The California Court of Appeal, First Appellate District has just affirmed the holding of a trial court that Optum’s arbitration clause in its manual is unconscionable and unenforceable.

I have previously covered this case here. But in a nutshell, a group of California pharmacies brought a case against Optum alleging misrepresentation, fraud, and breach of contract. Optum filed a motion to compel arbitration (arbitration is a part of Optum’s contract with PSAOs and Optum’s pharmacy manual).

California Superior court in Alameda denied the motion on procedural and substantive unconscionability. The court ruled that Optum had not demonstrated the existence of an enforceable arbitration agreement. The court reasoned that Optum had provider agreements with PSAOs and pharmacies were not provided with copies of the provider agreements, did not sign them and have not even seen them. Therefore, the pharmacies were not party to the provider agreements. In additional to this procedural unconscionability, the court found substantive unconscionability because arbitration provisions unreasonably limited discovery, precluded the presentation of live testimony, imposed costs greater than the cost of a court proceeding.

Optum appealed and lost. The Court of Appeal affirmed that the arbitration provision set forth in an online manual were unconscionable  because they were a part of the document that was not signed or agreed to by the pharmacies and it established procedures that favored Optum over the pharmacies. Among such one-sided provisions were Optum’s unilateral ability to:

– change arbitration terms

– deny the pharmacies remedies that were available to Optum

– impose high arbitration costs on the pharmacies

– limit pharmacies’ ability to engage in discovery.

Click here for the Court’s decision.

The parties will be back in the trial court arguing the merits of the case. This case could be a game-changer for pharmacy reimbursements and PBM industry.

This favorable decision opens the door for other pharmacies to bring actions against Optum in court versus by arbitration. Going forward, Optum is likely to change their practices of contracting with pharmacies and is likely to revise its arbitration clause. Because the case was brought and decided in a state court of appeal, the decision is not binding on other courts, not even other state courts. Still, this decision is a persuasive authority for other courts which are likely to follow the lead.