AdvancePCS Settlement Imposes Sweeping Obligations On Future PBM Business Practices

Earlier this month,AdvancePCS, a pharmacy benefits manager (PBM) acquired by Caremark last year, agreed to a $137.5 million fine and a five-year injunction and settlement agreement with the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania. The settlement resolved an extensive investigation into allegations associated with the PBM’s operational practices. The whistleblower suit was initiated by two former AdvancePCS executives. AdvancePCS admitted no wrongdoing.

The covered conduct occurred between 1996 and early 2004 and involved both Medicare and the Federal Employee Health Benefits Program. The government alleged that AdvancePCS received kickbacks from pharmaceutical manufacturers in exchange for favorable treatment of their products under contracts with government programs, that AdvancePCS paid kickbacks as an inducement to signing contracts, and that that excess fees paid to AdvancePCS in connection with fee-for-service arrangements resulted in the submission of false claims.

The Settlement covers conduct by AdvancePCS, and does not resolve claims that were made against its now parent Caremark in nine states and the District of Columbia or other federal and state claims. The settlement is similar to one that was reached last year by Medco, which paid $29 million to settle allegations that it received payments from its former parent, Merck, to switch patients to Merck drugs.

The Settlement Agreement and Injunction impose sweeping prospective obligations on AdvancePCS, which will affect pharmaceutical manufacturers, client plans, and plan participants. Key provisions include disclosures designed to promote transparency and restrictions on drug interchange programs.

In new or amended contracts with Client Plans,AdvancePCS must disclose information regarding its products, services and pricing, such as a description of the products and services provided and amounts paid. AdvancePCS must use the same national data source for pricing to Client Plans and reimbursement to the dispensing pharmacy, and make simultaneous pricing changes to Client Plan pricing and the pharmacy’s reimbursement rate. Client Plans must be provided access to information reasonably necessary to audit contract compliance.

The agreement describes two types of Manufacturer Payments: (1) Formulary Payments, made in return for formulary placement and drug utilization, and (2) Additional Payments, such as rebates, commissions, data fees, administrative fees, and fees under product and services agreements. AdvancePCS must disclose to each Client Plan with an existing or proposed contract that it:

• Receives Manufacturer Payments that may or may not be passed through to the Client Plans; and
• Will provide quarterly and annual reports to the Client Plan detailing the net revenue from sales of prescription drugs to clients, total drug expenditures for the Client Plan, Manufacturer Payments for the reporting period as a percentage of net revenue within a range of three (3) percentage points, and the respective percentages of Manufacturer Payments that were Formulary Payments and Additional Payments.

In new or amended contracts, AdvancePCS must use "reasonable best efforts" to require that the pharmacy disclose to Plan Participants if the pharmacy’s usual and customary price for the drug is less than the applicable co-pay and to allow Plan Participants to pay the lower amount.

Contracts must describe all discounts, rebates, administrative fees, fees for services, data utilization fees or any other payments paid to or received by either party. Rebate claims must be supported by claim utilization data.

Drug interchanges are defined as any change from one prescription drug to another requested by or on behalf of AdvancePCS. Excluded are interchanges initiated pursuant to a drug utilization review, for safety reasons, due to unavailability of the original drug, from a brand drug to its generic equivalent, or where the original drug is not covered by the client plan.

When a prescriber approves a drug interchange, AdvancePCS must provide Plan Participants with written and electronic disclosures that are easily readable and understandable, separate from prescribing and safety information, and noticeable in size, color, contrast, and location. The disclosures must:

• Explain that a drug interchange has been requested by AdvancePCS;
• Note that the Plan Participant’s prescriber approved the interchange;
• Describe the circumstances under which the originally prescribed drug will continue to be covered by the client/payer;
• Identify the drug shipped and the originally prescribed drug;
• Provide clear instructions on how to use the Advance PCS toll-free telephone number to call a pharmacist with questions about the interchange;
• Explain the switchback process; and
• State that the Plan Participant may decline the drug interchange and receive the original drug.

AdvancePCS must reimburse Plan Participants for costs related to drug interchanges, such as physician visits and medical tests, up to $200. AdvancePCS may request that additional costs be audited by a third-party, but must reimburse all qualified expenses.

AdvancePCS may not solicit a Plan Participant who has reversed a drug interchange in the same therapeutic class within the past two years unless the proposed interchange drug(s) are newly approved by FDA or approved for a new indication.

AdvancePCS must maintain a toll-free number to answer calls regarding interchanges. Plan Participants have thirty days following shipment of the interchanged drug to request a reversal. AdvancePCS may charge only one co-pay and generally bears the shipping costs associated with the reversal. AdvancePCS must maintain records related to reversals for two years. If the reversal rate for any particular drug interchange exceeds 10% for any calendar quarter,AdvancePCS must discontinue that interchange.

The settlement agreement also imposes a number of additional requirements relating to internal processes as well as interactions with healthcare professionals.

AdvancePCS operates the Performance Rx Drug Program, whereby participating pharmacies inform Plan Participants about therapeutically equivalent products that are less expensive for the Client Plan. In contracts with participating pharmacies, AdvancePCS must use reasonable best efforts to require those pharmacies to make certain disclosures to Plan Participants and prescribers.

P&T Committee. AdvancePCS must maintain a Pharmacy and Therapeutics (P&T) committee that comprises at least ten outside healthcare professionals. The P&T Committee must approve all drug interchanges. Members must annually disclose financial relationships with pharmaceutical companies and may not vote on any matter if they have a financial relationship with the manufacturer whose product is under consideration.

Physicians. AdvancePCS must record, where legally permitted, all conversations with a doctor’s office where a drug interchange is solicited. AdvancePCS must maintain records memorializing how verifiable authorization for the interchange was obtained and the name of the person providing the authorization.

When using Clinical Consultants or other persons to call on physicians, AdvancePCS must provide a message personally addressed to the physician (by mail and hand delivery at time of first visit) that includes the identity of the Clinical Consultant conducting the visit, the purpose of the visit, and the fact that a portion of the cost of the visit was funded by pharmaceutical manufacturers.

AdvancePCS also entered into a fairly standard five-year Corporate Integrity Agreement (CIA), which includes the traditional requirements such as training, policies, a confidential disclosure program, and restrictions on hiring ineligible persons. In addition, the CIA requires AdvancePCS to develop Arrangements Procedures to ensure that any payments between AdvancePCS and pharmaceutical manufacturers, clients and others do not violate the Anti-Kickback Statute or Stark Law. AdvancePCS must hire and Independent Review Organization (IRO) to evaluate the adequacy of these procedures.

Overall, the AdvancePCS agreement covers a wider set of issues than Medco. For example, AdvancePCS imposes restrictions on relationships with brokers and TPAs that are not found in the Medco agreement.

Other key differences between the Medco and AdvancePCS agreements relate to the transparency of the manufacturer payments. AdvancePCS is required to report its percentage of manufacturer payments in relation to the wider revenue figure within a range of three percentage points. Medco must report the exact amount. This change may have occurred in response to criticism of the Medco settlement for its complete transparency, which PBMs argued made it difficult for them to be effective negotiators for price concessions. In addition, unlike the Medco agreement, the AdvancePCS settlement does not require manufacturer reports to be shared with plans that are merely contemplating a contract. This raises the issue of whether the expectations of transparency are the same for a prospective contracting partner as for an entity in an actual relationship.

One of the interesting aspects of the recent PBM enforcement/ settlement efforts is in the interplay between the legal theories articulated and the relief obtained. The settlement, of course, is predicated principally on the legal theories underlying the Federal Health Program Anti-Kickback Statute. The settlement, however, does not prohibit PBMs from maintaining any of the financial relationships with pharmaceutical companies that have been challenged. Rather, the settlement only imposes a requirement of disclosure and transparency on the PBM. That suggests the rhetorical question: "When is a kickback not a kickback?" On the basis of the structure of the settlement agreement, the answer appears to be "When it is transparent." That raises some interesting follow up questions: Will transparency provide a defense to a pharmaceutical company that enters into any financial relationship with a PBM? Should a pharmaceutical company mandate transparency in all arrangements with PBMs that have not yet entered into a settlement with the government? Is the difference between a financial arrangement that is subject to challenge and one that is acceptable merely transparency?

These and other questions are not answered by the AdvancePCS and Medco settlements.

Critics of these settlement agreements argue that the settlements represent a misguided attempt by enforcement agencies, in particular the U.S. Attorney’s Office for the Eastern District of Pennsylvania, to not simply enforce laws but to make public policy. Indeed, the obligations detailed in the agreements extend far beyond governmental health programs subject to enforcement by a federal prosecutor to arrangements with private payers as well. Moreover, in some cases, the "policy" that is set by these agreements is inconsistent with or goes beyond the positions taken by regulatory agencies such as the Centers for Medicare and Medicaid Services (CMS) or even Congress itself.

Taken together, the Medco and AdvancePCS settlement agreements have been criticized as examples of the government dictating the specific form in which contractual relationships will occur as well as the obligations of the various parties in wholly private transactions. Critics suggest that the settlements move away from a traditional view of contracts to a model where the government, and not private parties, dictates contractual arrangements that do not involve any federal health care dollars.

This article has been prepared by Sidley Austin Brown & Wood LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.