What the OptumRx Litigation Means to Industry

We have received a lot of questions over the past few weeks on how the lawsuit is progressing and what it will mean for the industry. Although we do not have any definitive answers yet (a court decision could come as early as June), we do have some highlights from our observations in the courtroom from last month.

Observations from the Court Room, April 11/12

• • OptumRx has mulled over requiring independent pharmacies to obtain an Accreditation specific to independent pharmacies. This requirement could significantly impact the ability of independent pharmacies to both join and/or stay in the OptumRx Pharmacy Network.

• • At least one senior executive at OptumRx considers independent pharmacies as a significant threat to the integrity of the supply chain.

• • OptumRx did not perform extensive research on the impact of requiring the Accreditation.

• • OptumRx did not understand some of the basics of how regulation of the industry works.

• • OptumRx was in direct communication with a Big 3 wholesaler and they confirmed with them that they would have an indefinite grace period to achieve Accreditation for all facilities, as long at least one facility is Accredited (likely because VAWD evaluates sourcing for the entire company [and potentially its affiliates], and not just specific facilities).

• OptumRx has not enforced the requirement with regard to recouping funds (although warning letters were sent) as of April 11, 2019.
• The court case will likely stretch at least into July.

What if Plaintiffs are Successful

Initially a Limited Scope

If the plaintiffs are successful, the judgment would only be applicable to the plaintiffs. However, because of the Federal case precedent, it is likely that OptumRx would abandon the requirement altogether.

Things won’t return to pre-August 2016 for a couple of years because companies will be reestablishing their businesses and growing what they have lost in terms of sales reps and infrastructure. We expect there to be a swift increase in the number of “pharmacy-wholesalers” as the once-lucrative business model will once again be viable.

PBM Lawsuits and Ever-Increasing Pressure

If it is found that OptumRx acted negligently, there could potentially be a huge legal blitz against them. Wholesalers and other participants, potentially even pharmacies, might have a legal claim for damages to their business.

OptumRx and other PBMs are already under increasing pressure – they are currently facing a PR battle firestorm as more light is shed on their business practices with state Medicaid programs. Additionally, their entire rebate & spread pricing business model is already in question as Medicare Part D (and potentially the rest of the industry) is potentially in motion to move away from the traditional rebate mechanics.

What if Defendants are Successful?

Secondary Market Opportunity

At present, there is a bit of a vacuum in the secondary market serving independent retail pharmacy. VAWD-Accredited wholesalers are currently vying for the business that was vacated by those companies unable to achieve VAWD until this time. Without market arbitrage and fewer suppliers, the pricing for generics should start to trend generally upwards. Of course, this will let primary vendors increase their margin, or let them better compete with secondary distributors.
We have additionally seen a spike in interest of larger drug wholesalers, including some of the Big 3, to “pick up the pieces” of hurting wholesalers without VAWD accreditation – sometimes contracting as outside sales organizations, sometimes luring sales reps away, and sometimes acquiring companies whole for a deep discount.

Earlier this year we have seen (and been a party to) transactions involving the reverse: larger wholesalers without VAWD accreditation acquiring smaller VAWD-accredited wholesalers. There is an estimated $1.5 billion in secondary wholesale volume, so any market share can quickly increase to big numbers.

The Importance of Group Purchasing Organizations (GPOs)

GPOs will likely become more important as the need to buy through traditional channels becomes essential and as sales reps and pharmacy dollars start floating away from smaller wholesalers. Most importantly, GPOs allow smaller wholesalers to negotiate pricing with manufacturers – which prevents the need for alternative sourcing.

Moving Forward

As the pharmaceutical supply chain navigates through rapid changes, Pharma Solutions is the trusted authority for compliance and commercial solutions including VAWD Accreditation, and drug wholesale licensing. Reach out today.
 

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