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2017-01-10 22:12:09
Specialty Pharmacies Say Benefit Managers Are Squeezing Them Out

From its storefront in Union City, N.J., Prime Aid Pharmacy caters to patients with a wide range of ailments, from rheumatoid arthritis to hepatitis C. The business prides itself on getting patients their necessary drugs, employs a staff that speaks 10 languages and delivers medications by car in New York and New Jersey.

“Especially during the winter, when mail deliveries don’t always get there on time, it’s very important to have local delivery,” said Yana Shtindler, the pharmacy’s administrator.

But these days, Prime Aid is struggling to stay in business. Starting two years ago, Express Scripts, the nation’s largest pharmacy benefit manager, no longer allowed its customers to buy drugs at Prime Aid. The move meant Prime Aid lost nearly half of its patrons virtually overnight.

Express Scripts said Prime Aid had not canceled payments quickly enough when some patients did not pick up prescriptions, and failed to tell them about a $750 settlement Prime Aid had paid to the state of New Jersey. Prime Aid, though, says Express Scripts wrongly cut off the business to steer more customers to its own specialty pharmacy, Accredo.

The dispute has led to a lawsuit by Prime Aid against Express Scripts, one that highlights the escalating showdown between independent specialty pharmacies and industry giants. A half-dozen independent pharmacies have filed similar lawsuits against big pharmacy benefit managers in the last year.

At stake is a piece of a booming $100 billion market. Specialty pharmacies sell many of the country’s most expensive drugs, which have become particularly lucrative in the past two years with the arrival of medicines to treat diseases like hepatitis C and cystic fibrosis. These have list prices of hundreds of thousands of dollars a year.

“The question is, why are the P.B.M.s enforcing these contracts more aggressively?” said David A. Balto, an antitrust lawyer in Washington who represents independent specialty pharmacies. “Is it consumer welfare that’s deep in their hearts, or the level of their profits?”

Accredo, Express Scripts’ specialty pharmacy, is the second-largest in the nation, according to a report by Adam Fein, a drug-distribution consultant. He estimated that Accredo generated revenue of $17 billion in 2015, behind only CVS Specialty, which brought in close to $30 billion.

Express Scripts and CVS argue that because of their size and resources, their pharmacies can help keep costs low, and that they do an excellent job of caring for patients with complex diseases and drug regimens.

But the primary business of Express Scripts is as a pharmacy benefit manager, running the prescription drug benefits for insurers or large employers. Three companies — Express Scripts, CVS and Optum, owned by UnitedHealth — now handle 75 percent of all prescription claims, according to Mr. Fein’s report.

Prime Aid and other independent pharmacies say that Express Scripts is unfairly wielding that market power to steer business to Accredo. Express Scripts patients typically cannot have their drugs covered by insurance if they use a pharmacy that is not in the network.

Dr. Steve Miller, the chief medical officer for Express Scripts, denied that the company was unfairly cutting off independent pharmacies. He said less than a percent of all pharmacies in Express Scripts’ network are thrown out in any given year.

But he acknowledged that the company had increased its oversight of pharmacies, especially after revelations about Philidor Rx Services, a mail-order pharmacy that was found to have undisclosed ties to the drug maker Valeant Pharmaceuticals International. In November, the former chief executive of Philidor and a former executive at Valeant were arrested on federal charges of violating anti-kickback laws, which they have denied.

“What it showed us is that our surveillance is not as good as we thought it was,” Dr. Miller said.

Prime Aid, which has been in business since 2006, had a good relationship with Express Scripts until August 2014, Ms. Shtindler said, eight months after the approval of Sovaldi and Viekira Pak, two high priced — and highly anticipated — hepatitis C drugs that cure patients of the disease.

Prime Aid’s business spiked as patients lined up for the drug. At the time Prime Aid was removed from Express Scripts’ network, Ms. Shtindler said, it was processing millions of dollars in claims every day for Sovaldi.

Ms. Shtindler said the reasons Express Scripts gave for terminating the contract were minor offenses. Prime Aid had failed to quickly cancel at least seven drug claims it submitted to Express Scripts — out of thousands — after customers failed to pick them up.

Express Scripts also cited a $750 payment Prime Aid had made to New Jersey in 2012. The payment allowed the company to avoid a disciplinary proceeding over claims that one of its pharmacists improperly filled a prescription called in over the phone.

A spokesman for Express Scripts, Brian Henry, said a company analysis showed that only 16 percent of Prime Aid’s clients who had been Express Scripts members switched to Accredo after the contract was terminated. The rest transferred to other pharmacies.

But Ms. Shtindler challenged that analysis. She said many of her former customers told her that after Prime Aid was removed from the company’s network, Express Scripts called her customers, as well as doctors who frequently referred patients, to notify them.

She said that all of her clients who needed specialty medications were transferred to Accredo and customers who needed more ordinary prescriptions filled — a minority of her Express Scripts patients — were transferred to other local pharmacies.

Dr. Miller said customers of pharmacies cut out of Express Scripts’ network are not steered to Accredo and are offered a choice of local pharmacies in the network.

Ms. Shtindler said if Prime Aid cannot rejoin the Express Scripts network, it will most likely go out of business. “It’s absolutely critical to their operations,” said Jonathan Swichar, a lawyer for Prime Aid.

Beyond the Prime Aid case, lawyers for other pharmacies say Express Scripts has sought to enforce a provision in most independent pharmacies’ contracts that prohibits them from mailing significant volumes of prescriptions to patients, a contract that the pharmacies say they have no leverage to negotiate. That is unrealistic for many specialty pharmacies, lawyers said, because the pharmacies often sell drugs for rare diseases to small numbers of patients scattered throughout the country. Accredo is a mail-order pharmacy and has no storefront locations.

“It’s a stacked deck,” said Jonathan Levitt, a New Jersey lawyer who represents specialty pharmacies.

Dr. Miller said retail pharmacies were generally allowed to mail prescriptions to clients, up to a point. And he said thousands of pharmacies remained in the network, which he said demonstrated that the majority were in compliance with the network rules.

Mark Merritt, the president of the Pharmaceutical Care Management Association, a group representing pharmacy benefit managers, defended the industry. He said the business insuring the patient, whether that is an employer or an insurance company, ultimately decides which pharmacies are in-network. Employers and insurers can customize the network that their members will use, although many use the networks set up by the pharmacy benefit managers.

“I don’t hear complaints from the employer community,” Mr. Merritt said.

But lawyers for the independent pharmacies say that Express Scripts has selectively cracked down on pharmacies that are its biggest competitors, and say they have been contacted by dozens of pharmacies that are encountering similar issues.

In the fall, Express Scripts disclosed that it had received subpoenas from federal officials looking into its relationships with drug manufacturers, patient assistance charities and specialty pharmacies. It is unclear whether it is a target of the inquiry or is merely being asked to assist in the investigation.

Last summer, Express Scripts canceled the network contract of Cystic Fibrosis Pharmacy, a business based in Orlando, Fla., that has treated patients with cystic fibrosis nationwide since the 1990s. Express Scripts said that the pharmacy’s contract did not allow it to mail prescriptions to customers, and that it had also been mailing prescriptions to states where it was not licensed to dispense.

Lois Adams, the chief executive of HHCS Health Group, which owns Cystic Fibrosis Pharmacy, said the termination followed the recent arrival of high-priced drugs to treat cystic fibrosis, including Kalydeco and Orkambi, each of which carries list prices of more than $250,000 per year.

Ms. Adams, who said that the group was suing to challenge the termination, said the decision by Express Scripts effectively ended longtime relationships with patients.

“We get involved with their health care, with their family, with their clinicians and their doctors, and they know us on a first-name basis,” she said.

Dr. Miller declined to comment on the Cystic Fibrosis Pharmacy case. He said that, in general, “We are constantly trying to be vigilant and chase the bad actors out of the marketplace.”

But the pharmacy benefit managers also have another big motivation, Mr. Balto said: the huge amount of money that can be made from selling specialty drugs.

“It’s a great source of revenue,” he said, “and they are not doing what they are supposed to be doing, which is controlling drug costs.”