Originally published on May 9, 2019.

 

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 don’t 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

  • Optum Rx 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 Optum Rx Pharmacy Network.
  • At least one senior executive at Optum Rx considers independent pharmacies as a significant threat to the integrity of the supply chain.
  • Optum Rx did not perform extensive research on the impact of requiring the Accreditation.
  • Optum Rx did not understand some of the basics of how regulation of the industry works.
  • Optum Rx 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).
  • Optum Rx has not enforced the requirement in 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 judgement would only be applicable to the plaintiffs. However, because of the Federal case precedent, it is likely that Optum Rx 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 Optum Rx 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.
Optum Rx 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 less suppliers, the pricing for generics should start generally trend 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, non-VAWD-Accredited wholesalers – 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, non-VAWD-Accredited wholesalers 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, Five Rivers RX is the trusted authority for compliance and commercial solutions including VAWD Accreditation, and drug wholesale licensing. Reach out today!

About Us

Based just outside of Philadelphia, Five Rivers RX provides actionable guidance and excellent administrative services with a focus on client care across Compliance, Commercial, and Quality solutions. Our mission is to improve the health and welfare of the American public by providing solutions and implementing best practices for companies in the pharmaceutical supply chain.

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