Express Scripts 2012 Annual Report Download - page 16

Express Scripts 2012 Annual Report14
manufacturer price (“AMP”) paid by retail community pharmacies or by wholesalers for products distributed to retail
community pharmacies, or (b) the difference between AMP and the “best price” available to essentially any customer other
than the Medicaid program and certain other government programs, with certain exceptions. We negotiate rebates with drug
manufacturers and, in certain circumstances, sell services to drug manufacturers. Investigations have been commenced by
certain governmental entities which call into question whether a drug’s “best price” was properly calculated and reported
with respect to rebates paid by the manufacturers to the Medicaid programs. We are not responsible for such calculations,
reports or payments. There can be no assurance, however, that our ability to negotiate rebates with, or sell services to, drug
manufacturers will not be materially adversely affected by such investigations or regulations in the future.
Regulation of Financial Risk Plans. Fee-for-service prescription drug plans generally are not subject to financial
regulation by the states. However, if a PBM offers to provide prescription drug coverage on a capitated basis or otherwise
accepts material financial risk in providing the benefit various state and federal laws may regulate the PBM or its
subsidiaries. Such laws may require, among other things that the party at risk establish reserves or otherwise demonstrate
financial responsibility. Laws that may apply in such cases include, for example, insurance laws, managed care
organization laws and limited prepaid health service plan laws. These may apply, for example, to our licensed Medicare
Part D subsidiaries (i.e., ESIC, Medco Containment Life Insurance Company of Pennsylvania and Medco Containment Life
Insurance Company of New York) and other subsidiary insurance businesses.
Pharmacy Regulation. Our home delivery, specialty and infusion pharmacies are licensed to do business as a
pharmacy in the state in which they are located. Most of the states into which we deliver pharmaceuticals have laws that
require out-of-state home delivery pharmacies to register with, or be licensed by, the board of pharmacy or similar
regulatory body in the state. These states generally permit the pharmacy to follow the laws of the state in which the home
delivery service is located, although some states require that we also comply with certain laws in that state. We believe we
have registered each of our pharmacies in every state in which such registration is required and that we comply in all
material respects with all required laws and regulations. In addition, our pharmacists and nurses are licensed in those states
where we believe their activity requires it. Our various pharmacy facilities also maintain certain Medicare and state
Medicaid provider numbers as pharmacies providing services under these programs. Participation in these programs
requires our pharmacies to comply with the applicable Medicare and Medicaid provider rules and regulations, and exposes
the pharmacies to various changes the federal and state governments may impose regarding reimbursement methodologies
and amounts to be paid to participating providers under these programs. In addition, several of our pharmacy facilities are
participating providers under Medicare Part D and, as a condition to becoming a participating provider under Medicare Part
D, the pharmacies are required to adhere to certain requirements applicable to the Medicare Part D program.
Other statutes and regulations affect our home delivery, specialty and infusion pharmacy operations, including the
federal and state anti-kickback laws and the federal civil monetary penalty law described above. Federal and state statutes
and regulations govern the labeling, packaging, advertising and adulteration of prescription drugs and the dispensing of
controlled substances. The Federal Trade Commission requires mail order sellers of goods generally to engage in truthful
advertising, to stock a reasonable supply of the product to be sold, to fill mail orders within thirty days and to provide
clients with refunds when appropriate. The United States Postal Service has statutory authority to restrict the delivery of
drugs and medicines through the mail to a degree that could have an adverse effect on our home delivery operations.
Other Licensure Laws. Many states have licensure or registration laws governing PBMs and certain types of
managed care organizations and insurance companies, including, but not limited to, preferred provider organizations, third-
party administrators and companies that provide utilization review services. The scope of these laws differs from state to
state, and the application of such laws to the activities of PBMs and insurance companies is often unclear. We have
registered under such laws in those states in which we have concluded that such registration is required either due to our
various PBM services or the activities of our licensed insurance subsidiaries. Moreover, we have received full accreditation
for URAC Pharmacy Benefit Management version 2.0 Standards, which includes quality standards for drug utilization
management. In addition, accreditation agencies’ requirements for managed care organizations such as the National
Committee on Quality Assurance and Medicare Part D regulations for PDP and MA-PDPs may affect the services we
provide to such organizations.