Express Scripts, Inc. Stole Millions, NY Charges

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Express Scripts Stole Millions, NY Charges

Lawsuit Alleges Pharmacy Benefit Manager Inflated Cost of Drugs and

Diverted Rebates

August 4, 2004

New York Attorney General Eliot Spitzer has sued Express Scripts, Inc.,

the nation's third largest pharmacy benefit manager, for conducting

elaborate schemes that inflated by millions of dollars the costs of

prescription drugs to New York State's largest employee health plan, the

Empire Plan.

" New Yorkers and all Americans, are facing an ongoing health care crisis

– a crisis of access and affordability driven to a large degree by the

enormous growth in the cost of prescription drugs, Spitzer said. " Rather

than being part of the solution to this crisis by keeping drug costs as

low as possible, we discovered that Express Scripts engaged in a series

of deceptive schemes. It improperly lined its pockets at the expense of

health plans and consumers, driving up the very drug costs it is supposed

to lower, " said Spitzer.

The lawsuit follows a one-year investigation sparked by audits of Express

Scripts conducted by OSC in 2002. The lawsuit alleges that Express

Scripts:

• Enriched itself at the expense of the Empire Plan and its members by

inflating the cost of generic drugs;

• Diverted to itself millions of dollars in manufacturer rebates that

belonged to the Empire Plan;

• Engaged in fraud and deception to induce physicians to switch a

patient's prescription from one prescribed drug to another for which

Express Scripts received money from the second drug's manufacturer;

• Sold and licensed data belonging to the Empire Plan to drug

manufacturers, data collection services and others without the permission

of the Empire Plan and in violation of the State's contract; and

• Induced the State to enter into the contract by misrepresenting the

discounts the Empire Plan was receiving for drugs purchased at retail

pharmacies.

While pharmacy benefit managers (PBMs), including Express Scripts, have

been under increasing scrutiny by federal and state regulators and law

enforcement agencies, New York is the first to allege that Express

Scripts enriched itself at its client's expense through a complicated

pricing scheme. The scheme hinged on Express Scripts' ability to

manipulate its pricing arrangements with its clients.

Pricing Plans

Express Scripts has two types of pricing arrangements with its clients:

" pass-through " and " spread " pricing.

Under " pass-through " pricing (used by the Empire Plan for in-state

pharmacies), the amount charged to the Empire Plan for a drug would be

the same amount paid by Express Scripts to the pharmacy.

Under " spread " pricing, the plan negotiates a guaranteed price for drugs

with Express Scripts. If Express Scripts can negotiate a lower price with

the pharmacy, Express Scripts retains the difference or " spread " between

what it pays the retail pharmacy for the drug and what it charges the

plan.

Express Scripts developed and carried out a scheme through which it paid

certain retail pharmacy chains higher prices for generic drugs for

members of plans with " pass-through " pricing, such as the Empire Plan.

These higher prices were then " passed through " to such plans. Because

they were receiving higher prices from Express Scripts for the Empire

Plan and other " pass through " plans, these same pharmacy chains accepted

lower prices from Express Scripts for the same drugs dispensed to the

members of Express Scripts's " spread " plans, where Express Scripts could

charge the plan more than it paid the pharmacy.

Thus, Express Scripts employed this scheme to maximize the " spread " that

it retained for itself, enriching itself to the detriment of the Empire

Plan and its other client plans.

Rebates Diverted

The lawsuit also alleges that in furtherance of its scheme to divert and

retain manufacturer rebates that belonged to the Empire Plan, Express

Scripts disguised millions of dollars in rebates as " administrative

fees, " " management fees, " " performance fees, " " professional services

fees, " and other names.

The lawsuit further alleges that the drug switches caused by Express

Scripts often resulted in higher costs for plans and members.

For example, Express Scripts received funding from brand drug

manufacturers to steer members away from less expensive generic drugs

when a brand name drug was about to be subject to generic competition.

In the period before the introduction of the generic, Express Scripts

would switch members from a brand drug losing patent protection to

another made by the same manufacturer that was not facing generic

competition. These switch initiatives increased prescription drug costs

for plans and members, while simultaneously enriching Express Scripts.

CIGNA's Role

The Empire Plan provides health and prescription drug coverage for more

than one million active and retired State and local government employees

and their dependants. In 2003, the Empire Plan spent more that $1 billion

on prescription drug claims. The State Department of Civil Service (DCS)

administers the Empire Plan and, since 1998, has contracted with

Connecticut General Life Insurance Company (CIGNA) to manage the Plan's

prescription drug benefit. CIGNA, which is also named as a defendant in

the State's lawsuit, subcontracts with Express Scripts to administer the

operation of the program.

Express Scripts is paid a per claim administration fee for processing the

prescription drug claims of Empire Plan members. Express Scripts is also

responsible for negotiating the prices of drugs with pharmacies that fill

prescriptions for Plan members, and for collecting and passing on to the

Plan any rebates that it receives from drug manufacturers as a result of

Plan members' use of the manufacturers' drugs.

CIGNA is among the largest insurers in the United States. The CIGNA

network of companies collected over $15.7 billion in premiums and fees

nationally in 2002.

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