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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

September 1, 2020

Pharmacies, Beware: PBMs Enforce Restrictive Product Blacklists Through New, Unprecedented Terminations

In late 2019, Barclay Damon advised independent pharmacies of the rollout of CVS Caremark’s “naughty list,” a newly implemented contractual provision that enforces a hard 25-percent threshold for dispensing certain disfavored drugs. The contents of the list are determined solely by Caremark and the list was expanded on periodically to include additional “aberrant products” since it became effective.  

It is unknown why or how the product lists (consisting of products on pre-approved plan formularies) are developed, but they often include products that have a positive profit margin that pharmacies of all kinds rely upon to offset other products that are often reimbursed at below acquisition cost by the pharmacy. This creates yet another serious impediment for pharmacies competing in the networks that pharmacy benefit managers (PBMs) both manage and participate in, with opaque pricing and rebate arrangements that are often disadvantageous to independent pharmacies. These tactics have increasingly become a focus of federal and state legislation.

While the list was initially enforced through warning letters; more recently, CVS Caremark has started terminating provider agreements with independent pharmacies based on alleged breaches of this restriction. It’s unknown if or to what extent this restriction applies to Caremark’s own network retail and mail-order pharmacies or other chain pharmacies.

In some instances, CVS Caremark may also elect to terminate the independent pharmacy’s provider agreement without cause under the terms of the Caremark Provider Manual—a procedure PBMs often argue bypasses state due-process procedures, such as statutory hearings and appeals pursuant to Public Health Law 4406-d.

Caremark’s massive segment of the pharmaceutical market in 2020 is reported to be almost 37 percent1. Therefore, it’s imperative for pharmacies to immediately retain counsel to avoid and appeal termination, which can trigger a cascade of disastrous credentialing and networking consequences for a pharmacy.

Barclay Damon’s Health Care Controversies Team has successfully represented independent pharmacies across the country in navigating and reversing arbitrary, unilateral terminations of provider agreements by PBMs. Our attorneys also assist manufacturers, distributors, and other stakeholders in defending audits by PBMs based on the restrictions imposed through these aberrant product lists.

If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Team leader, at lclark@barclaydamon.com; Brad Gallagher, counsel, at bgallagher@barclaydamon.com; or Mary Connolly, associate, at mconnolly@barclaydamon.com.

See CVS Health’s share of retail prescriptions filled in the United States from 2012 to 2025, available at https://www.statista.com/statistics/261296/cvs-caremarks-share-of-retail-prescriptions-filled-in-the-us/#:~:text=CVS%20Caremark%20is%20headquartered%20in,filled%20in%20the%20United%20States.

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