The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
In a development that is likely shaking the world of health insurance, Ohio Attorney General Dave Yost on Monday sued six corporate entities over the way they facilitate drug transactions. Yost filed the suit under the Valentine Act — Ohio’s antitrust law — accusing the companies of improperly colluding to fix prices and other actions regarding prescription drugs.
The main target of the lawsuit is St. Louis-based Express Scripts. It’s one of the three biggest drug middlemen in the United States.
Together, the three “pharmacy benefit managers” control more than 70% of a marketplace in which they negotiate rebates with manufacturers in exchange for covering their products. They also determine reimbursements to pharmacies and reconcile transactions at the drug counter.
Also being sued are Express Scripts’ corporate parents, Cigna and Evernorth, and Ascent Health Services, a “group purchasing organization” it started in 2019. In addition, the suit names as defendants Prime Therapeutics — a smaller PBM owned by Blue Cross and Blue Shield which co-owns Ascent — as well as Humana Pharmacy Solutions, an Ascent customer.
It’s the second time Yost has sued Express Scripts over its PBM services. In 2020, he accused the company of ripping off the Ohio Highway Patrol Retirement System to the tune of millions of dollars.
But the scope of the suit filed Monday is much larger.
“PBMs are modern gangsters,” Yost said in a statement announcing the suit. “They were designed to protect and negotiate on behalf of employers and consumers after Big Pharma was criticized for overpricing medications, but instead they have absolutely destroyed transparency, scheming in the shadows to control drug prices on all sides of the market.”
Each of the biggest PBMs — Express Scripts, CVS Caremark, and OptumRx — is affiliated with a top-ten insurer and each is part of one of the 12 largest corporations in the country.
The companies say they use their heft to deliver lower prices to customers, but they have been long accused of using their size to engage in unfair practices in the marketplace.
Because PBMs decide which drugs to cover, they’re able to negotiate big rebates from the companies that make them. There’s research indicating that drugmakers raise “list” prices — the cost if you don’t have insurance — to compensate. And because the system isn’t transparent, it’s hard to know what portion of manufacturers’ concessions PBMs are pocketing and which portion they’re passing on to member health plans or their customers.
Meanwhile, they also use a non-transparent system to determine reimbursements that especially small pharmacies say is undermining their ability to stay in business. In small towns and rural areas, pharmacies are the most accessible point in the healthcare system for many and when one closes it can create a pharmacy desert.
PBMs are able to negotiate for rebates with manufacturers the way they do because they’re exempt from the federal anti-kickback statute. But in 2019, as negative publicity about the industry swelled, calls grew to end that exemption, which would have ended the system of huge rebates and other discounts and fees the PBMs receive.
The lawsuit
According to the lawsuit filed Monday, Express Scripts responded by starting Ascent. As a group purchasing organization, it allows multiple PBMs to band together and use their additional clout to get even better deals from drugmakers and pharmacies, the suit said.
And, even though all of its customers are in the United States, Express Scripts headquartered important parts of the company in Switzerland, home to some of the strictest bank-secrecy protections in the world. Prime Therapeutics bought a minority stake in the company in December 2019.
Express Scripts didn’t immediately respond to questions Monday, but Prime Therapeutics said it had acted in the best interests of its members.
“Prime is a minority owner of Ascent, which is a group purchasing organization that negotiates pharmaceutical relationships and savings opportunities for the purpose of improving affordability for members and plan sponsors across Prime’s client base, including Prime’s Blue Cross and Blue Shield owners,” a spokeswoman said in an email, adding that the company doesn’t comment on pending litigation.
That’s not how the Ohio antitrust suit describes the companies’ goals for the purchasing organization.
“Ascent was, they realized, the perfect vehicle to harmonize and fix drug prices, rebates and fees and retail pharmacy reimbursements,” it said. “Eventually, certain Ascent customers — such as defendant Humana Pharmacy Solutions — also participated in and benefited from this combination.”
The suit alleged heavy-handed treatment against one company that stopped playing ball with Express Scripts.
Angered over the PBM’s low reimbursements to its pharmacies, grocery giant Kroger stopped using it at the end of last year even though that meant the loss of $100 million a month in revenue, the suit said. It added that Express Scripts is trying to get payback.
The PBM “is working with Ascent to remove Kroger, as a PBM exclusively for its own employees, from being an Ascent customer in retaliation for Kroger withdrawing from Express Scripts networks,” the lawsuit said.
In other words, the state is accusing Express Scripts of also using the size and opacity of Ascent to punish Cincinnati-based Kroger because Kroger pulled out of what it believed was a bad deal.
One reason the lawsuit might be causing concern across the health insurance sector is that the other two of the big-three PBMs followed Express Scripts in starting group-purchasing organizations, the Capital Journal reported in 2021. CVS launched Zinc domestically and Optum launched Emisar Pharmacy Solutions in Ireland.
The organizations raised fears among experts that the purchasing organizations would make an industry already lacking in transparency even less so. The Ohio attorney general’s suit said that banding together in such organizations also allows participating companies to share pricing, rebate and patient information that’s supposed to be confidential.
“Defendants’ combinations have the purpose and effect of placing the management and control of their trusts, and the products and services controlled by them, in the hands of a trustee — defendant Ascent — with the intent of restraining trade, fixing the price of drugs and diminishing the output of retail pharmacy services…” it said.
In addition to accusing the defendants of violating the Valentine Act, the suit accuses them of running afoul of the Deceptive Trade Practices Act and of unjust enrichment and civil conspiracy. It asks that each defendant be forced to pay $500 for each day it participated in the alleged conspiracy and that each be forced to “disgorge all ill-gotten proceeds.”
