Pharmacies' Lawsuit Against PBMs Won on Appeal

MARCH 01, 2007
Joseph L. Fink III, BSPharm, JD

Issue of the Case

For over 20 years, a western state has had a statute requiring that pharmacy benefit managers (PBMs) conduct or obtain the results of pharmacylevel dispensing fee surveys at least every 2 years and forward those findings to the plan sponsors for whom they provide plan administration services. The issue presented in this case was whether pharmacy owners have legal standing to challenge the failure of PBMs to conduct such obligatory surveys.

Facts of the Case

A group of pharmacy owners in the state sued a collection of PBMs in federal court seeking to enforce the provision in state law mandating such surveys. The lawsuit was filed in federal court because of diversity of citizenship; ie, some of the defendant PBM firms were "citizens" of another state. The federal trial court dismissed the case based on an argument made by the defendant PBMs that the pharmacy owners lacked "standing." Standing means that some concrete legal interest of the plaintiff pharmacy owners must have been invaded by the action or inaction of the defendants.

The statute, enacted in the early 1980s, required that the PBMs conduct the surveys or contract with an outside firm to do so, focusing on the dispensing fees charged to uninsured patients. The results of these surveys were then to be relayed by the PBMs to their clients on whose behalf they administer the prescription-drug insurance plans.

The wording of the statute in question is "every prescription drug claims processor shall have conducted or obtained the results of a study or studies which identify the fees, separate from ingredient costs, of all, or a statistically significant sample, of [state] pharmacies for pharmaceutical dispensing services to private consumers." Further, it mandated that "this study or these studies shall be conducted or obtained no less often than every 24 months."

A separate section in the statute conferred on pharmacy owners the right to sue to enforce the requirements of the statute:

Any owner of a licensed pharmacy shall have standing to bring an action seeking a civil remedy pursuant to this section so long as his or her pharmacy has a contractual relationship with, or renders pharmaceutical services to, a beneficiary of the client of the prescription drug claims processor, against whom the action is brought.

The pharmacy owners took the position that the intent of the legislature was that, by providing accurate information derived from the surveys about pricing of pharmacy services to the firms that sponsored the prescription-drug insurance programs, the plan sponsors could make informed decisions about fair reimbursement rates to be paid for serving beneficiaries of the prescription- drug plan. This was in contrast to the reimbursement rates the PBMs were "imposing on pharmacies."

The argument of the PBMs in response was that using the information as the pharmacy owners contemplated, ie, to lead to possible adjustment of reimbursement rates, was too remote or distant a possibility to create standing on the part of the pharmacies. The PBMs argued that, even if the plan sponsors received the results of the surveys, the sponsors were not required to use them to adjust reimbursement rates. Indeed, the PBMs argued that, in their view, the plan sponsors were not even required to read the reports.

The Court's Ruling

The court appellate ruled that there was sufficient possibility of injury to the legal interests of the pharmacy owners from the PBMs not conducting the mandated surveys and relaying those results to plan sponsors that the suit should not have been dismissed at the trial court level. The trial court judge erred when she ruled that the pharmacy owners lacked legal standing. The case was returned to the trial court of origin for further proceedings.

The Court's Reasoning

The decision on appeal was that the pharmacies had alleged a sufficient procedural injury—failure of the PBMs to follow the statutory mandates—for a trial to take place.

The appellate court concluded that the pharmacy owners had successfully demonstrated that the steps mandated by the statute were designed to protect some threatened concrete interest of theirs. Specifically, the court concluded that the legally protected interest of the pharmacy owners was that the requirement that PBMs conduct the surveys and forward the results to plan sponsors would lead to more informed decision making by the plan sponsors about reimbursement rates for services provided to their beneficiaries.

Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.