Judge Grants Class Certification in Usual & Customary Pricing Case

Judge William Smith issued an opinion Tuesday in a case brought by Sheet Metal Workers Local No. 20 Welfare and Benefit Fund (Sheet Metal Workers), Indiana Carpenters Welfare Fund (Indiana Carpenters), and Plumbers Welfare Fund (Plumbers) against CVS Pharmacy and five pharmacy benefit managers (Caremark LLC., Express Scripts, Inc., OptumRx Inc., Medco Health Solutions, Inc., and MedImpact Healthcare Systems, Inc.), or PBMs, over allegations that the pharmacy “engaged in a nationwide scheme and conspiracy to overcharge third-party payors [TPP’s].” The opinion dismissed Sheet Metal Workers from the case on arbitration grounds, but granted class certification for the remaining plaintiffs.

They originally argued in the District of Rhode Island suit that CVS and major PBMs violated the Racketeer Influenced and Corrupt Organizations Act (RICO), by concealing the pricing of their Health Savings Pass membership.

The National Council for Prescription Drug Program (NCPDP) requires pharmacies like CVS to report the prices they charge non-insured customers, which is called the Usual and Customary (U&C) Price. This is in an effort to “guarantee that TPP’s and insured customers do not pay more for a prescription drug than an uninsured consumer would pay for the same drug.”

According to the opinion, PBMs act as the middleman between pharmacies and third party-payors (TPPs largely consist of insurance and healthcare companies). They liaise and oversee the transactions between the pharmacies and the TPPs, who are their clients. PBMs turn a profit by charging TPPs more for the pharmacy’s product than they paid for it, and to ensure success they do not disclose either price.

The judge recounted that in 2008, CVS created a Health Savings Pass membership, which requires an annual fee but gives the typically uninsured consumer access to discounted prescription drugs. The plaintiffs alleged that CVS “overcharged the health plans [of TPPs] in failing to treat its Health Savings Pass membership as its ‘Usual and Customary’ prices when reporting the U&C prices to PBMs.”

The plaintiffs further argued that CVS enlisted four of the largest PBMs in the country to “embark on a scheme to conceal from health plans its HSP drug prices when reporting U&C prices.” If CVS had reported the U&C prices under their Health Savings Pass Membership, PBMs would have lost a significant amount of money because they are required to abide by the NCPDP rule of charging their insured clients less than those who are uninsured and have the Health Savings Pass Membership.

The court ultimately granted the plaintiffs class certification on the grounds that they had exhibited, beyond a preponderance of evidence, “a ‘reasonable and workable plan’ for determining the effect of a generic effective rate [GER] on the putative class members’ damages.” Further, the court concluded that this plan was “protective of the defendant’s constitutional rights,” and that the plan did not “cause individual inquiries to overwhelm common issues.” The court added that “the need to account for GER damages offsets does not impede certification.”The judge presiding over the case, Judge William E. Smith, recently granted the plaintiffs’ motion for class certification. The plaintiffs are represented by Hagens Berman Sobol Shapiro LLP, while the defendants are represented by Williams & Connolly LLP and Whelan Corrente & Flanders LLP.