PBM “Integrity” Will Be Reviewed By CMS In Discount Card Applications

The Centers for Medicare & Medicaid Services will consider the legal actions brought against pharmacy benefit managers and other companies that apply to sponsor a Medicare-endorsed drug discount card.

Under CMS' ¹ drug card rule, to be published Dec. 15, prospective card sponsors will be required to demonstrate "business integrity" (see ² (Also see "Rx Industry Ponders Medicare Discount Card Opportunity; NACDS Opts In" - Pink Sheet, 15 Dec, 2003.)).

Applications are to include a "listing of past or pending investigations (if known to the entity) and legal actions brought against the entity (and its parent entities, if applicable) by any financial institution, government agency (local, state or federal), or private organization over the past three years on matters relating to health care and prescription drug services and/or allegations of fraud, misconduct, or malfeasance."

The application should explain each action, including the circumstances giving rise to it, its status and, if closed, details of the resolution and monetary damages.

"We plan to conduct an independent investigation of each entity with respect to the above factors, which will include a review of federal databases available to us that may contain information pertaining to legal issues involving the entity," the rule states.

PBMs are among the firms expected to apply for Medicare endorsement of their drug discount plans. All of the top three PBMs, Medco, Caremark/ AdvancePCS and Express Scripts, are involved in ongoing government investigations.

Medco would likely face the most scrutiny under the integrity provision as the only PBM with a federal government complaint pending against it alleging fraud and violations of the False Claims Act.

Medco says it has not yet committed to applying as a card sponsor. One of the company's executives recently described the financial reasons a company might decide not to sponsor a card (³ (Also see "Medicare Rx: Medco Sees “Challenge” In Sustaining Affordable Coverage" - Pink Sheet, 8 Dec, 2003.), p. 17).

A pending False Claims Act suit is not an automatic disqualification in the rule, but the "factors" CMS says it will consider suggest that Medco would have to make a persuasive case.

CMS will consider "whether the action is a pending investigation or has resulted in a settlement or judgment against the applicant," and "whether the conduct on which the judgment or settlement was based involved allegations of fraud or abuse."

In addition, CMS will consider "whether the applicant is currently operating under a corporate integrity agreement with the HHS Office of the Inspector General."

Although Medco has not settled the U.S. Attorney's False Claims Act case, it has settled other litigation involving claims by private sector entities.

The other major PBMs are also facing federal investigations and some private claims.

AdvancePCS is being investigated by the Philadelphia U.S. Attorney's Office, the same office that filed the Medco complaint. Caremark and Express Scripts responded to subpoenas from the Boston U.S. Attorney, although they say they are not the subject of the investigation (⁴ (Also see "Express Scripts Sees No Commercial Risk From Lupron Subpoena" - Pink Sheet, 13 May, 2002.), p. 22). Caremark is in the process of acquiring AdvancePCS.

If any of the firms gain Medicare endorsement for a card, they will not be able to use that endorsement as evidence in an ongoing investigation or legal action.

"Medicare endorsement of a discount card program shall not be construed to express or imply any opinion that an endorsed sponsor or any subcontractor is in compliance with or not liable under the False Claims Act, federal anti-kickback statute, or other laws, regulations or policies regarding improper billing, claims submission or related conduct," the rule says.

Medicare drug card applicants will also need to provide proof of financial stability by providing a summary of their history, structure and ownership; their most recent audited financial statements and any financial ratings for the past three years.

The application should contain the same information for any subcontractors involved in providing the card.