Express Scripts 2013 Annual Report Download - page 16

Express Scripts 2013 Annual Report 16
Columbia case, the court granted in part PCMA’s motion for summary judgment finding that the District of Columbia law was
preempted by ERISA and that decision was affirmed by the United States Court of Appeals for the D.C. Circuit. Widespread
enactment of such statutes could have a material adverse effect upon our financial condition, results of operations and cash
flows.
Consumer Protection Laws. Most states have consumer protection laws that previously have been the basis for
investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in
connection with drug switching programs. Such statutes have also been cited as the basis for claims against PBMs either in
civil litigation or pursuant to investigations by state Attorneys General. See “Part I — Item 3 — Legal Proceedings” for
discussion of current proceedings relating to these laws or regulations.
Network Access Legislation. A majority of states now have some form of legislation affecting our ability, or our
clients’ ability, to limit access to a pharmacy provider network or remove a provider from the network. Such legislation may
require us or our clients to admit any retail pharmacy willing to meet the plan’s price and other terms for network participation
(“any willing provider” legislation) or may provide that a provider may not be removed from a network except in compliance
with certain procedures (“due process” legislation). We have not been materially affected by these statutes.
Certain states have also enacted legislation prohibiting certain PBM clients from imposing additional co-payments,
deductibles, limitation on benefits, or other conditions (“Conditions”) on covered individuals utilizing a retail pharmacy when
the same Conditions are not otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the
legislation requires that the retail pharmacy agree to the same reimbursement amounts and terms and conditions as are imposed
on the home delivery pharmacies. An increase in the number of prescriptions filled at retail pharmacies may have a negative
impact on the amount of prescriptions filled through home delivery. It is anticipated that additional states will consider similar
legislation and we cannot predict which states will adopt such legislation or what effect it will have.
Legislation Affecting Plan Design. Some states have enacted legislation that prohibits managed care plan sponsors
from implementing certain restrictive benefit plan design features, and many states have introduced legislation to regulate
various aspects of managed care plans, including provisions relating to the pharmacy benefit. For example, some states, under
so-called “freedom of choice” legislation, provide that members of the plan may not be required to use network providers, but
must instead be provided with benefits even if they choose to use non-network providers. Other states have enacted legislation
purporting to prohibit health plans from offering members financial incentives for use of home delivery pharmacies.
Legislation has been introduced in some states to prohibit or restrict therapeutic intervention, or to require coverage of all FDA
approved drugs. Other states mandate coverage of certain benefits or conditions, and require health plan coverage of specific
drugs if deemed medically necessary by the prescribing physician. Such legislation does not generally apply to us directly, but
it may apply to certain of our clients, such as managed care organizations and health insurers. If such legislation were to
become widely adopted and broad in scope, it could have the effect of limiting the economic benefits achievable through
pharmacy benefit management.
Legislation and Regulation Affecting Drug Prices. Some states have adopted so-called “most favored nation”
legislation providing that a pharmacy participating in the state Medicaid program must give the state the best price that the
pharmacy makes available to any third-party plan. Such legislation may adversely affect our ability to negotiate discounts in the
future from network pharmacies.
In addition, federal and state agencies and enforcement officials from time to time investigate pharmaceutical
industry pricing practices such as how average wholesale price (“AWP”) is calculated and how pharmaceutical manufacturers
report their “best price” on a drug under the federal Medicaid rebate program. AWP is a standard pricing benchmark (published
by a third party) used throughout the industry, including by us, as a basis for calculating drug prices under contracts with health
plans and pharmacies. First DataBank and Medi-Span, two third-party AWP providers, were defendants in a class action suit in
federal court in Boston alleging a conspiracy in the setting of AWP. The parties entered into a settlement agreement which
received final approval by the court, and a roll-back of AWP prices for many drugs went into effect on September 26, 2009.
First DataBank discontinued publishing AWP information in 2011, at which time we transitioned to use of Medi-Span
information. This change did not materially impact our results of operations, financial position or cash flows from operations.
Additional changes to or discontinuation of the AWP standard could alter the calculation of drug prices for federal programs
and other contracts that use the standard. We are unable to predict whether any such changes will actually occur, and if so,
whether such changes would have a material adverse impact on our results of operations, financial position and/or cash flow
from operations.
Further, the federal Medicaid rebate program requires participating drug manufacturers to provide rebates on all
drugs reimbursed through state Medicaid programs, including through Medicaid managed care organizations. Manufacturers of
brand name products must provide a rebate equivalent to the greater of (a) 23.1% of the average manufacturer price (“AMP”)