Pharmacies file antitrust suit against massive drug middleman

Class action alleges CVS uses its size to charge improper fees

By: - October 3, 2023 4:55 am
A CVS store. Photo by Lynne Terry, Oregon Capital Chronicle, States Newsroom.

A CVS store. Photo by Lynne Terry, Oregon Capital Chronicle, States Newsroom.

A class-action suit has been filed in federal court on behalf of community pharmacies claiming that health giant CVS has used its dominance as a drug middleman to force pharmacies to pay large, after-the-fact fees in Medicare transactions. 

The suit was filed last week in Seattle on behalf of Osterhaus Pharmacy, which until last year did business in Maquoketa, a small town in eastern Iowa. The lawyers representing the pharmacy say they also represent other, “similarly situated” pharmacies.

It’s the latest antitrust action against CVS and two other dominant middlemen — Express Scripts and OptumRx — which are known as pharmacy benefit managers. The Federal Trade Commission last year opened an investigation into all three companies, and Ohio Attorney General Dave Yost in March sued Express Scripts, alleging violations of the state’s antitrust law.

Pharmacy benefit managers, or PBMs, occupy a pivotal position in the drug-supply chain. 

Each of the big three is part of a corporation that also owns a major health insurer. CVS owns Aetna, UnitedHealth owns OptumRx and Express Scripts and Cigna are part of the same corporation.

The PBMs represent those and other insurers when it comes to filling prescriptions for people covered by the insurers. Among their functions, they create lists of drugs that are covered by the plans, create networks of pharmacies and they determine how much to reimburse those businesses for the medicines they dispense.

The suit filed in Seattle argues that under the Medicare Part D program — which covers prescriptions for the elderly — CVS is forcing pharmacies to join its networks and agree to a system of arbitrary clawbacks long after CVS Caremark initially reconciles claims.

The company is able to do so because it and the other two large PBMs are estimated to control 80% of that marketplace, the suit says. In other words, pharmacies have to sign contracts on CVS’s terms or give up the business of millions of insured patients.

And in addition to its heft as a PBM, CVS is “vertically integrated.” It owns the largest retail pharmacy chain, a large mail-order pharmacy operation and a top-10 insurer. The lawsuit filed last week said CVS is able to control too many sides of prescription transactions.

“This vertical consolidation has served CVS Caremark well,” it said. “It now controls not just the pricing of drugs, not just the selection of the drugs covered by Part D Plans, and not just the selection of pharmacies in each Part D network; CVS Caremark also controls access to at least a third of the Medicare beneficiaries enrolled in PBM-affiliated Plans. Pharmacies must accept the increasingly anti-competitive pricing and contract terms set forth by CVS Caremark or face exclusion from its Part D network.”

For its part, CVS said the claims are false.

“We believe the allegations are without merit and intend to defend ourselves vigorously,” spokesman Phillip Blando said in an email Monday. 

The suit alleges that some CVS fees in the Medicare Part D program violate the Sherman Antitrust Act of 1890 — which is aimed at keeping companies from using market dominance to suppress competition.

That body of law has strong ties to Ohio. The Sherman Act was sponsored by an Ohio senator, John Sherman, and signed by an Ohio (and Indiana) president, Benjamin Harrison. 

The Buckeye State also has long had its own antitrust law, which the suit filed in Seattle last week referenced as it quoted from Yost’s suit against Express Scripts.

“PBMs are modern gangsters… ” the Ohio suit says. “They were designed to protect and negotiate on behalf of employers and consumers after Big Pharma was criticized for overpricing medications, but instead they have absolutely destroyed transparency, scheming in the shadows to control drug prices on all sides of the market.”

The latest suit specifically targets direct-and-indirect remuneration, or DIR, fees charged by CVS in its Part D program.

Those are performance-based fees pharmacies have to pay if they want to be in the CVS network. The suit says CVS’s use of them has grown dramatically and increasingly rapidly over the past 13 years.

“From 2010 to 2020, pharmacy DIR fees increased by more than 100,000%—that is, they grew more than 1,000 times larger,” the suit said. “In 2021, DIR fees increased an additional 33% from 2020 levels to $12.6 billion.”

The suit says that all network pharmacies must pay minimum DIR fees, but they can be forced to pay much more because of factors pharmacies can’t control.

“For example, CVS Caremark penalizes an Independent Pharmacy on adherence if a patient discontinues fulfilling her prescriptions at the pharmacy, regardless of circumstances,” the suit says. “The cause may be that the patient spends winters in a different part of the country and fills her prescriptions there, or the patient was told by the physician to discontinue using a drug, or the patient died, or the manufacturer has discontinued manufacturing the drug. CVS Caremark could assess performance so that Independent Pharmacies are not penalized for these events, none of which is within pharmacy control or actually measures pharmacy performance, but it has chosen not to do so.”



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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.