New York’s Attorney General, Letitia James, has sued CVS Health Corp., alleging that it violated New York’s antitrust laws and abused its market power by illegally requiring safety net hospitals that contract with CVS pharmacies for dispensing 340B outpatient drugs to exclusively use CVS’s subsidiary Wellpartner as their Third Party Administrator (“TPA”) for the 340B drug program. CVS also owns Aetna, one of the nation’s largest health insurers.
The Complaint alleges that this illegal tying arrangement harmed New York’s safety net hospitals “by depriving them of savings critical to carry out their public health missions” and New York residents by reducing the funds that safety net hospitals could use “to expand access to care and offer vital health services to underserved communities.”
Congress established the 340B program to support the financial viability of safety net hospitals, which serve underserved and underinsured patients. As stated in New York’s Complaint: “Savings from the 340B Program are essential to the hospitals and other providers that participate in the 340B Program if they are to maintain and expand healthcare access for disadvantaged communities.”
Under the federal 340B program, pharmaceutical companies are required to offer outpatient drugs at a steep discount to qualified safety net hospitals in order to participate in the Medicaid program. Safety net hospitals purchasing these drugs receive a significant rebate only if the drugs are dispensed at an in-house pharmacy or at a pharmacy with which the hospital has a contract. Federal law prohibits safety net hospitals from steering patients to any particular pharmacy. Therefore, hospitals only receive the 340B discounts if they contract with pharmacies used by their patients. In addition, federal law imposes strict regulatory requirements on 340B hospitals and holds the hospitals, rather than the dispensing pharmacies, liable for violating these requirements. In order to ensure compliance, most safety net hospitals contract with TPAs, such as CVS’s subsidiary Wellpartner, to administer the 340B program.
After CVS acquired Wellpartner in 2017, it required all hospitals contracting with CVS for dispensing 340B drugs to use Wellpartner as its TPA. The Complaint alleges that CVS has market power in the pharmacy and pharmacy benefit manager markets. The Complaint further alleges that “[w]ith this raw power in the market, CVS has been able to force [hospitals] to use its subsidiary’s TPA services if they want to take advantage of the 340B Savings – regardless of price or quality, and regardless of other options that would otherwise be available in a competitive TPA Services Market.” The Complaint describes this arrangement as a “brazenly anticompetitive tying scheme” that “provided enhanced and ill-gotten revenues to CVS.”
The lawsuit seeks a Court order blocking CVS from requiring contracted 340B hospitals to use Wellparter, requiring CVS to disgorge its unjust gains, and other damages.
In a statement announcing the lawsuit, Attorney General James stated: “While safety net health care providers are tackling public health crises and helping underserved communities, CVS is robbing them out of millions of desperately needed funds that could improve patient care. CVS’s actions are a clear example of a large corporation using its clout and power to take advantage of institutions and vulnerable New Yorkers….”
The lawsuit was filed in the Supreme Court of New York, New York County. A copy of the Complaint is linked here. The Attorney General’s press release is linked here. The attorneys at Whatley Kallas, LLP will continue following this case and will report on significant developments.