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.