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A controversial health insurance practice that critics say ratchets up the cost of prescription drugs may be on the chopping block as it gains more attention from attorneys, academics, and lawmakers.
A flurry of lawsuits over prescription drug “clawbacks” filled federal court dockets in recent years, with cases targeting UnitedHealth, Cigna, Humana, and OptumRX. A recent legal victory in the case against Cigna could force the insurer to disclose information about its alleged clawback practices, which could chip away at the lack of transparency that critics say allows the practice to proliferate. The March 12 court ruling comes on the heels of the first significant academic research on clawbacks, which suggests they could be occurring in about a quarter of all insured drug sales.
Legislators at both the state and federal levels are paying closer attention to clawbacks. On March 14, Sens. Susan Collins (R-Maine), Claire McCaskill (D-Mo.), Debbie Stabenow (D-Mich.), and Bill Cassidy (R-La.) introduced legislation that would ban the “gag clauses” preventing pharmacists from telling insured customers when they could save money by paying for their prescriptions in cash. Several states, including Connecticut, Texas, and Georgia, have passed legislation attempting to rein in clawbacks.
In a prescription drug clawback, insured patients pay their full copayment for a drug that, unbeknownst to them, costs less than the copayment amount. Insurers and pharmacy benefit managers (PBMs) then pocket the extra money. Critics say this forces insured patients to unwittingly pay more for their prescriptions than they’d pay without insurance—sometimes by as much as 300 percent, according to some of the lawsuits attacking this practice.
Clawback opponents scored a big victory this month, when a federal judge allowed a proposed class action against Cigna to proceed. The judge said Cigna might be liable under federal employee benefits and racketeering laws for the alleged clawback scheme.
The decision breathed new life into the anti-clawback litigation movement, which suffered a blow in 2017 when a different judge dismissed a similar lawsuit against UnitedHealth.
By surviving a motion to dismiss, the Cigna lawsuit could be an important turning point, because it could force the defendants to go through the discovery process and release information about their practices, Eric Schillinger, a benefits attorney with Miller Nash Graham & Dunn in Portland, Oregon, told Bloomberg Law.
If Cigna is forced to turn over pricing and policy information, it could chip away at the information gap and lack of transparency that’s allowed these practices to continue, Schillinger said. Because the three largest PBMs—OptumRx, CVS Caremark, and Express Scripts—control most of the PBM market, they can negotiate favorable contracts that allow many of their policies to remain secret, he said.
Both the Cigna and UnitedHealth cases attempted to hold the insurers and PBM defendants liable as fiduciaries under the Employee Retirement Income Security Act based on their alleged clawbacks from customers covered by ERISA-governed health plans.
This novel theory was rejected outright in the UnitedHealth case, but the judge hearing the Cigna case was more receptive to the argument. He said Cigna may have acted as a fiduciary because it allegedly exercised unauthorized, discretionary control over the insurance plans and contracts in order to receive the excess payments at issue.
A similar case against Oxford Health Insurance and Optum is pending in a New York federal court. Humana has been targeted over similar alleged practices, though that case only invokes racketeering and state law, not ERISA.
In addition to this first legal victory, clawback opponents have another new arrow in their quiver: the first large-scale analysis of prescription drug payments and potential overpayments. Using data from 2013, researchers concluded that prescription drug clawbacks are common.
The white paper from researchers at the University of Southern California suggests that nearly a quarter of prescriptions filled by insured patients involved a copayment amount at least $2 higher than the drug’s average retail price, which researchers coded as a potential clawback. The average overpayment was $7.69 per drug, and total overpayments were at least $135 million during 2013, according to the researchers.
Because the paper is based on data compiled by the Centers for Medicare and Medicaid Services in 2013, it doesn’t shed light on how the practice may have waxed or waned over the years.
Schillinger, who negotiates with PBMs on behalf of employers and health plan sponsors, said increased transparency about the clawback phenomenon is a good first step toward addressing the issue, regardless of how the legislative or litigation efforts pan out.
“If we can at least get more transparency, then the market might be able to address this through better information or negotiation,” Schillinger said.
Several states have moved to address prescription drug clawbacks, in some cases taking aim at the gag clauses that prevent pharmacists from telling insured customers that they could save money on prescriptions by paying cash.
Connecticut, Arkansas, Louisiana, Texas, Maine, North Carolina, Georgia, and North Dakota have passed laws aimed at eliminating clawbacks, gag clauses, or both. Other states have introduced similar legislation.
The bipartisan Senate bill introduced this month is focused specifically on gag clauses and not clawbacks.
Both America’s Health Insurance Plans, a trade group representing the health insurance community, and the Pharmaceutical Care Management Association, which represents PBMs, say they oppose gag clauses in pharmacy contracts.
“Americans should be able to get their prescriptions at the lowest price available to them,” Kristine Grow, senior vice president of communications for AHIP, told Bloomberg Law. “Pharmacists should be able to inform their customers in the relatively uncommon instance that their medication would cost less if they pay out of pocket rather than use their insurance.”
The PCMA released a statement that is generally supportive of the Senate initiative without specifically endorsing it. The PCMA says it opposes “contracting that prohibits drugstores from sharing with patients the cash price they charge for each drug.”
Cigna declined to comment for this article. Representatives from Humana and UnitedHealth—which owns OptumRx—didn’t respond to multiple inquiries.
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