For a long time, reimbursement for specialty drugs have been a subject of heated debates and controversies.  A reason for this could be a lack of clear definition of  what constitutes a specialty drug. Recently, a Seattle pharmacy brought a case against Express Scripts, Inc. (ESI) revolving around the issue of underpayment for specialty drugs based on unclear definition of what “specialty drug” is.

Kelley-Ross operates long-term care (LTC) and retail pharmacies in Seattle’s urban core to a large population of vulnerable patients. It offers “One-Step PrEp” that uses Truvada (a brand-name drug) and its generic version known as ETDF.

In 2016, Kelley-Ross applied to become ESI’s network provider for specialty therapies. ESI, however, required (and still requires) additional credentialing requirement and contractual terms for its specialty providers. ESI did not inform Kelley-Ross of its reimbursement rates under the new contract for specialty providers. It is still ESI’s practice not to inform pharmacies of its contractual rates until the provider is approved for participation in its network.

Nevertheless, Kelley-Ross decided to proceed with the credentialing and it took years for it to complete the ESI’s specialty provider accreditation process.

Eventually, Kelley-Ross entered into provider agreements with ESI for both the LTC and retail pharmacies. When the parties signed the agreements at issue, only the brand-name drug Truvada was available. In 2020, the generic drug for Truvada – ETDF – became available. Kelley-Ross believed that ESI would reimbursed for ETDF under the specialty drug schedule. Instead, ESI reimbursed the pharmacy under the lower rates available for non-specialty drugs. Kelley-Ross alleged that the amount ESI actually reimbursed it for ETDF was below the amount Kelley-Ross itself was paying to obtain the medication.  Furthermore, Kelley-Ross was also incurring significant additional costs to ensure compliance with all the requirements set forth in the ESI contract (such as patient outreach and monitoring).  According to Kelley-Ross, it was losing over $400 per ETDF prescription it filled.

After the parties failed to come to an understanding about how ETDF prescriptions were reimbursed, Kelley-Ross filed a complaint alleging breach of contract, breach of the covenant of good faith and fair dealing, and violation of the Washington Consumer Protection Act (“CPA”). ESI moved to dismiss for failure to state a claim.

To summarize lengthy legal arguments, the court denied ESI’s motion to dismiss relating to breach of contract but granted ESI’s motion to dismiss based on breach of covenant of good faith and fair dealings and CPA.

The Court explained that because the parties essentially dispute whether ETDF qualifies as a covered specialty medication, the pharmacy has a plausible interpretation of the contract. Kelley Ross’s argument is that ETDF constitutes a covered specialty medication because its brand-name drug is listed on the covered specialty medication table. As a result, the pharmacy is allowed to proceed with the case on this issue but not on the rest of its claims.