Lawsuit accuses Cigna PBM of ‘demanding kickbacks’ from drug maker

The Plumbers’ Welfare Fund has filed a federal lawsuit accusing Express Scripts, its parent company Cigna, and a subsidiary of orchestrating a multibillion-dollar scheme that allegedly inflated prescription drug costs while diverting rebates owed to clients.

The complaint, filed Monday in U.S. District Court for the Northern District of Illinois, alleges the companies manipulated drug formularies and funneled payments through a Switzerland-based affiliate, Ascent Health Services, to avoid sharing rebate revenue with pharmacy benefit management customers.

Express Scripts describes itself as the largest pharmacy benefit manager in the United States, negotiating drug prices and managing formularies — lists of medications covered under prescription plans — on behalf of employers, unions and other health plans. Each year, its customers pay billions of dollars for those services.

Two weeks ago, Cigna reached an agreement with the Federal Trade Commission to resolve allegations that Express Scripts inflated insulin prices through anti-competitive rebate tactics. Cigna agreed to eliminate spread pricing, move Ascent Health to the U.S., and lower patient costs by linking out-of-pocket expenses to net prices rather than list prices by 2027.

Cigna CEO David M. Cordani hailed the agreement as one that will bring stability to the insurer and lower prices for consumers.

"The beneficiary of the settlement is our customers and patients," he said. "The settlement noted $7 billion in out-of-pocket cost relief over the next 10 years for the 100 million customers and patients we serve. The savings will be delivered through lower insulin prices and reduced costs for branded medications for consumers at the pharmacy counter."

Complaint: Lower prescription drug costs promised

The Plumbers’ Welfare Fund alleges that Express Scripts promised to lower prescription drug costs by negotiating rebates from drug manufacturers and by managing formularies to favor lower-cost medications. Even when clients participate in formulary decisions, Express Scripts retains control over rebate negotiations and restrictions, according to the complaint.

The lawsuit contends that beginning in 2019, the companies launched what it calls a “Formulary Manipulation Scheme” in response to mounting pressure from clients to pass through 100% of manufacturer rebates and administrative fees.

Effective Jan. 1, 2019, the Plumbers’ Welfare Fund amended its contract to require Express Scripts to pass along the full amount of rebates and administrative fees paid by drug companies, according to the filing.

Soon after, the defendants created Ascent, majority-owned and controlled by Cigna and based in Switzerland. The lawsuit alleges Ascent assumed responsibility for negotiating rebates and other payments from drug manufacturers — a core function of a pharmacy benefit manager.

Instead of passing those payments through as rebates, the complaint alleges, drug companies were directed to pay substantial “rebate administration” and other service fees to Ascent in exchange for favorable formulary placement and access. Those fees allegedly exceeded the fair market value of services provided and functioned as bribes and kickbacks, the lawsuit claims.

'Grossly overcharged'

Payments made directly to Express Scripts would be classified as rebates or administrative fees and shared with clients under contractual terms. By routing payments to Ascent and labeling them as service fees, the defendants allegedly avoided those contractual obligations, retaining billions of dollars for themselves.

“For far too long, America’s working men and women who rely on our corporate health care system have been grossly overcharged and denied access to affordable care," said James F. Coyne, business manager of Plumbers Local 130, in a news release. "A major corporation like Express Scripts, that takes kickbacks from drug companies rather than protecting the interests of its clients, needs to be held accountable.”

The complaint alleges that nearly every major drug manufacturer participated in the alleged arrangement during the proposed class period, including AbbVie, Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, Boehringer Ingelheim, Eli Lilly, Gilead Sciences, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer and Sanofi.

The lawsuit also cites public reporting and government oversight as bringing the alleged conduct to light, including work by the FTC, congressional committees and the Office of Inspector General for the Office of Personnel Management.

The complaint further alleges the companies’ actions violated federal racketeering laws, breached contractual obligations and the implied covenant of good faith and fair dealing, and unjustly enriched the defendants at the expense of the fund and other clients.

According to the filing, the scheme has resulted in billions of dollars in reduced rebate payments and higher prescription drug costs for plan sponsors and beneficiaries from April 15, 2019, to the present.

The Plumbers’ Welfare Fund is seeking damages to recover excess costs and diverted payments, along with other relief authorized by law.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.