I often say that pharmacies that bring legal actions against PBMs do not have a good precedent to rely on. Things might be changing soon with a recent California case holding that Optum’s provider agreement is unconscionable and thus unenforceable (specifically, its arbitration clause).

The court noted that the search for the true meaning of “the arbitration clause – requiring the combined intellect of three appellate justices to parse – further highlights the procedural unconscionability. The complexity of the prolix rendered the substance opaque and, consequently, unenforceable.” (Prescription Care Pharmacy, LLC Vs. OptumRx PBM Of Illinois, Inc. (Superior Court of California, County of Orange) Minute Order, 2/22/2021).

The court emphasized the substantive unconscionability because the contract provided that Optum could allege fraud, but “provide no specific evidence until 40 days after the claim for arbitration and can require [pharmacy] to present its own response at the same time, without even knowing the evidence involved.” Id.

The case was brought by a compounding pharmacy – Prescription Care Pharmacy LLC (PCP) – which dispensed compounded medication to Optum’s members relying on prior authorizations. Optum, however, alleged that the pharmacy submitted claims at pricing that was well above the lowest “average wholesale price,” which was what defendant would have paid its network pharmacies. As a result, Optum terminated the pharmacy in 2016. Pharmacy filed a legal action against Optum, who in turn filed a motion to compel arbitration.

To make the story short (there is some important procedural history here, such as a remand to the superior court to determine whether the provider manual was unconscionable): the court explained that “procedural unconscionability focuses on “oppression” or “surprise” and unequal bargaining power.” Id. The court agreed with the pharmacy that the parties had unequal bargaining power, with Optum’s yearly revenue far exceeding PCP’s revenue. PCP also presented evidence that Optum’s members comprised a majority of PCP’s business (roughly 80%).  Due to this economic pressure, the court found a degree of procedural unconscionability.

On the substantive unconscionability, the court focused on the one-sidedness of the arbitration provision and that it did not allow any discovery. Optum was the party with the majority of the relevant documents, precluding PCP from its fair pursuit of the claims. The pharmacy also argued that a three-arbitrator panel and their undisputed high rates would have made arbitration excessively costly. The court agreed with the PCP’s arguments and denied the motion to arbitrate.

In my opinion, this is the most favorable arbitration ruling for pharmacies. There were too many cases enforcing arbitration provisions in pharmacy contracts. Arguments that these clauses are unconscionable are usually futile.  Too many pharmacies spent years fighting motions to arbitrate, not even getting to substantive arguments, exhausting their legal pockets, and eventually abandoning their claims.

Prescription Care Pharmacy, LLC Vs. OptumRx PBM Of Illinois, Inc. is litigated by Dorros Law.