Health insurer Anthem Inc. sued Express Scripts Holding Co. for about $15 billion in damages, alleging that the pharmacy-benefit manager violated their contract through excessive charges and failures in its operations.
The lawsuit, filed on Monday in the U.S. District Court for the Southern District of New York, seeks damages tied to what Anthem said was Express Scripts’ unduly high pricing for drugs. Anthem also asked for a judgment that it could terminate its deal with Express Scripts, which stretches to 2019, but the insurer said it hasn’t determined if it would actually end the contract.
An Express Scripts spokesman said Monday that the company believes the suit is without merit, and that it “has consistently acted in good faith and in accordance with the terms of its agreement with Anthem.”
The lawsuit is the latest chapter in a high-profile tiff between the biggest U.S. pharmacy-benefit manager and the No. 2 health insurer, which flared publicly in January when Anthem executives said they believed they should be paying far less under their contract with Express Scripts.
Express Scripts manages drug benefits for Anthem’s insurance members, processing pharmacy billing claims, among other functions. Express Scripts has handled Anthem’s pharmacy services under a 10-year contract struck in 2009, when it bought Anthem’s in-house PBM for about $4.68 billion.
In its lawsuit, Anthem said it had sought the advice of a consulting firm and other sources, and determined that it was paying “massively excessive prices” to Express Scripts, generating “an obscene profit windfall” for the PBM. Often, customers pay PBMs a price for drugs that wraps in some margin for the benefit manager.
The insurer said it believes the gap between current pricing and what it believes to be appropriate is about $13 billion over the rest of its contract, plus $1.8 billion covering a post-termination wind-down period. Anthem has previously said it should be getting more savings partly because of lower generic-drug costs
Anthem alleged that Express Scripts delayed negotiations, and the PBM’s counteroffer in the talks was about $13 billion less than what the insurer sought. Anthem said its chief executive had met with Express Scripts’ CEO.
Anthem also alleged that Express Scripts had operational problems, many of them stemming from software. The alleged problems were tied to around $150 million in damages sought by the insurer.
In the end, the case may hinge largely on how the court interprets the language of the contract. According to the suit, the contract entitles Anthem to periodically review pricing to see if it is paying competitive benchmark rates for the drugs its members use, and to suggest new terms. Express Scripts is supposed to “negotiate in good faith over the proposed new pricing terms,” but they will go into effect only if Express Scripts agrees to them in writing. Anthem alleges that Express Scripts violated the contract by stalling and refusing to negotiate in good faith.
Losing Anthem’s business would be a blow to Express Scripts. Analysts at J.P. Morgan Chase & Co. have projected the company’s 2016 earnings before interest, taxes, depreciation and amortization at $7.3 billion, but said without the Anthem contract it would be around $6.4 billion.
Anthem might face significant operational and other challenges if it sought to replace Express or rebuild its own pharmacy-benefit business. Contenders for the business would include CVS Health Corp., the second-biggest PBM, and OptumRx, which is owned by UnitedHealth Group Inc., the parent of Anthem’s biggest insurance rival.
Adding to the potential complexity, Anthem could soon be in the middle of another major operational change, if it gets regulatory approval for its deal to acquire Cigna Corp.
Date: March 21, 2016