The FDA has issued its first warning letter under the Drug Supply Chain Security Act (DSCSA) to McKesson Corp. for tampering with opioid medications.

The FDA said the distributor didn’t address several instances of reported drug tampering for medications including opioids and treatments for HIV, seizures, bipolar disorder and high blood pressure.

The warning letter to McKesson outlines violations observed during inspections of McKesson’s San Francisco corporate headquarters and an Oregon distribution center. The violations include failing to:

– sufficiently respond to notifications that there was illegitimate product in their supply chain;

– quarantine and investigate suspect products; and

– maintain records of investigations of suspect product and disposition of illegitimate product as the law requires.

The warning letter explains that in one instance, McKesson was notified by a pharmacy customer that multiple of their pharmacy locations received bottles that were supposed to contain potent opioid pills. However, once opened, the pharmacies discovered that bottles at three pharmacy locations did not contain the correct medications, and the opioid pills were missing, having been replaced with other non-opioid medications.

The pharmacy customer notified McKesson about the discovery of illegitimate products. While McKesson’s internal investigation noted that it was likely the opioid medication was replaced while in their possession or control, McKesson did not sufficiently respond to the notification that they may have distributed illegitimate products. McKesson could not demonstrate that they took efforts to identify or quarantine additional illegitimate products that may have still been in their distribution facilities. Additionally, McKesson did not notify other pharmacy customers who may have received products with the same lot number or National Drug Code to make them aware of potential illegitimate product in the supply chain. Additional examples are given in the warning letter of similar failures by McKesson to: respond to illegitimate product notifications; quarantine and investigate suspect and illegitimate products; and maintain records as required by DSCSA.

I have previously covered a case of HM Compounding Services LLC, which sued Express Scripts for contractual termination. To remind, Express Scripts terminated the pharmacy for misrepresenting during a re-credentialing process that it never waived or discounted member copayments. In return, HM sued Express Scripts asserting various statutory and common law claims. See my blog post covering the case.

Now – after four years of litigation – the pharmacy not only lost the case but also agreed to pay $20 million to Express Scripts. How did this happen… that the pharmacy asking for $120 million in breach of contract claims had to pay $20 in counter-claims to the PBM?

Looking at the case pleadings and records, I can see several tough roadblocks that the pharmacy had to overcome and which eventually tripped it along the way.

Roadblock No.1: Waiving co-pays. During the litigation, Express Scripts presented ample evidence that the pharmacy was in fact not collecting some of the required co-pays. Waiving copays is a violation of state and federal anti-kickback laws and PBM contracts.

Roadblock No.2: Misrepresenting information on its application. Because Express Scripts was able to prove that the pharmacy was waiving copays, it was easy to show that the pharmacy misrepresented this fact on its re-credentialing application. This constituted a breach of contract warranting immediate termination.

Roadblock No.3: Aggressive litigation by Express Scripts. It’s not easy to litigate a PBM case. Litigation records show that every time a pharmacy sues a PBM, the case is aggressively litigated by the PBM, causing financial difficulties to the pharmacy, which is often forced to settle early or dismiss the case all together. In this action, however, Express Scripts went a step further by bringing multiple counter-claims, motions for sanctions, motions for dismissing the case and summary judgment.

Roadblock No.4: Early unfavorable rulings. The judge in this case refused to consider the antitrust claim brought by the pharmacy and decided to focus on the breach of contract claims first. Eventually he sided with Express Scripts and the pharmacy never got to argue its anti-trust claims. The judge ruled on the summary judgment motion holding for Express Scripts: “no reasonable jury could find HM substantially complied with its contractual obligation to collect copayments.” Because the judge dismissed pharmacy’s breach of contract claims, the trial would have focused only on Express Script’s counter-claims. Therefore, the pharmacy was forced into an unfavorable settlement.

Roadblock No.5: Pharmacy’s attorneys tried to back away from the case. Two weeks before the trial, the law firm representing the pharmacy filed a motion to withdraw from the case citing “irreconcilable differences” with the client. The motion was denied because it would have left the pharmacy unrepresented at the trial. But you must agree that having an attorney who wants to get out is not a good thing in the middle of litigation.

Roadblock No.6: Sanctions and procedural misconduct. The pharmacy failed to meet many filing deadlines and misrepresented facts during the discovery stage. The judge ordered monetary and evidentiary sanction for “gross misconduct.” This misconduct led the judge to exclude most of the pharmacy’s evidence from the case.

As a result of these roadblocks, a consent judgement was filed under which the pharmacy is to pay $20 million to Express Scripts with 9% annual rate. The consent judgement constitutes the final judgment and may not be appealed.

The case reinforces the notion that litigation with PBMs is extremely risky, costly, and often unfair. This case, however, teaches many lessons. Some of them are: scrutinize the facts prior to suing anyone, choose a right litigation team, meet all the deadlines and cooperate with the court and other parties. Despite this unfavorable precedent, a successful case could nevertheless be brought against a PBM – it all depends on how prepared you are and your ability to tolerate the risk.

Anthem has announced a launch of its own PBM – IngenioRx. The decision came shortly after Cigna’s acquisition of Express Scripts, which provided pharmacy services to Anthem’s members since 2009. Due to the merger, Anthem decided to terminate the contract with Express Scripts. It anticipates that operating its own PBM will result in annual savings of more than $4 billion.

Anthem had already operated its own PBM company, which it sold to Express Scripts in 2009. But with a trend of in-house PBMs, Anthem decided to reconsider the move. For example, United Health operates its own PBM, and Aetna and Cigna also process pharmacy claims internally. Reportedly, these moves result in multi-billion dollar savings to the plans and patients. And controlling health care cost is a new mantra in the healthcare arena. Also, controlling, maintaining, and collecting health data is an invaluable tool, which major payors do not want to share with outside companies. They claim that in-house health data can help manage care and improve health outcomes.

CVS Health will help Anthem administer the program by processing claims through its own PBM for the initial five years.

Earlier this year, I posted an update that a uniquely serialized number attributable to a prescriber must appear on California prescription forms for controlled substances. The new requirement became effective on January 1, 2019. The Enforcement Committee, however, recommended to the California State Board of Pharmacy to allow for grandfathering time until June 1, 2019.

Meanwhile, many pharmacists were caught in a difficult position having to decide between providing needed medication to patients versus compliance with the law.

Then, the Department of Justice announced that the new prescription pads were not available and it could not determine when the new forms will be available.

Recognizing the difficulty that this ambiguity created for the providers, the legislature amended AB 149 postponing the date of implementation of the new law until January 1, 2020. The bill specifies that any prescription written prior to January 1, 2019 on a form approved by the Department of Justice constitutes a valid prescription that may be filled, compounded, or dispensed until January 1, 2021. It also requires a barcode that may be scanned by dispensers.

Anticipating further delays, the legislature allowed the Department of Justice to extend the deadline for additional 6 months (if there is an inadequate availability of compliant prescription forms).

Starting January 1, 2019, a new security feature must appear on California prescription forms for controlled substances. The legislature amended Health & Safety Code § 11162.1 by adding the 15th security feature: a uniquely serialized number attributable to a prescriber.

Most prescribers still use their old prescription forms, which do not have a serialized number. If a CII is dispensed based on a non-compliant prescription, such dispensing may be deemed invalid and in violation of state law.

Two years ago, when California State Board of Pharmacy rolled out a requirement that secure blanks must have the statement “Prescription is void if the number of drugs prescribed is not noted” many prescribers continued using their non-compliant blanks. This caused many pharmacies substantial fines and citations from the Board of Pharmacy. To avoid any citation or fines from the Board or the DEA this year, assure that the forms are compliant with the new requirement prior to dispensing.

The Board’s Enforcement Committee recommended that the Board does not take any actions against pharmacies dispensing on old blanks prior to July 1, 2019. Nevertheless, train your pharmacy staff to spot prescriptions that do not comply with Health & Safety Code § 11162.1. It requires:

  1. A latent, repetitive “void” pattern

  2. A watermark “California Security Prescription” on the back

  3. A chemical void protection paper

  4. A feature printed in thermochromic ink.

  5. An area of opaque writing

  6. A description of the security features

  7. Six quantity check off boxes

  8. A Statement printed on the bottom of the prescription blank that the “Prescription is void if the number of drugs prescribed is not noted”

  9. The preprinted name, category of licensure, license number, federal controlled substance registration number, and address of the prescribing practitioner

  10. Check boxes for the number of refills

  11.  The date of origin of the prescription

  12.  A check box indicating the prescriber’s order not to substitute

  13. An identifying number assigned to the approved security printer

  14. A check box by the name of each prescriber when a prescription form lists multiple prescribers

  15. A uniquely serialized number attributable to a prescriber.

A controlled substance security prescription form that does not bear all 15 security features will be presumptively invalid.

Remember that prescriptions for terminally ill patients and emergency prescriptions do not have to comply with the above requirements as long as they comply with their own rules (Sec. 11159.2 for terminally ill patients and Sec. 11167 for emergency prescriptions).

Here is a link to a California Medical Board announcement regarding new prescription forms, which you can forward to practitioners and advise them to change the forms.

Recently a case was decided against an independent pharmacy and in favor of Express Scripts (ESI) holding that a PBM could terminate a pharmacy for misrepresenting information on its re-credentialing application.

To summarize, Express Scripts (ESI) terminated HM Compounding pharmacy from its pharmacy provider network for misrepresenting during a re-credentialing process that it never waived or discounted member copayments. HM sued ESI asserting various statutory and common law claims against ESI. ESI moved to dismiss arguing that the pharmacy breached its Pharmacy Provider Agreement and Network Provider Manual (Agreement). Namely, HM breached Section 2.4 of the Agreement:

            “Provider shall collect from Members the lesser of the Usual and Customary Retail Price amount or the applicable Copayment indicated by ESI, or when applicable, the full Copayment when indicated by ESI, through its online processing system or if online processing is unavailable, in accordance with the Provider Manual. Copayments may not be waived or discounted and, unless directed by ESI in writing, Provider shall not collect any greater amount or any other taxes, fees, surcharges or compensation from any Member for any Covered Medications or services provided in connection therewith. In no event will ESI be liable for any Copayment.”

With regard to the collection of co-payments, the Provider Manual stated that

            “Provider may not institute Member copayment discount programs or otherwise alter a Member Copayment, unless such waiver or discount is required by law. If [ESI] becomes aware of an copayment or cost-sharing discounts being offered by Provider – either through audit, investigation, Member statements, or review of provider’s website or other advertising materials – provider may be subject to immediate termination.”

HM argued that even if it did violate certain contractual provisions, it was entitled to a notice and hearing as specified in the Agreement. Specifically, ESI’s July 31, 2014 termination letter failed to include a statement regarding HM’s right to obtain the reasons for termination, right to a hearing, and right to obtain procedures for exercising those rights. HM also argued the termination letter gave only one reason as the basis for termination, i.e., that HM failed to accurately answer Question 29 of the credentialing questionnaire regarding the “collection of copayments”, and failed to provide HM with all of the reasons for termination upon which it relied.

Question 29 of the Provider Certification asked:

            “Do you or your pharmacy(ies) ever waive or offer a reduction of member copayments? If Yes, please provide a copy of your written policy relating to the waiver/reduction of copayments.” HM answered “No.”

ESI investigation, however, showed that HM often did not collect copayments from the patients, which was confirmed during the discovery stage of the litigation. During the litigation, HM presented an expert opinion showing that many compounding pharmacies do not collect copays. The court held:

            “While industry standards may be relevant on this issue, the parties here are sophisticated business entities who mutually negotiated and agreed to the specific language of their Agreement that “Provider shall collect from Members… the applicable copayment,” and giving ESI an immediate right to terminate the Agreement for HM’s failure to do so. Based on the record evidence, the Court finds and concludes that HM failed to substantially comply with its contractual obligation to collect copayments, thereby breaching the Provider Agreement.”

The evidence established that HM breached the Provider Agreement by failing to collect copayments and by submitting manipulated U&C cash prices for reimbursement. Because HM breached the Agreement, ESI had a contractual right to immediately terminate HM.

This case highlights the importance of collecting copayments and paying attention to what exactly re-credentialing application asks. All third party payors require that participating pharmacies collect copays. If a pharmacy does not collect copays, if should have a financial hardship policy and strictly follow the procedure on when copays may be waived. Our firm represented a pharmacy, which not only faced a multi-million PBM recoupment based on a failure to collect copays but also a criminal investigation. When PBMs identify that a pharmacy was waiving co-pays – which is considers a kickback to attract business – very often it refers the case to the Department of Justice.

A new healthcare giant is here! CVS has closed a 69-billion merger with Aetna, the nation’s third-largest health insurer. The companies have recently announced that all necessary approvals had been obtained (New York was the last state to sign off on the deal).

Several states opposed the merger due to potential antitrust issues (federal regulatory approval was obtained in 2017). As a result, CVS agreed to some concessions. For example:

  • in California, CVS agreed not to raise premiums as a result of acquisition costs;

  • In New York, CVS promised enhanced consumer and health insurance rate protections, privacy controls, cybersecurity compliance, and a $40 million commitment to support health insurance education and enrollment.

To remind, CVS also operates one of the largest pharmacy benefits managers through CVS Caremark and a major Medicare Part D plan sponsor through its SilverScript. With the acquisition of Aetna, CVS becomes a major conglomerate in the healthcare arena.

As CVS announced last year, the merger is necessary to revolutionize healthcare: make it local and accessible, simplify access, and lower cost. To test the model, CVS plans to open additional stores offering healthcare services, such as primary care, management of chronic conditions, providing guidance to discharged hospital patients. The stores are to open in early 2019 in selected locations.

This is a story (with a moral) of a Mississippi pharmacy that decided to make some money on its compounding pain and scar creams. To accomplish the goal of increasing its market share, it contracted with a marketing company to promote its compounds into other states. So far so good. The marketing company, however, insisted on a share of revenues that it would generate for the pharmacy, namely 35%. The pharmacy… agreed. The marketing company engaged a marketer and instructed him to focus on Tricare patients because “Tricare would pay tens of thousands of dollars per month per patient for compounded drugs.” (Press Release of the U.S. Department of Justice).

The marketer, in turn, paid patient recruiters to find Tricare beneficiaries to receive prescriptions, telling them a doctor would sign the prescriptions without consulting patients. Patient recruiters forwarded beneficiary insurance information to the marketer, who routed them to a local medical assistant, who was paid to file the prescriptions under the name of the doctor for whom she worked.

U.S. Attorney’s Office claims that in less than one year, “the scheme generated over $10 million in compound prescriptions for over 100 Tricare beneficiaries hailing from as far west as Chula Vista, Calif., to as far east as Foxborough, Mass.”

In addition to kickback allegations, the pharmacy is facing other fraud implications, such as waiving co-pays and dispensing unnecessary fills. The record in the case shows that the pharmacy issued monthly refills automatically without enforcing co-payment collections, allowing the beneficiaries to continue receiving monthly shipments at no cost.

So far, six people pled guilty in participating in the conspiracy. Under the terms of their plea agreements, each defendant faces up to five years in federal prison and forfeiture of nearly $1.9 million in illicit proceeds. More charges involving additional defendants are expected.

Compounding pharmacies will continue to be scrutinized by federal government and PBMs as Tricare paid nearly $2 billion for compound prescription drugs in 2015 (according to the U.S. Department of Justice), which constituted an 18-fold increase over previous years and prompted investigations around the country.

The moral of the story is to scrutinize all your marketing agreements, policies and procedures on collecting co-pays, soliciting patients, and billing federally-sponsored programs.

Walmart and RB Health started offering free access to Doctor-on-Demand to some of its customers. In a recent announcement, the parties emphasized their commitment to provide unprecedented access to low-cost high-quality healthcare. Customers who purchase Mucinex®, Delsym®, Airborne® or Digestive Advantage® at Walmart stores now receive a voucher for a no-cost telehealth medical consultation with a Doctor-On-Demand physician.

Inaccessibility to proper medical care prompted the parties to spread mHealth services to wide population. For example, the announcement cited a study showing that:

  • “It takes an average of 18 days to schedule an appointment with a doctor

  • It can take up to three hours from the time patients leave for an appointment to receive treatment and get back to your destination.”

The partnership is projected to change how the healthcare is delivered empowering patients to take matters in their own hands. Through Doctor-on-Demand patients can “see” a physician 24 hours a day, 7 days a week, with a typical wait time of five minutes.

Despite warnings of likely abuse, the FDA has recently approved a new form of an extremely potent opioid – Dsuvia – a fast-acting alternative to IV painkillers. Dsuvia is a tablet form of sufentanil, which has been used since 1980s. The critics, however, point that Dsuvia “is 10 times stronger than fentanyl a parent drug that is often used in hospitals but is also produced illegally in forms that have caused tens of thousands of overdose deaths in recent years.” See the New York Times report (11/2, A12, Goodnough).

Many consumer groups and advocates expressed well-reasoned concerns that the drug is likely to be diverted, abused, and possibly cause deaths due to its potency.

The FDA responded with a statement emphasizing that the drug is delivered through a “pre-filled, single-dose applicator” and is limited to hospitals, surgical centers and similar settings. The drug cannot be dispensed for self-use and will not be available at retail pharmacies.

Interestingly, Dsuvia’s testing and development was sponsored by the Department of Defense as a potential pain relief to injured soldiers who might not have access to IV painkillers.

Addressing diversion concerns, Dr. Gottlieb – the FDA commissioner – also explained the FDA’s powers to require post-market studies evaluating the efficacy of opioid medications. Using such powers, the FDA requested last year that the manufacturer of Opana ER (another potent opioid) take the product off the market due to potential abuse.

AcelRx, Dsuvia’s manufacturer, made an official statement that the company will strictly follow REMS guidance (a safety program for certain potent medications), such as monitor distribution and audit wholesalers’ data, perform drug’s DURs, and flag any indications of any diversion or abuse.

Many public health advocates met this statement with criticism, pointing that the drug is so potent that the first unsupervised injection may cause death. Some advocates are attempting to reverse the FDA’s approval on the procedural grounds. See: NPR (11/2, Harper);  The AP (11/2, Johnson).

Despite the opposition, the manufacturer intends to start selling the product in early 2019 at a price of $50 to $60 per tiny pill (but which provides the same pain relief as IV morphine).