Knowing When and How to Fight Back: Protecting Independent Community Pharmacies from Overbearing Pharmacy Benefit Managers

Authors: John W. Leardi, Esq.; Christopher B. Bladel, Esq.

Lawyers in our Pharmacy Law and PBM Disputes practice help pharmacies manage interactions with Pharmacy Benefit Managers (PBMs), and in this blog, we use a recent example of a case our firm is arbitrating against Optum Rx (Optum) to illustrate how PBMs are using their overbearing leverage to derail independent community pharmacies.

The Opaque World of PBMs

Most patients do not know that their local community pharmacist has very little, if any, say or bargaining power in the wholesale prices they pay, or the retail sales price of medications. Yet, independent community pharmacists know that even in the smallest ways, PBMs are controlling all aspects of the chain of sale and distribution of prescription medications.

Media coverage is helping illuminate the hold PBMs have on the wholesale and retail drug market. A recent investigative report published by The New York Times explained how PBMs work for the benefit of the health insurance companies that own them to inflate the cost of prescription medication.[i] The Times reported that the three largest PBMs oversee the prescription drug plans for more than 200 million Americans. They are:

1. CVS Caremark (owned by CVS Heath, which purchased health insurer Aetna in 2018)
2. Express Scripts (which was purchased in 2018 by health insurer Cigna)
3. Optum Rx (owned by UnitedHealth Group, which also owns health insurer UnitedHealthcare Insurance Co.).

For every prescription drug plan, there is a PBM—owned by large health insurance companies and supposedly operated as separate companies that claim to be working for insurers to get prescription medications to pharmacies at the lowest possible cost.

In reality, the PBM is an unnecessary and wasteful middleman—a creation of the insurance companies themselves—designed to set prices in such a manner as to pass the “savings” not to patients or pharmacies, but rather back to the insurance companies through a series of transactions that never result in a penny of savings going to community pharmacies or their patients.

How do PBMs Harm Community Pharmacies?

While the Times’ investigation focused on the ways PBMs impact patients, what was not discussed in detail is the impact PBMs have on community pharmacies themselves. The report, however, included the following finding concerning access to locally-owned and operated pharmacies:

The P.B.M.s, which are responsible for paying pharmacies on behalf of employers, are driving independent drugstores out of business by not paying them enough to cover their costs. Small pharmacies have little choice but to accept these lowball rates because the largest P.B.M.s control an overwhelming majority of prescriptions. The disappearance of local pharmacies limits health care access for poorer communities but ultimately enriches the P.B.M.s’ parent companies, which own drugstores or mail-order pharmacies.[ii]

Now, the PBMs and their insurance company owners have branched out and now own or control pharmacies of their own, which the PBMs promote as providing lower costs to consumers than local pharmacies. What the PBMs do not say is that they control the prices that a patient’s local pharmacy can charge and place vague, amorphous, costly, and time-consuming restrictions on pharmacists, all of which cut the already razor thin profit margin.

If your pharmacy has received a PBM audit demand, it may be a pretext for that PBM to begin pharmacy network termination proceedings based on unsupported allegations of “fraud” in dispensing prescription medications.

Buttaci Leardi & Werner LLC is Arbitrating Against Optum Rx on Behalf of an Independent Retail Pharmacy

In April 2023, our client – the owner and operator of a small independent retail pharmacy in Camden, New Jersey – received a notice from Optum Rx (“Optum”) that it was conducting a “desktop audit.”

What Does an Audit Entail?

Audits of pharmacies are commonplace and PBMs draft “pharmacy provider manuals” to outline all procedures that a local pharmacy must follow to remain “in-network” with the PBM. Our client, which had been a participating pharmacy contracted with Optum Rx for decades, received a request for information and documents concerning specific prescriptions that were filled and was notified that Optum would perform an “invoice reconciliation” of the pharmacy’s purchases from the approved wholesaler from which PBMs require nearly all prescription drug inventory to be purchased.

The client, feeling it had nothing to hide, submitted information and documents to Optum. What the pharmacy did not know was that Optum had already been using its access to purchase and sale data to lay the groundwork for terminating the pharmacy from Optum Rx’s “network.”

How Does Termination from a PBM Network Impact a Community Pharmacy?

When a community pharmacy is terminated from a PBM’s network, it is no longer able to submit claims for payment to any health insurance plan that is managed by the PBM. Patients and physicians are notified that a pharmacy will no longer be “in-network” and are directed to other pharmacies, including those owned and/or controlled by the PBMs themselves.

After a few months of an “audit,” Optum told our client that it was being terminated for cause because:

1. Optum had evidence in the form of “confirmed” patient denials wherein the patients supposedly denied receiving medications billed by the pharmacy and/or never sent the prescription to the pharmacy to fill; and
2. the “invoice reconciliation” revealed that the pharmacy had not purchased all the medications it dispensed from the approved wholesaler.

Additionally, although the pharmacy submitted proof that it actually dispensed all of the medications to patients enrolled in an Optum-managed plan and that Optum had approved all such claims, Optum declared that all of the prescriptions identified in the audit findings were subject to a claw back of all payments Optum made to the pharmacy. Thus, Optum unilaterally instituted a “payment suspension” to essentially claw back nearly $800,000 in prescription drug plan benefits that Optum previously approved and paid for the audit period. This meant that every time the pharmacy fulfilled a new prescription for an Optum member, Optum would pay nothing until the alleged “overpayment” was recouped through the payment suspension.

Can a Pharmacy Contest a Termination?

The pharmacy retained our firm and we immediately contested the termination and demanded production of the documents that Optum claimed supported the “confirmed patient denials.”

The client was perplexed because it appeared that Optum had ignored all the documentation the pharmacy submitted and was never informed what specific records Optum required to validate the prescriptions deemed overpaid.

In some cases, Optum said a patient denied submitting a prescription. We produced records showing the prescription was sent electronically by the patient’s physician. In others, Optum claimed that the patient “confirmed” he or she never received the medication. We produced signatures and/or delivery receipts along with pharmacy records documenting phone calls with the patient requesting refills.

Regarding the “invoice reconciliation,” our client noted that Optum’s pharmacy provider manual did not require all purchases to be made from wholesalers because there is a specific exception that permits pharmacy-to-pharmacy transfers to fulfill prescriptions so long as the pharmacy maintains adequate records of the transactions. Optum’s pharmacy provider manual did not contain any detailed list of what documents would satisfy Optum or what procedures participating pharmacies must abide by when engaging in a pharmacy-to-pharmacy transaction. Our client used well-known prescription marketplaces that facilitate these inter-pharmacy transfers in such a way that all sides are compliant with federal law.

Is there a PBM Dispute Resolution Process in the PBM’s Pharmacy Provider Manual?

Importantly, although Optum’s pharmacy provider manual and its communications with our client during the audit were vague on what documentation Optum claimed was required, the manual contained a detailed dispute resolution process as well as an arbitration clause. The manual required both Optum and participating pharmacies to:

1. work in good faith to resolve any and all disputes;
2. when a dispute arises, the complaining party shall, within one (1) year, provide written notice to the other party describing in detail the nature and scope of the dispute;
3. the parties shall then be required to engage in a thirty (30) day period of “good faith discussions” in attempt to resolve the dispute;
4. if the “good faith discussions” do not result in a resolution, either party may demand a meeting or telephone conference (a Dispute Resolution Meeting) to address the dispute one final time.

Only after these steps have been exhausted is the pharmacy able to commence arbitration proceedings in accordance with the pharmacy provider manual.

Of note, the pharmacy provider manual stated, “any party seeking to commence [an] arbitration must certify in writing:

1. the Dispute was not resolved after faithfully following the procedures set forth above in this section or
2. the other Party to the Dispute did not fully comply with the procedures set forth above in this section.

Our client appealed Optum’s decision to terminate its contract to be a participating pharmacy in Optum’s network. Following what appeared to be a pro forma appeal hearing, Optum upheld all of its audit findings, including the decision to claw back nearly $800,000 through a “payment suspension.” Optum did not provide any reasoning for its decision. Optum then unilaterally set a date for termination, which would have been the death knell for one of the last independently-owned pharmacies in Camden, New Jersey.

Navigating the “Good Faith Discussion” Requirement

Following receipt of Optum’s correspondence upholding all of its decisions related to the audit and termination of the pharmacy’s contract, our office submitted a formal written demand for “good faith discussions” so the parties could fulfill their pre-arbitration dispute resolution obligations before the arbitrary date that Optum set to terminate the pharmacy from Optum’s network. After a week of receiving no response, we followed up, noting that the timing was crucial and Optum was denying the pharmacy one of the steps in the dispute resolution process. Instead of contacting our office to engage in the required “good faith discussions,” Optum scheduled a Dispute Resolution Meeting via telephone.

We immediately objected to Optum both bypassing the “good faith discussions” requirement and scheduling the expedited Dispute Resolution Meeting for a date before any such discussions had taken place. Requests that Optum follow its own pre-arbitration dispute resolution process fell on deaf ears. Meanwhile, Optum had already inflicted substantial harm on our client’s pharmacy by contacting physicians and patients to advise that Optum would not authorize payments to our client once the termination went into effect.

Pursuing Legal Action to Stop Termination

Facing imminent termination of its Optum participating pharmacy agreement, we filed a Verified Complaint and Order to Show Cause in Camden County Superior Court asking that the Court enter a temporary restraining order and a preliminary injunction to halt the termination while the parties addressed their disputes in arbitration. Optum then removed the case to the United States District Court for the District of New Jersey and demanded that our client dismiss its lawsuit in favor of arbitration. The lawsuit was effective in that Optum agreed to temporarily pause terminating the pharmacy’s contract until an emergency arbitrator could rule on the request to issue a preliminary injunction halting termination until after a final decision on all disputes between the parties could be reached.

On June 10, 2024, in opposition to our application for a preliminary injunction, Optum finally produced the “patient denials” that our firm had demanded in nearly every communication with Optum since we were retained. We also produced documents and communications previously sent to Optum responding to and refuting each of the alleged “violations” that formed the basis of Optum’s decision to terminate our client’s pharmacy provider contract.

Following oral argument before an emergency arbitrator, our client was awarded all of the preliminary injunctive relief we sought.

In doing so, the arbitrator noted that although the Optum-drafted pharmacy manual afforded broad discretion to Optum, injunctive relief was warranted because the pharmacy demonstrated the prospect of immediate irreparable harm and issuance of the preliminary injunction would not harm Optum in any significant way. Further, as it concerned the confirmed patient denials, the arbitrator reasoned that the pharmacy demonstrated a likelihood of success on the merits because the evidence demonstrated a reasonable likelihood that the Pharmacy would prevail on all or almost all of the member denial issues. Additionally, as it concerned the pharmacy-to-pharmacy marketplace purchases, the arbitrator noted that Optum had not clearly defined in either its pharmacy manual or in any correspondence to the pharmacy or this firm what was missing or what information would satisfy Optum that the purchases complied with applicable laws and regulations.

Accordingly, the arbitrator concluded, Optum has not made a persuasive showing that safety or quality are at the heart of this matter. This was critical because Optum argued that it was protecting patient health and safety, which is of course a paramount concern as it relates to dispensing prescription drugs.

Finally, with regard to Optum’s failure to follow its own pre-arbitration dispute resolution procedures, the arbitrator noted that Optum’s failure to meaningfully engage with the pharmacy favored granting the preliminary injunction because the pharmacy was never advised what it could have done to comply with Optum’s interpretation of the pharmacy manual.

Although Optum is still holding approximately $800,000 of our client’s funds, our client’s pharmacy remains in business and continues to operate in Optum’s network. More importantly, the people of the City of Camden have not lost yet another independent pharmacy in a desperately underserved community. The confidential arbitration proceedings remain ongoing, and the arbitrator will ultimately rule on the merits of all disputes, including the pharmacy’s demand for the return of the funds in addition to maintaining the pharmacy’s in-network status with Optum.

Dispute Resolution Remedies Currently Available to Pharmacies Challenging PBM Misconduct are Costly and Time-Consuming

A dispute that arose out of an audit that began in April 2023 remains outstanding two years later, and our client has spent tens of thousands of dollars in legal fees on top of the $800,000 OptumRx unilaterally withheld from its reimbursement. The time and costs required to challenge PBM actions under the dispute resolution processes laid out in most pharmacy manuals renders the process superfluous, if not entirely inaccessible to most community pharmacies—a concern that is only exacerbated by the striking lack of transparency that all too often infects the pre-arbitration process.

New Transparency Standards May Level the Playing Field in New Jersey

Thankfully, the playing field in New Jersey is on the precipice of being a little more equal. In July 2023, Governor Murphy signed a new law that revised N.J.S.A. 17B:27F-1 to -104 (“The PBM Act”) and established “new transparency standards for PBM business practice.” That law took effect on January 1, 2025, and on December 31, 2024, the New Jersey Department of Banking and Insurance issued Bulletin 24-18 to provide stakeholders with guidance on its implementation and enforcement of the PBM Act.

One of the most important features of the new law is its affirmation that PBMs are subject to other existing laws that provide procedural safeguards to pharmacies facing audit and/or repayment scrutiny.

These laws include the unfair claim settlement practices law, N.J.S.A. 17B:30-13.1, and the Health Claims Authorization, Processing, and Payment Act (“HCAPPA”), which establishes “uniform procedures and guidelines” that payers must follow when making, communicating, and reconsidering utilization management decisions. N.J.S.A. 17B:30-49(d).

Cumulatively, these laws inject at least some measure of transparency and procedural fairness into the way PBMs must conduct audits of NJ-based pharmacies by:

• limiting audit periods
• limiting the use of statistical extrapolation
• establishing minimum standards for internal appeals to reconsider disputed audit findings
• creating a binding arbitration system for resolving post-appeal overpayment disputes

It remains to be seen how these existing laws will, in practice, curb some of the more abusive audit tactics employed by PBMs, but in theory, pharmacies now have tools that did not exist just a few months ago.

Independent Pharmacies are Essential for our Communities

Our Firm regularly represents pharmacies in PBM audits and termination disputes. If your pharmacy is involved with an audit, payment dispute, or network termination proceeding, please feel free to contact John W. Leardi at jwleardi@buttacilaw.com or 609-799-5150 for a complimentary consultation. Mr. Leardi serves as special counsel to the Garden State Pharmacy Owners and lecture frequently to pharmacists and pharmacy technicians on reimbursement and other related regulatory matters.

[i] Rebecca Robbins and Reed Abelson, The Middlemen: The Opaque Industry Secretly Inflating Prices for Prescription Drugs, N.Y. Times, June 21, 2024, available at https://www.nytimes.com/2024/06/21/business/prescription-drug-costs-pbm.html?smid=url-share (last retrieved June 27, 2024).

[ii] See id.

Tagged with: Christopher B. Bladel, John W. Leardi

• Posted on: Mar 26 2025