CVS Caremark sued over ‘exorbitant’ DIR fees charged to independent pharmacy

Aetna, CVS Health, CVS Pharmacy and other defendants were hit with an antitrust class action on Sept. 26, accusing CVS Caremark of denying independent pharmacies access to its network of Medicare Part D beneficiaries unless the pharmacies agree to pay exorbitant fees. This comes as CVS and other pharmacy benefit managers are facing pushback from Congress over the business practices.

CVS Caremark is accused of pressuring  pharmacies, such as plaintiff Iowa-based Osterhaus Pharmacy, into paying “Direct and Indirect Remuneration” fees or “a second transaction involving a performance program that compels the pharmacies to pay fees for the ‘opportunity’ to provide other performance-related services,” according to the complaint.

A published 2021 Medicare Payment Advisory Commission report identified a 33% increase in 2020 levels for DIR fees, and estimated approximately $12.6 billion in costs, according to the complaint.

The suit was filed in the U.S. District Court for the Western District of Washington on behalf of Osterhaus Pharmacy Inc. Osterhaus seeks damages for alleged violations of Sections 1 and 2 of the Sherman Act, and breach of the covenant of good faith and fair dealing.

Osterhaus further alleges that CVS Caremark forced Osterhaus and other pharmacies to agree to grant it discretion in setting metrics for and calculate the DIR fees pharmacies must pay, and exercise that discretion in bad faith and thereby breaching the covenant, the complaint said.

Osterhaus additionally asserts claims for unjust enrichment, requesting CVS be required to return the DIR fees, and a claim for quantum meruit, requesting that CVS pay it the value of the DIR services provided.

According to the complaint, CVS Caremark’s distortion and exploitation of the “DIR loophole” is unlawful as it allegedly delays the fees it imposed on independent pharmacies without a legitimate basis, and has imposed increasing fees on these independent pharmacies based on “performance criteria” metrics, which allegedly make no sense for pharmacies.

It’s alleged that under 2016 changes made to the Centers for Medicare and Medicaid Services, CVS Caremark fabricated fees that “could not be calculated at the point of sale.”

“CVS Caremark forced Independent Pharmacies to join ‘network’ programs where pharmacies are assessed DIR fees, supposedly based on their performance and purportedly to encourage better performance by pharmacies. Under CVS Caremark’s scheme, DIR fees are not assessed until months or even years after pharmacies fill and dispense medications because the fees supposedly rely on patient data and outcomes,” the complaint said. “Therefore, according to CVS Caremark, DIR fees cannot ‘reasonably be determined at the point-of-sale.’”

“Striking features” the complaint highlights of the DIR fees include forcing pharmacies to pay for the opportunity to provide services and charging different amounts depending on how it assessed their performance. Other features included coercing pharmacies to produce outcomes over which they have little or no control, the complaint said.

CVS Caremark’s metrics for measuring pharmacy performance were loosely based on Medicare’s Star Rating System, Part D Plans. This performance criteria included monitoring things such as adherence to certain prescription drugs, which the complaint contends were developed to rate health plans, not pharmacies.

Osterhaus also alleges that CVS lacked transparency, claiming it is “opaque about the correlation between performance on metrics, relative performance, and the amount of DIR fees,” as well as the DIR fees being delayed.

It alleges that pharmacies cannot adjust their conduct in real time, which further renders the fees ineffective at encouraging improved performance.

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“CVS Caremark does not report pharmacies’ performance or the amount of DIR fees for many months or even years. By the time the DIR fees are assessed, so much time has passed that an Independent Pharmacy cannot meaningfully contest any factual basis for the PBM’s assessed fee, if it is even able to understand why the DIR fees were assessed or what they were assessed for,” the complaint said.

Further, Osterhaus contends that CVS uses its power in the market to deprive pharmacies of the option to provide filling and dispensing services without also having to pay to provide DIR services.

According to the complaint, CVS won’t approve pharmacies for reimbursement from Medicare Part D plans, for which it serves as the pharmacy benefit manager, unless the pharmacies agree to pay its DIR fees, which CVS, through its power in the market, allegedly uses to coerce pharmacies to agree to pay to provide DIR services.

This lends itself to the alleged one-sided contracts CVS allegedly draws up as part of a “take it or leave it” package.

In addition to petitioning for class certification, Osterhaus also brings claims under the Sherman Act, breach of implied covenant of good faith and fair dealing, unconscionability, unjust enrichment, and quantum meruit.

In terms of relief, Osterhaus seeks an award of damages and restitution, and attorney fees and costs.

Osterhaus’ attorney, Beth E. Terrell of the Terrell Marshall Law Group in Seattle, did not immediately respond to a request for comment.

Counsel have not yet appeared for the defendants.