment relationship.  
Certification
  • I agree to notify [Name of PBM] immediately in writing in the event of a change in the information provided which would make any part of the Questionnaire untrue or inaccurate. 
  • I give [Name of PBM] permission to any individual, company, organization, etc., including state and federal licensing agencies, as may be necessary to verify the information submitted herein.
  • I certify that training, which meets the CMS requirement for fraud, waste and compliance training, has been conducted within 90 days of hire and annually thereafter.  
PBM Audit

PBMs audit pharmacies in order to detect any improper payment by the PBM on behalf of the plan and to verify that the patient received the correct medication in the appropriate dose; and to verify that contract adherence. A challenge to pharmacies is the incorporation of the PBM’s policy manuals into its contracts. The manuals can end up having the same importance as the contracts.   

PBMs can conduct field/on-site audits at the pharmacy. Audits by telephone are usually used to correct billing for a small number of claims. Desk/mail audits use automated means to review pharmacy claims and encounter data received by the PBM.  

Examples of Reasons for Termination by the PBM  

Pharmacy is Engaged in Mail-Order

Many PBMs have their own mail-order pharmacy. PBMs do not like their contract retail pharmacies to compete with the PBMs’ mail-order pharmacies. Most recredentialing questionnaires inquire about the extent of the pharmacy’s mail-order business. If the PBM determines that the pharmacy is engaged in mail-order beyond a certain threshold, then the PBM may decide to terminate the contract.   

Pharmacy is Engaged in Compounding


PBMs have been 'burned' by some compounding pharmacies. For several years, a number of compounding pharmacies contracted with marketing companies to generate patients who wanted compounded pain and scar creams. The compounding pharmacies would dispense the creams and bill the PBMs an exorbitant amount per month/per patient for the creams. The commercial insurers came down on the PBMs. For these and other reasons, PBMs do not want their contract retail pharmacies to be engaged in compounding in a meaningful way.    

Pharmacy is Routinely Waiving Copayments  

Federal law, most state laws, and most PBM contracts require the pharmacy to 'take reasonable steps' to collect copayments. Pharmacies are prohibited from routinely waiving copayments. A pharmacy can waive copayments, on a patient-by-patient basis, if the patient submits financial information justifying the waiver.   

Pharmacy Markets Through 1099 Independent Contractors  

The federal anti-kickback statute (“AKS”) states that a pharmacy cannot 'give anything of value' to a person/entity in exchange for the person/entity referring (or arranging for the referral of) patients to the pharmacy who are covered by a federal government health care program.

If a pharmacy pays percentage compensation to a 1099 independent contractor (individual sales rep or marketing company) that arranges for the referral of government health care program patients to the pharmacy, then the AKS is implicated. On the other hand, it is acceptable for the pharmacy to pay commissions to a bona fide W2 employee.   


Pharmacy Moves Patients From One Affiliated Pharmacy to Another 


Assume that a pharmacy is about to have its contract terminated by a PBM. In an attempt to “stay one step ahead of the posse,” the pharmacy may move its patients to an affiliated pharmacy. This will be repeated a number of times. By including questions on the recredentialing questionnaire about affiliations, the PBM intends to shut this process down.

Response to PBM Termination Letter  

The first thing that the pharmacy needs to realize is that the PBM has the superior bargaining position. The PBM 'possesses the pharmacy’s money' and has an unlimited capacity to litigate with the pharmacy. The approach that has the best chance of being successful is for the pharmacy to the PBM in order to 'work the problem.' The termination letter will likely give a reason for the termination. The pharmacy should attempt to work with the PBM to address—and resolve—that 'reason.' If the pharmacy is unsuccessful at resolving the termination 'at the lower level,' then the pharmacy’s attorney should reach out to one of the PBM’s in-house attorneys.  

Examples of Pending Litigation Against PBMs

Park Irmat Drug Corp. v. Express Scripts, et al (17-cv-00979 E.D. Mo.), was filed in March 2017. Allegedly, Express Scripts and other PBMs suppress competition by independent pharmacies that desire to provide mail-order pharmacy services. The complaint claims that Irmat had disclosed to Express Scripts in a July 2015 recredentialing application that 65% of its business was its mail-order pharmacy operations. The complaint alleges that a month later, Express Scripts renewed Irmat’s credentials to be in the Express Scripts pharmacy networks and, based on that approval, Irmat invested millions of dollars in its nationwide mail-order business. The complaint alleges that in May 2016, Express Scripts sent Irmat a cease-and-desist letter and officially terminated the contract two months later.   

Precision Rx Compounding LLC et al., v. Express Scripts Holding Co. et al. (4:16-cv-00069, E.D. Mo.) was filed in January 2016. Pharmacies accused Express Scripts and other PBMs of cutting the compounding pharmacies from the market in violation of federal and state antitrust laws, the Florida Deceptive and Unfair Trade Practices Act, and other statutes, causing more than $100 million in damages.  
 

Albert's Pharmacy, Inc. et al v. Catamaran Corporation (3:15-cv-00290-UN2, M.D. Pa.), was filed in February 2015. Fifty-five independent pharmacies sued Catamaran, alleging that Catamaran inflated patient costs while simultaneously underpaying pharmacies. 
 
Jeffrey S. Baird, Esq. is Chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, home medical equipment companies, and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at (806) 345-6320 or jbaird@bf-law.com.


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