Who’s Screwing Who? Is Your Partner Complicit?

confused“It’s such a complicated web of intermediaries that stand between consumers and the prices they pay,” said Erin Fuse Brown, an assistant professor of law at Georgia State University College of Law. “As a result, no one knows if they’re getting ripped off.”

Anthem, Express Scripts Face Legal Challenge Over Prescription Drug Prices

By Julie Appleby July 1, 2016

Anthem and its pharmacy manager Express Scripts overcharged patients with job-based insurance for prescription drugs, alleges a lawsuit that seeks class action status for what could be tens of thousands of Americans.

It’s the latest wrinkle in a battle that has already pitted the major national insurer and its pharmacy benefit manager (PBM) against each other in dueling legal actions — and further illustrates the complicated set of factors that determine what consumers pay for prescription medications.

The case alleges that insured workers paid too much because Express Scripts charged “above competitive pricing levels” and Anthem, in effect, allowed those higher prices as part of a 10-year contract deal with the pharmacy management firm. Those actions, it alleges, violate the firms’ responsibilities under a 1974 federal benefits law called theEmployee Retirement Income Security Act.

“This action seeks to recover losses suffered by the plaintiffs … who overpaid and continue to overpay for the portions of the costs of prescription drugs … they are responsible for paying as plan participants,” says the lawsuit, filed as Burnett v. Express Scripts and Anthem.

The case was filed in the U.S. District Court for the Southern District of New York on June 24.


Express Scripts spokesman David Whitrap said the firm denies “the allegations and will defend ourselves vigorously.”

Anthem, too, denied the allegations and said it would fight the charges.

“Multi-year contracts with pharmaceutical benefit managers are a standard strategy used by insurers to assist in making premiums more affordable,” said Lori McLaughlin, corporate communications director. “Anthem provides a suite of medical and pharmacy services that is competitive overall.”

‘A Complicated Web’

Most employers and health insurers hire PBMs such as Express Scripts to manage pharmacy claims, create networks of pharmacies, draw up lists of covered drugs and negotiate prices with drug companies for medications. Using a variety of methods, including smaller networks of pharmacies, financial incentives to steer patients to lower-cost generics and managing high-cost specialty medications, the industry’s trade groupestimates savings of $654 billion for clients between now and 2025.

But PBMs have also come under scrutiny.

Recently, some independent pharmacists have complained that some PBMs are charging insured consumers more than the cash price for some generic drugs.

And for years, questions have been raised about whether the industry fully discloses how much it is actually saving insurer and employer clients — and what portion of those savings are actually passed along to consumers.

“It’s such a complicated web of intermediaries that stand between consumers and the prices they pay,” said Erin Fuse Brown, an assistant professor of law at Georgia State University College of Law. “As a result, no one knows if they’re getting ripped off.”

Plaintiffs Seek To Recover Losses

Because insured patients were required by their health benefit packages to pay a percentage of the cost of their drugs, any overcharging on the part of Anthem and Express Scripts meant that the workers’ share was also proportionately too high, the complaint alleges.

The lawsuit seeks class action status on behalf of people with ERISA-governed insurance plans for whom Anthem provided drug benefits through an agreement with Express Scripts after Dec. 1, 2009, to the present. The court has not yet decided if the suit will have class action status.

Anthem is one of the nation’s largest health insurers with more than 38 million members. Express Scripts handled more than 175 million claims for Anthem in 2015 alone, according to the complaint.

The allegations echo those in Anthem’s March lawsuit against Express Scripts, and counterclaims filed shortly thereafter by Express Scripts against Anthem. Both of those cases are also in the Southern District of New York.

Anthem’s lawsuit aims to end its contract with the PBM and seeks $15 billion in damages for what it alleges was the PBM’s failure to renegotiate lower prices for prescriptions. Anthem used to run its own PBM, but sold it to Express Scripts in 2009 as part of the contract deal, court documents show.

In its counterclaims, Express Scripts said the insurer rejected several proposals to renegotiate prices. In addition, Express Scripts’ legal document says Anthem was offered a choice of “less money up front but lower pricing” or a bigger upfront payment “with higher pricing for Express Scripts’ services.” It chose the higher prices over the course of the contract in exchange $4.6 billion more in upfront fees, according to the PBM’s counterclaim. That money, Express Scripts’ documents allege, was then used by Anthem to buy back its own stock, rather than passing it along to health plan members. The stock buyback “applied upward pressure to Anthem’s stock price, thereby enriching shareholders and management,” the filing alleges.

KHN’s coverage of prescription drug development, costs and pricing is supported in part by theLaura and John Arnold Foundation.