Spitzer Accuses PBM Express Scripts of 'Schemes' to Divert Millions

August 4, 2004 (PLANSPONSOR.com) - New York state officials on Wednesday filed a lawsuit against pharmacy benefit manager (PBM) Express Scripts for using "elaborate schemes" to jack up drug costs to New York State's largest employee health plan, the Empire Plan.

New York State Attorney General Eliot Spitzer said in a news release posted to his Web site that the New York State Supreme Court lawsuit resulted from a year-long probe by Spitzer’s office in cooperation with the Department of Civil Service and the Office of State Comptroller (OSC) (See State AGs Look into Express Script’s Drug Management Programs). The investigation was sparked by audits of Express Scripts conducted by OSC in 2002.

“New Yorkers and all Americans are facing an ongoing health care crisis – a crisis of access and affordability driven to a large degree by the enormous growth in the cost of prescription drugs,” Spitzer said in the news release. “Rather than being part of the solution to this crisis by keeping drug costs as low as possible, we discovered that Express Scripts engaged in a series of deceptive schemes. It improperly lined its pockets at the expense of health plans and consumers, driving up the very drug costs it is supposed to lower.”

The Empire State’s lawsuit alleges that St. Louis-based Express Scripts:

  • enriched itself at the expense of the Empire Plan and its members by inflating the cost of generic drugs
  • diverted to itself millions of dollars in manufacturer rebates that belonged to the Empire Plan
  • engaged in fraud and deception to induce physicians to switch a patient’s prescription from one prescribed drug to another for which Express Scripts received money from the second drug’s manufacturer
  • sold and licensed data belonging to the Empire Plan to drug manufacturers, data collection services and others without the permission of the Empire Plan and in violation of the state’s contract
  • induced the state to enter into the contract by misrepresenting the discounts the Empire Plan was receiving for drugs purchased at retail pharmacies.

Pricing Methods

Spitzer’s announcement charged that Express Scripts paid certain retail pharmacy chains higher prices for generic drugs for members of plans with “pass-through” pricing, such as the Empire Plan. These higher prices were then “passed through” to such plans. Under “pass-through” pricing (used by the Empire Plan for in-state pharmacies), the amount charged to the Empire Plan for a drug would be the same amount paid by Express Scripts to the pharmacy.

The lawsuit also charges that Express Scripts disguised millions of dollars in rebates as “administrative fees,” “management fees,” “performance fees,” “professional services fees,” and other names.

According to the lawsuit, Express Scripts received funding from brand drug manufacturers to steer members away from less expensive generic drugs when a brand name drug was about to be subject to generic competition. In the period before the introduction of the generic, Express Scripts would switch members from a brand drug losing patent protection to another made by the same manufacturer that was not facing generic competition. These switch initiatives increased prescription drug costs for plans and members, while simultaneously enriching Express Scripts, Spitzer charged.

Meanwhile, the company denied wrongdoing in a statement posted to its Web site. “Express Scripts strongly denies the assertions in this contract dispute,” the firm said. “The company will defend itself vigorously in court.” It has saved the State of New York more than $2 billion in drug costs since 1998, Express Scripts asserted.