On August 19, 2024, Douglas County, Colorado, which sits just outside of Denver and is home to around 350,000 Coloradans, filed a federal court lawsuit against Aetna Life Insurance Company (“Aetna”) alleging that Aetna owes the County $1,120,000 million in drug manufacturer rebates. As alleged in the Complaint, in 2013, the County entered into a Master Services Agreement (“MSA”) with Aetna to administer the County’s employee health and pharmacy benefits plan (the “Plan”). The MSA requires Aetna to pass through some of the drug manufacturer rebates that Aetna negotiates and obtains on the drugs dispensed to the County’s employees.
In 2023, the County conducted a public RFP process for administering the health insurance benefits for the Plan. As a result of that RFP process, the County decided to award the contract to United Healthcare (“United”), beginning in 2024. The County thus notified Aetna that they would not be renewing the MSA at the end of 2023. In response, Aetna allegedly invoked provisions in the MSA that purportedly allowed it to withhold the payment of rebates, and refused to pay more than $1 million in rebates it is required to pass through to the Plan. The County filed suit to recover this outstanding amount.[1]
Aetna Invokes a Questionable Early Termination Provision to Withhold Rebates
Aetna claimed that, once the County awarded the RFP contract to United, Aetna was no longer obligated to pay rebates to the county. Aetna invoked two contract provisions to support their refusal to pay rebates. First, the MSA requires, as a condition of the payment of rebates, that Douglas County not enter into any contract with any other entity to negotiate rebates and discounts, during the term of the MSA. Aetna allegedly argued that because Douglas County awarded the contract to United, it violated this condition. In response, the County argued that it did not breach the condition, because the contract awarded to United did not go into effect during the term of the MSA, and thus there was no breach of the rebate condition in the MSA.
Second, Aetna claimed that the County had prematurely terminated the MSA. In fact, a separate “Pharmacy Services Fee Schedule” appended to the MSA stated that Aetna could retain unpaid rebates if the MSA was terminated before December 31, 2025. But this “Fee Schedule” assumed that the MSA was a multi-year contract, even though the MSA made clear that the agreement between Aetna and the Plan was a single-year contract that must be renewed from year to year. Moreover, Colorado law prohibits multi-year contracts, see C.R.S. § 29-1-110, and thus mandates that the term of the MSA be restricted to a single year. The County thus allege in the Complaint that, under Colorado law, the County could not have prematurely terminated the MSA; rather, the County merely chose not to renew the MSA at the end of the contract year.
Aetna ignored all of this, effectively taking the position that the terms of the “Pharmacy Services Fee Schedule” trumps both the explicit terms of the MSA and Colorado law. Aetna also refused to engage in good faith dispute resolution regarding this issue, requiring the County to resort to litigation. Aetna’s refusal to engage in dispute resolution also signals to other counties and plans that they will have to face similar non-cooperation and potential litigation costs should they decide to transition from Aetna to a different PBM.
Aetna’s Reliance on Unreasonable and Patently Illegal Contract Terms Is Common Among PBMs
Aetna’s elevation of its own contract terms above the law is not at all surprising, since it is a common tactic of PBMs to incorporate contract terms that flout the law. A recent example is that PBMs such as Express Scripts have refused to abide by the federal Any Willing Provider Law and Medicare Part D’s “Flow Down” provision in their contracts with Medicare Part D Plan Sponsors. See Life Star Pharmacy, Inc. v. Express Scripts, Inc., No. 4:23CV186 JAR, 2024 U.S. Dist. LEXIS 36750, at *10 (E.D. Mo. Mar. 4, 2024) (finding that Express Scripts’ PBM contract did not explicitly incorporate the Any Willing Provider Law). Accordingly, plan sponsors and governmental agencies cannot sit back and assume that PBMs are following the law in their contracts.
This case is also reminiscent of the 2021 audit performed by Lehigh County, Pennsylvania of Express Scripts, Inc. (“ESI”) which concluded that ESI used one-sided contract terms to retain more than $1.6 million in rebates. More specifically, Lehigh County’s contract was opaque and strongly favorable to ESI. The Lehigh County’s audit report concluded, among other things, that the county could have received in excess of $700,000 in manufacturer rebates during the calendar year (“CY”) 2019. The report further notes that if the county had been allowed the option of receiving the higher of actual rebates earned versus a fixed rebate, the total rebate savings for CYs 2017 through 2020 would have been $1.6 million.
These cases emphasize that even government entities and municipalities that sponsor pharmacy benefit plans for their employees need to remain vigilant and audit their PBMs to ensure that all rebates owed to the plan are accounted for. Sponsors of self-funded plans can avoid the situations faced by Lehigh County and Douglas County only by not assuming that PBMs are complying with the law at every step, but by proactively initiating audits with the assistance of industry experts and taking enforcement steps where necessary to curb PBM abuses such as rebate retention and spread pricing. Plan sponsors that fail to incorporate their duty to monitor and oversee the PBMs as a routine part of their plan administration and design may face legal exposure such as the lawsuits recently filed against and Wells Fargo.
How Frier Levitt Can Help
Frier Levitt’s Plan Sponsor Practice Group combats PBM abuses, including spread pricing and rebate retention practices. Frier Levitt’s experienced attorneys offer various PBM audit services, including healthcare policy review and analysis, auditing (and where necessary litigating against) PBMs to verify that Plans have been paid the proper rebates. Frier Levitt also has a proven track record of success in litigating against PBMs on behalf of Plan Sponsors. If your organization is a Plan Sponsor,contact us today.
View the Complaint HERE.
[1] It should be noted that the allegations in the County’s Complaint which are summarized in this article are allegations only that have not been proven in a court of law.
