Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AIDS Healthcare Foundation sues Express Scripts for anticompetitive practices in specialty pharmacy market, (Jul 30, 2024)

By George Basharis, J.D.

Lawsuit alleges pharmacy benefit manager is leveraging market power to harm competition and steer patients to its own specialty pharmacy.

AIDS Healthcare Foundation (AHF), a non-profit organization that operates specialty pharmacies focused on HIV/AIDS and hepatitis C treatment, has filed a federal antitrust lawsuit against pharmacy benefit manager Express Scripts, Inc. (ESI) and its wholly owned specialty pharmacy subsidiary, Accredo Health Group, Inc. The complaint, filed on July 26, 2024, in the U.S. District Court for the Eastern District of Missouri, alleges that ESI is using its dominant position as a pharmacy benefits manager (PBM) in Louisiana to impose anticompetitive restraints and destroy competition among specialty pharmacies in the state (AIDS Healthcare Foundation v. Express Scripts, Inc., No. 4:24-cv-01043 (E.D. Mo. July 26, 2024)).

According to the lawsuit, ESI controls access to more than 70 percent of individuals covered by health plans in Louisiana. The complaint claims ESI is leveraging this market power to force specialty pharmacies like AHF to accept opaque, arbitrary, and unsustainable contract terms. These practices allegedly make it difficult for independent specialty pharmacies to compete in the long-term, while ESI steers patients to Accredo.

Legal basis of the complaint. AHF argues that ESI’s conduct violates Sections 1 and 2 of the Sherman Antitrust Act, as well as Louisiana’s Unfair Trade Practices law. The organization is seeking injunctive relief to restore fair competition in the specialty pharmacy market.

Specific allegations of harm to competition. The lawsuit details several ways ESI allegedly harms competition:

1. Opaque and one-sided contracts: AHF claims ESI imposes non-negotiable contract terms on a take-it-or-leave-it basis. These contracts purportedly contain complex and conditional reimbursement formulas that make it nearly impossible for specialty pharmacies to determine actual reimbursement rates for drugs.

2. Arbitrary performance metrics: The complaint alleges ESI uses inappropriate performance metrics based on CMS guidelines for hospitals, not pharmacies. These metrics are said to be outside of specialty pharmacies’ control and unfairly punish them.

3. Clawbacks and bonus pools: Until recently, ESI allegedly made post-sale adjustments that extracted significant clawback payments from specialty pharmacies. While regulatory changes have altered this practice, AHF claims ESI has found ways to continue similar practices.

4. Steering patients to Accredo: The lawsuit asserts that ESI’s practices are designed to harm independent specialty pharmacies and ultimately steer patients to its own subsidiary, Accredo.

Impact on specialty pharmacies and patients. AHF argues these practices have caused substantial harm to competition in the Louisiana specialty pharmacy market. The organization claims it has suffered lost revenues and that other specialty pharmacies have been forced to exit the market entirely. Additionally, AHF alleges patients have been harmed through reduced choice, higher prices, and in some cases, lack of access to local brick-and-mortar pharmacies.

Supporting evidence and industry context. The complaint cites recent reports from the Federal Trade Commission and investigative journalism pieces that have raised concerns about anticompetitive practices in the PBM industry. A July 2024 FTC Interim Report is quoted as stating that PBMs “can have the ability and incentive to put downward pressure on reimbursement rates for rival, unaffiliated pharmacies—including to a degree that may be unsustainable for small, independent pharmacies.”

The FTC report highlights how the PBM market has become highly concentrated and vertically integrated, with the six largest PBMs managing 95 percent of all prescriptions filled in the United States. The FTC found that this concentration allows PBMs to exercise significant control over drug accessibility and pricing and enables them to self-preference their affiliated businesses at the expense of independent pharmacies. The report also notes that PBMs can steer patients to their own affiliated pharmacies and negotiate rebates with drug manufacturers that may limit access to lower-cost generic alternatives. FTC Chair Lina Khan emphasized the report’s findings on how PBMs can increase drug costs and negatively impact independent pharmacies, particularly in rural communities.

Relevant markets defined. AHF defines two relevant markets in its complaint:

1. The Louisiana PBM covered lives market: This includes patients covered by health plans whose pharmaceutical drug purchases are managed by a PBM in Louisiana. AHF claims ESI has over 70 percent of the market share in this market.

2. The Louisiana specialty pharmacy market: This includes both mail-order and brick-and-mortar specialty pharmacies that dispense specialty drugs to patients in Louisiana.

Relief sought. The lawsuit seeks injunctive relief on four causes of action: attempted monopolization, monopoly leveraging, and agreement to unreasonably restrain trade in violation of the Sherman Act and unfair trade practices under state law. AHF also is asking the court to prohibit ESI and Accredo’s alleged anticompetitive conduct and mandate steps to restore competition in the Louisiana specialty pharmacy market.

Growing scrutiny of PBM practices. The lawsuit comes amid growing scrutiny of PBM practices at both the federal and legislative levels. In July 2023, the FTC issued a report cautioning against reliance on its previous advocacy letters and reports about PBMs, acknowledging that these materials may no longer reflect the current state of the industry. The FTC is currently conducting a comprehensive study of the PBM market, reflecting concerns about how current practices may undermine patients, pharmacies, and fair competition.

Legislative efforts to increase PBM transparency. Meanwhile, legislative efforts are underway to increase transparency and accountability in the PBM industry. Senators Maria Cantwell (D-Wash.) and Chuck Grassley (R-Iowa) have introduced the Pharmacy Benefit Manager Transparency Act, which aims to ban deceptive pricing schemes, prohibit arbitrary clawbacks of payments to pharmacies, and require PBMs to report their revenue from spread pricing and pharmacy fees to the FTC. The bill has received bipartisan support and an endorsement from AARP.

At a press conference in Seattle, Senator Cantwell highlighted the urgent need for action, stating, “If we allow PBMs to keep going at the rate they're going, other pharmacies...will close and people will have less access, less information and certainly more expensive drugs.” Local pharmacists at the event shared their experiences with PBM practices, including significant increases in clawbacks and low reimbursement rates that have forced some pharmacies to close.

The Case is No. 4:24-cv-01043.

Judge: Holmes, R.

Attorneys: Brian E. McGovern (McCarthy Leonard LC) for AIDS Healthcare Foundation.

Companies: AIDS Healthcare Foundation; Express Scripts Inc.

News: Antitrust MissouriNews