Anthem Sues Express Scripts Over Prescription Drug Pricing

Health insurance company Anthem is suing Express Scripts, the largest prescription drug benefit provider in the U.S., for allegedly charging too much for drugs.

The lawsuit, filed in district court in New York, seeks to recover damages for alleged excessive pharmacy pricing and the right to terminate Anthem’s contract with Express Scripts. Anthem seeks $15 billion in damages for uncompetitive pharmacy pricing from Dec. 1, 2015 through 2020, including a year of transition costs and business impacts, according to a spokeswoman. Anthem is also seeking $150 million for “operational breaches.”

Insurers contract with middleman companies like Express Scripts, which negotiate rebates and discounts on prescription drugs on behalf of the people they insure and pocket some of the savings for themselves. Anthem entered into a ten-year agreement with Express Scripts in 2009 that included a provision for a periodic review of pricing, to ensure that the prices Anthem received were competitive with others in the marketplace. According to the lawsuit, Express Scripts’ current pricing for the contract now exceeds competitive pricing by $13 billion, plus an additional $1.8 billion through a transition period after the contract is terminated.

“Under the agreement, Express Scripts is obligated to negotiate in good faith to ensure Anthem is receiving competitive benchmark pricing. Anthem has worked hard for more than a year to try to get Express Scripts to engage in such good faith negotiations, but Express Scripts has refused to do so,” Anthem said in a press release.

The lawsuit alleges Express Scripts — a pharmacy benefit management company that has, itself, been vocal about high drug prices charged by pharmaceutical companies– has delayed the repricing process for months and refused to negotiate over proposals to bring its pricing in line with competition.

“Express Scripts has consistently acted in good faith and in accordance with the terms of its agreement with Anthem. We believe that Anthem’s lawsuit is without merit,” Express Scripts spokeswoman Jennifer Luddy wrote in an e-mail.

The lawsuit is the latest in an escalating and increasingly toxic battle between the two behemoth health care companies. Anthem is one of the largest insurers in the U.S., with 38.7 million members. Express Scripts negotiates drug prices on behalf of 85 million members, and Anthem is its largest client.

In January, Anthem’s chief executive, Joe Swedish, argued at the J.P. Morgan Chase Health Care Conference that Express Scripts should be passing on greater savings to the insurer.

“We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion,” Swedish told investors in January, according to Bloomberg. “To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis.”

The lawsuit reveals a back and forth between the companies in which Anthem sought more favorable pricing terms, including putting forward a proposal that it claimed was still overpaying Express Scripts by $3.4 billion.

But analysts said that the numbers Anthem has been throwing around, such as the $3 billion it says Anthem is overcharging, are likely over the top.

Brian Tanquilut, analyst at Jefferies and Co., pointed out that Anthem’s annual spending on prescription drugs is roughly $15 billion.

“My struggle is that I don’t know how Express can earn $3 billion off a $15 billion contract,” Tanquilut said.

It’s unclear how the dispute will be resolved. The companies are continuing to work together now. Anthem has specifically said it has not yet decided to end the relationship, but that may be inevitable.

“With this kind of tension, it’s gotten to a point — I feel it is so unpleasant — that I do not think they can continue in the long term with the contract with Express,” said Ana Gupte, a senior analyst at Leerink Partners.

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