PharmacyBenefitManagers’AttackonPhysicianDispensing

andImpactonPatientCare:CaseStudyofCVSCaremark’sEffortstoRestrictAccessto

CancerCare

Preparedby

FrierLevitt,LLC

CommissionedbytheCommunityOncologyAlliance

August2016

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TableofContents1 ExecutiveSummary......................................................................................................................3

2 Introduction..................................................................................................................................6

3 Background...................................................................................................................................9

3.1 WhatIsPhysicianDispensingandHowDoesItDifferFromTraditionalPharmacyDispensing?.9

3.2 ConsolidationofPBMsandPayors,andtheResultingInfluenceonRecentPBMActions........10

3.3 BecausePhysicianDispensingComprisesNearlyOne-HalfoftheSpecialtyDrugSpend,ExcludingItWillHaveaProfoundandIrreversibleImpactonBothProvidersandPatients.................13

3.4 ConversionfromIntravenousOncologyDrugs,ReimbursableUnderPartBMedicalInsurance,toOralOncolytics,ReimbursableUnderPartDbyPBMs......................................................................14

4 CaseStudy:CVSCaremark’sAttempttoPushDispensingPhysicians“Out-of-Network”..............15

4.1 FinancialandEconomicMotivesofCVSCaremark....................................................................16

5 LegalConcepts............................................................................................................................17

5.1 PhysicianDispensingIsLegalandPermittedbyFederalLawandtheMajorityofStates..........17

5.1.1 FederalLawPermits,andtheMedicare-SponsoredOncologyCareModelEncourages,PhysicianDispensing..........................................................................................................................17

5.1.2 StateLawWidelyPermitsPhysicianDispensing.....................................................................19

5.1.3 CMSRegulatoryFrameworkFavorsPhysicianDispensing.....................................................20

5.2 Physician-OwnedPharmaciesAreEquallyPermissibleandLegal..............................................20

5.2.1 FederalLawPermitsPhysicianstoOwnandOperateLicensedPharmaciesinAccordancewithCertainSafeHarborsandExceptions.........................................................................................20

5.2.2 StateLaw................................................................................................................................21

5.3 CVSCaremark’sInterpretationofCMSRegulationsIsWrongandUnsupported......................21

5.3.1 CVSCaremark’sInterpretationisContrarytotheHistoryofPhysicianDispensingUndertheMedicareFrameworkandCMSRegulations......................................................................................22

5.3.2 CustomandPracticeAmongCVSCaremarkandOtherPBMsFavorsPhysicianDispensing..23

5.3.3 CVSCaremark’sRecentActionsAreBlockedbytheFederalAnyWillingProviderLaw.........24

5.3.4 ByDenyingNetworkAccesstoPhysicians,CVSCaremark’sActionsViolateMedicarePatientChoiceLaws........................................................................................................................................26

5.3.5 CVSCaremark’sActionsAlsoImplicateAnyWillingProviderLawsandPatientFreedomofChoiceLawsUnderVariousStates’LawsandMedicaidRegulations.................................................27

5.3.6 Medicare’sPatientAccessConsiderationsandGeographicLimitations................................28

5.3.7 CVSCaremark’sRecentRegulatoryInterpretationIsInconsistentwithRecentandOngoingHHSInitiativesWhichSupportPhysicianDispensingforMedicarePatients.....................................29

5.3.8 PBMProfitMotivesandFederalHealthcareLaws.................................................................30

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6 TheClinicalandEconomicBenefitsofPhysicianDispensing........................................................31

6.1 TheClinicalBenefitsofPhysicianDispensing,ParticularlyintheOncologicalContext..............31

6.2 MedicareOutcomesBasedReimbursement;PhysicianControlOver,andFinancialResponsibilityfor,PatientOutcomes;andtheRelationshipBetweenMedicationTherapyManagementandQualityofCare…….....................................................................................................33

7 Conclusion..................................................................................................................................35

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1 ExecutiveSummaryPhysician dispensing has been a critical part of the American healthcare system for decades, anddispensing physician practices have participated as in-network providers for variousMedicare Part DpharmacynetworkssincetheimplementationoftheMedicarePartDprogramin2006. Thereisgoodreason for this. Receivingmedication directly from a patient’s treating physician has been routinelyproven to increase adherence,1 ensure timely receipt of medication,2 and improve patient healthoutcomes.3Thishasbeenparticularlytrueinoncology,whereintensecancertreatmentscanspanmanyyears,requiringregularphysicianvisitsforchemotherapyandcheckups.Keepingpatientsclosetotheironcologists lessens the burden of this devastating disease. With millions of Americans relying onmedicationdispensedfromandprovidedbytheirphysiciansatthepointofcare,itisimperativethatthevitalityofthecommunityhealthcaredeliverysystembepreserved,includingphysiciandispensing.

Physiciandispensingcantakeplaceinavarietyofforms,dependingontheStatelawsofthephysician’sjurisdiction.Forexample,someStatespermitaphysiciantodispensedirectlytoapatientfromhisorhermedicalpracticeunderthephysician’smedicallicense.Inotherjurisdictions,physiciansarepermittedtodispensemedicationstopatientsthroughlicensedphysician-ownedpharmacies,thatoperatesimilarlytotraditional retail pharmacies. The benefits of physician dispensing – including integration ofmedicalrecords, direct to patient dispensing at the point of care, and continuous coordination of care andmonitoringoftreatment–applyequallytodispensingpracticesandphysician-ownedpharmacies.

Despitethemanypositivebenefitsofphysiciandispensing,andtheprovenoutcomesdatahighlightingthe importance of the practicewithin the American healthcare system, pharmacy benefitsmanagers(“PBMs”)havebegunadisturbing trendof systematically and surgically limiting accessbypatients tocontinuetoobtaintheiroutpatientmedicationsfromtheirdispensingphysicians.Throughavarietyofmechanisms,PBMshaveembarkedonanincreasingtrendoflimitingpatientaccesstospecialtydrugs,byshiftingthedispensingofthesedrugstomailorderpharmaciesownedorassociatedwithPBMs,despitethedeleteriouseffectsthishasonpatientcareandaccess.

TheimpactofPBMactiononpatientcarecannotbeoverstated.AllMedicarePartDpaymentsaremadetoprovidersthroughPBMs.Currently,onlyfivePBMscontrolnetworkaccessformorethan80%ofthecoveredlivesintheUnitedStates.4WithonlyfivePBMs,networkaccesstoeachiscriticalforpharmaciesanddispensinghealthcareproviders.ThepowerofPBMstorestricttheclassesof“in-network”providerswillthusalterpatientcareandthehealthcarelandscape.

The impact of PBM action to limit access by dispensing physicians is even more pronounced in thespecialtydrugmarketplace,wheredispensingphysiciansfrequentlytreatMedicarecancerpatients.Morethantwo-thirdsofthegrowthinoverallmedicinespendingisattributabletospecialtymedicine.5In2015,37%ofthetotalUnitedStatesspendingondrugswasattributedtospecialtymedications,andspecialty1PaulineW.Chen,WhenPatientsDon’tFillTheirPrescriptions,N.Y.Times(May20,2010),availableathttp://www.nytimes.com/2010/05/20/health/20chen.html?_r=0.2LeeSchwartzbergetal.,AbandoningOralOncolyticPrescriptionsatthePharmacy:PatientandHealthPlanFactorsInfluencingAdherence(2010),availableathttp://www.communityoncology.org/pdfs/asco-poster-handout.pdf.3MichaelA.Fischeretal.,PrimaryMedicationNon-Adherence:Analysisof195,930ElectronicPrescriptions,25J.Gen.Intern.Med.284(Apr.2010),availableathttp://www.ncbi.nlm.nih.gov/pmc/articles/PMC2842539/pdf/11606_2010_Article_1253.pdf.4Michael Hiltzik, Soaring Prescription Prices Cause a Nasty Divorce in the HealthcareMarket, L.A. Times (March 22, 2016),availableathttp://www.latimes.com/business/hiltzik/la-fi-hiltzik-anthem-express-20160322-snap-htmlstory.html.5TorConstantino,SpecialtyMedicineInnovationDrivesGrowth,PartiallyOffsetbyPriceConcessionsfromManufacturers,IMSHealth(Apr.14,2016),http://www.imshealth.com/en/about-us/news/ims-health-study-us-drug-spending-growth-reaches-8.5-percent-in-2015.

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medications are projected to account for 50% of total drug spend by 2018.6 Dispensing physicianscompriseabout46%ofthespecialtymedicalspend,7and,accordingtoa2014studyconductedbytheUniversityofUtah,14%ofallprescriptionspurchasedbyparticipatingconsumersweredispenseddirectlybyaphysician.8Inaddition,thecancerprevalenceintheMedicarepopulationismuchhigher,atnearly9%versuslessthan1%inthecommercialpopulation.9

PBMshavetakenavarietyofactionsaimedatcapturingincreasedspecialtypharmacybusinessandtheprofitsassociatedwithspecialtydrugspending.AllmajorPBMs,includingPrimeTherapeutics,OptumRx,Express Scripts and CVS Caremark, have acquired or launched their own specialty pharmacies in anattempttogainmarketshareinthegrowingspecialtydrugspace.CVSCaremarkhasjustannouncedthatithasopenedanew112,000squarefootspecialtypharmacyfacilityinOrlando,10inordertohandleitscontinually increasing specialty drug volume. These recent efforts are positive for shareholders, butnegativeforphysiciansandMedicarepatients.

Theclearandoverarchingtrendinhealthcaregenerally,andforMedicareoncologypatientsspecifically,is towards integration and coordination of care focused on the physician as the primary clinicianresponsible forpatientoutcomes. OneexamplesupportingphysiciandispensingtoMedicarepatientscomesdirectlyfromCMSitself.Medicare’snewOncologyCareModel(“OCM”)focusesonphysician-ledcare,andexplicitlycontemplatesnotonlyphysician-administereddrugsbilledunderMedicarePartB,butalsooutpatientprescriptiondrugsdispensedbyphysiciansandbilledunderMedicarePartD.Yet,itisthisverytypeof“physiciandispensing”thatCVSCaremarkerroneouslyconsiders“out-of-network.”Exclusionofdispensingphysicians fromMedicarePartDnetworks is indirectoppositionto thisnewhealthcareparadigm,andnegativelyaffectsphysicians’abilitytoproperlymanagepatientcare.

The last few years have seen a shift in the treatment of cancer patients fromphysician-administeredchemotherapy–traditionallycoveredunderMedicare’sPartBmedicalbenefit–tooraloncolytics–whicharetypicallypaidforbyMedicareunderthePartDpharmacybenefit.Infact,recentstudiesshowthatofthe 836 anti-cancer drugs currently in clinical development, 25% are oral oncolytics.11 By eliminatingcompetitionintheformofphysiciandispensing,PBMs,viatheirownspecialtypharmacies,seektocapturethelucrativemarketforthisnewregimeofprescriptiondrugs.Thisisdonewithoutregardtoclinicalcare,andputsprofitsoverpatients.

Thedecisiontoterminatedispensingphysiciansisfinanciallymotivated,andisnotjustifiedunderthelaw.Principally, physician dispensing is permitted under Federal law, so long as physician dispensing ispermittedintheStatewherethephysicianislocated.PhysiciandispensingisalsowidelypermittedunderapplicableStatelaw.AlmostallStateseitherexplicitlypermitphysicianstodispensemedicationstotheir

6ExpressScripts,Inc.,DrugTrendReport:TheStrengthofPracticingPharmacySmarter,http://lab.express-scripts.com/lab/drug-trend-report(lastvisitedJul.8,2016).7Seeid.;seealsoKatieHolcombandJustinHarris,MillimanResearchReport,CommercialSpecialtyMedicationResearch:2016Benchmark Projections (Dec. 28, 2015), available at http://www.milliman.com/uploadedFiles/insight/2016/commercial-specialty-medication-research.pdf.8SeeMarkMungeretal.,EmergingParadigms:PhysicianDispensing,PresentationtotheNat’lAss’nofBds.ofPharmacy(May20,2014),availableathttps://www.nabp.net/system/rich/rich_files/rich_files/000/000/338/original/munger-202.pdf.9SeeKathrynFitch,PamelaM.Pelizzari,andBrucePyenson,CostDriversofCancerCare:ARetrospectiveAnalysisofMedicareand Commercially Insured Population Claim Data 2004-2014, Milliman, Inc. (April 2016), available athttp://www.communityoncology.org/pdfs/studies/Trends-in-Cancer-Costs-White-Paper-FINAL-20160403.pdf.10CVSHealthCorp.,SpecialtyPharmacyFacilityOpensinOrlando(July14,2016),availableathttp://cvshealth.com/about/our-offerings/cvs-specialty/specialty-pharmacy-orlando.11NancyJ.Egerton,In-OfficeDispensingofOralOncolytics:AContinuityofCareandCostMitigationModelforCancerPatients,Am.J.Manag.CareVol.22,Supp.No.4,S99(2016)(citingAmericanAssociationforCancerResearch,Medicinesindevelopmentforcancer:areportoncancer(2015),availableathttp://phrma.org/sites/default/files/pdf/oncology-report-2015.pdf).

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patients,orareotherwisesilentonthetopic,andtherefore,permissive,inregardstophysiciandispensingbyplacingnolimitationsonthepractice.Thus,withverylimitedexceptions,FederalandStatelawsdonotjustifyrecentPBMactions.

On the contrary, Federal law protects dispensing physicians and physician-owned pharmacies againstterminationfromMedicarenetworks.TheCentersforMedicareandMedicaidServices(“CMS”)clearlyrequiresthatPartDsponsorscomplywiththeMedicare“AnyWillingProvider”requirements.APBM’srefusaltocontractwithanyproviderthatiswillingtocomplywiththeirtermsandconditionsisaviolationoftheseFederalstatutes.

Inadditiontothelawsprotectingprovidersagainsttermination,Federallawalsoprotectsthefreedomofpatients to select a provider of their choice. Blocking network access to dispensing physicians andphysician-ownedpharmacies runafoulof theMedicare freedomof choice laws,whichprovide that aMedicare beneficiary may obtain health services (including prescription drug services) from “anyinstitution, agency, or person” qualified to participate underMedicare.”12 Patient choice, particularlywhenitcomestoMedicareoncologycare,shouldbehonoredwithevenstrictervigilance.

Exclusion of dispensing physicians fromMedicare Part D networks flouts the spirit and intent of theMedicare program, and violates PBM obligations as a sponsor and administrator under the Part Dprogram. PBM conduct must also be considered against the backdrop of Federal healthcare laws,includingtheFederalAnti-KickbackStatute.SuchFederallawsare,inpart,designedtoprotectpatientsand avoid profitmotives from interferingwith providers’ decisions. PBMs, in conjunctionwith theirretail/specialtypharmacies,arealsoproviders(inadditiontobeingpayorsandplanadministrators).Thevast clinical benefits of physician dispensing are wholly overlookedwhen the entire class of trade isexcludedfromcontinuingtoserviceMedicarepatients,andultimately,ifleftunchecked,theseexclusionsruntheriskofcausingloweredmedicationadherenceandpatientharm.

Againstthisbackdrop,welookatoneparticularexampleofconductbyoneofthenation’slargestPBMs–CVSCaremark.Thisyear,CVSCaremarkhasannouncedthatitwillterminatedispensingphysiciansfromitsMedicarePartDnetworksasofJanuary1,2017,duetoanew“interpretation”ofexistingMedicarePartDregulations. WhilenootherPBMyetshares this interpretationofFederal law, thisservesasaconcreteexampleofthecurrenttrendoflimitingpatientaccesstospecialtydrugs,byshiftingthebusinesstomailorderpharmaciesassociatedwithPBMs.

Throughout this White Paper, we have utilized CVS Caremark’s recent actions as a “case study” todemonstratetheimpactofthePBM’sactionsonpatientcare.Ultimately,ifCVSCaremarkissuccessful,itwillusherinaseachangeinthewaycancercareisprovided.Again,withvirtuallyallMedicarePartDpaymentsbeingmadethroughonlyfivePBMsthatcontrol80%ofthecoveredlivesintheUnitedStates,13thelossofaccesstosomany“in-network”providerswithCVSCaremarkwouldbedisastrousforpatientsandphysiciansalike.

Aswill be explored in thisWhite Paper, if CVS Caremark (or any other PBM) is permitted to excludedispensingphysicians,Medicarepatients lose,thecostoftreatingMedicarepatientswillrise,andCVSCaremarkwillhavebeensuccessfulinlimitingcompetitionwhilebenefitingitswhollyownedretailandspecialtypharmacies. NotonlymustCVSCaremarkreverse itsstated intentionandpermitdispensingphysicianstoremain“in-network”forMedicarePartD,buttheindustryasawholemustrecognizetheimportanceofdispensingphysiciansasanessentialpieceofthecancercarecontinuum.

1242U.S.C.§1395a(emphasisadded).13SeeHiltzik,supranote4.

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This white paper was developed with input and funding from Community Oncology Alliance,AmerisourceBergen,CardinalHealth,andMcKessonSpecialtyHealth.Thefindingsreflecttheindependentresearchoftheauthors;FrierLevittdoesnotintendtoendorseanyproductororganization.

2 IntroductionMedicare.Establishedmorethanfiftyyearsago,Medicareprovideshealthcoverageformorethan50millionAmericans today.14 TogetMedicareprescriptiondrug coverage,beneficiariesmust joinaplanapprovedbyCMStoofferMedicaredrugcoverage.Medicareoffersprescriptiondrugcoveragetoeligibleenrollees either through a Medicare Advantage prescription drug plan that offers both medical andpharmacycoverage,orthroughtheMedicarePartDprogram,whichoffersonlyadrugbenefit.15AsofFebruary 2016, approximately 40.8 million of the 56.2 million Medicare-eligible beneficiaries wereenrolledinaPartDplan.PartDplansareadministeredbyprivatecompanies–knownasPlanSponsors–thatcontractwithCMStoofferprescriptiondrugcoverage.16BeneficiariesgenerallythenobtainPartDdrugsfromprovidersthatare“in-network”fortheirparticularplan.

PBMsoperateasagentsfortheultimatepayors(beneficiaries,employers,andtheFederalGovernment)–contractingwithmanufacturersandpharmacies,designingdrugbenefitplans,andreimbursingdrugcoststopharmaciesonbehalfoftheseultimatepayors(principals).Theeconomicliteraturerecognizesthat agents, such as PBMs, may pursue objectives that differ from those of the principals, such asMedicare.17 Opportunistic self-dealing is one way in which an agent (the PBM) can pursue its owninterestsattheexpenseoftheprincipal(Medicare)whileitisrepresentingtheGovernmentand/orthebeneficiaries.

One example of opportunistic self-dealing can be seen in CVSHealth Corporation,18which owns CVSSpecialty19andCVSPharmacychains,andisaMedicarePlanSponsor.CVSHealthCorporationalsoownsCVSCaremark,thecompany’sPBMarm.CMShascontractedwithCVSCaremarkasaPBMtoadministerprescriptiondrugbenefitsforMedicarepatients.

CVSHealth(astheparentcompany)notonlyprofitsfromMedicarebyprovidingPBMservices(throughCVSCaremark),butalsoprofitsfromdispensingdrugstoMedicarebeneficiariesasapharmacyprovider,

14U.S.DepartmentofHealthandHumanServices[“HHS”],CentersforMedicare&MedicaidServices[“CMS”],NationalMedicareHandbook,at3(Sept.2015),availableathttps://www.medicare.gov/pubs/pdf/10050.pdf.15Id.16HHS,OfficeofInspectorGeneral[“OIG”],MemorandumReport:PartDPlansGenerallyIncludeDrugsCommonlyUsedByDualEligibles,at3(June29,2016),availableathttp://oig.hhs.gov/oei/reports/oei-05-16-00090.pdf.17SeeBengtHolmstrom,MoralHazardandObservability,BellJ.ofEcon.,74-91(1979);seealsoJeanJacquesLaffontandJeanTirole,ATheoryofIncentivesinProcurementandRegulation(MITPress1994).18AsstatedinitslatestquarterlyReport,CVSHealth’sbusinessincludesa“PharmacyServicesSegment”.AccordingtoCVS,their“PharmacyServicesbusinessgeneratesrevenuefromafullrangeofpharmacybenefitmanagement(“PBM”)solutions,including...MedicarePartDservices,mailorder,specialtypharmacy....Asapharmacybenefitsmanager,wemanagethedispensingof prescription drugs through our mail order pharmacies, specialty pharmacies, long-term care pharmacies and a nationalnetworkofmorethan68,000retailpharmacies,consistingofapproximately41,000chainpharmacies(whichincludesourCVSPharmacy®stores)and27,000independentpharmacies,toeligiblemembersinthebenefitplansmaintainedbyourclients....”CVSHealthCorp.,QuarterlyReport(Form10-Q)(May3,2016).19CVSalsostatesthat“[o]urspecialtypharmaciessupportindividualswhorequirecomplexandexpensivedrugtherapies.OurspecialtypharmacybusinessincludesmailorderandretailspecialtypharmaciesthatoperateundertheCVSCaremark®,CarePlusCVSPharmacy™,Navarro®HealthServicesandAdvancedCareScripts®("ACS")names....Inaddition,through[the]SilverScriptInsuranceCompanysubsidiary, [CVSHealth is]anationalproviderofdrugbenefits toeligiblebeneficiariesunder the federalgovernment’sMedicarePartDprogram.ThePharmacyServicesSegmentoperatesundertheCVSCaremark®PharmacyServices,Caremark®,CVSCaremark®,CarePlusCVSPharmacy™,Accordant®,SilverScript®,Coram®,CVSSpecialty™,NovoLogix®,Navarro®HealthServicesandAdvancedCareScripts®names.”Id.

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through the company’s retail, mail order and specialty pharmacies (operated by CVS Pharmacy, CVSCaremark,andCVSSpecialty,respectively). Thesepharmacyprovidersalsoparticipate inCVSHealth’sPBMnetworks(managedbyCVSCaremark),anddirectlycompetewithindependentproviders,includingdispensingphysicians.Despitetheobviousconflictofinterestinherentinthisarrangement,CVSCaremarkis also the gatekeeper of network access to providers authorized to dispense Part D medication toMedicarebeneficiaries. Assuch,whenCVSHealthunilaterallywields thepowertoeliminatenetworkaccessofacompetingclassoftrade,themotiveandlegalauthoritymustbequestioned.

PBMs’RolesasMedicarePharmacyProviders.VirtuallyeverymajorPBMcompany(i.e.,ExpressScripts,CVS Caremark, OptumRx, Prime Therapeutics) not only operates a pharmacy benefits managementcomponent,butalsoownsandoperateslicensedpharmacyprovidersofsomekind,whetherretail,mailorderand/orspecialtypharmacies. ThePBMsthatarealsopharmacyproviderscompetedirectlywithdispensingphysiciansforprescriptionvolumewithinthepharmacynetworksthattheymanageintheirroleasPBMs.

ThissameconceptappliestoCVSCaremark.Asnotedabove,CVSHealthCompany(theparentcompany,asdistinguishedfromCVSCaremark)notonlyoperatesaPBM,butownsandoperateslicensedretail,mailorderandspecialtypharmacies.Accordingtothe2015“CEO’sShareholderLetter,”“[t]hroughout2015,[CVS] continued to capture an outsized share of the specialty market, the industry’s fastest-growingsector.OurCVSSpecialtybusinessisthenation’slargest,andourgrowthhasoutpacedboththeindustryoverallandthatofournearestcompetitor.In2015,revenuesfromthespecialtydrugswedispensedandmanagedacrosstheenterprisetotalednearly$40billion,increasing32%overtheprioryear.”20

CVSSpecialtydirectlycompeteswithdispensingphysiciansforprescriptionvolumewithinthepharmacynetworksthatCVSCaremarkmanages. AsCVSCaremark isnowthebiggestplayer inthe industry, itsrecentadverseactionsagainstdispensingphysicianswillchangethecourseofmedicineandpatientcare,particularlyforMedicare’svulnerablecancerpatientpopulation.

PBMsLimitCompetitionbyControlling“NetworkAccess.”OneofthemethodsutilizedbyPBMstobuildtheprescriptionvolumeisbylimiting“networkaccess”bycompetingprovidersandforcingpatientstouse the companies’ wholly owned mail order and specialty pharmacies. This is an example ofopportunisticself-dealingaccomplishedusingthePBM’spowertolimitnetworkaccessattheexpenseofpatients.NetworkaccessistheabilityofapharmacyordispensingphysiciantodispenseaprescriptiondrugtoaMedicarepatientinaPBM’sMedicarePartDnetworkandreceivepaymentfromthePBM.IfaPBM could eliminate competitors from filling specialty prescriptions toMedicare patients, that PBMwouldenjoyasignificanteconomicbenefitbycapturingadditionalprescriptionvolume.ThisapproachhasbeeneffectivefornumerousPBMs,suchasCVSHealth.

Forexample,whenMedicarebeneficiariesunderCVSCaremark’splanwanttoobtaintheirprescriptiondrug,theyarelimitedtothose“in-network”pharmaciespermittedbyCVSCaremarktofillprescriptionsinCVSCaremark’snetwork.BecauseCVSHealthalsoownsthenation’slargestchainofpharmacies21andthenation’s largestspecialtypharmacy,CVSHealth inherentlycompeteswithallotherproviders in itsnetwork. CVS Health is therefore attempting to significantly limit network access (and, by proxy,competition)byeliminatingasegmentofprovidersthatcompetewithCVSHealthforthespecialtydrugmarket – dispensing physicians – by declaring them “out-of-network” and therefore ineligible to fill

20CVSHealthCorp.,LettertoShareholdersfromPresidentandChiefExecutiveOfficerLarryJ.Merlo(Feb.9,2016),availableathttp://investors.cvshealth.com/2015-in-review/ceo-shareholder-letter.21SeeCVSHealthCorp.,https://cvshealth.com/about(lastvisitedJul.8,2016).

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Medicareprescriptions. Again, this isdonewithout regard to the impactonpatientoutcomes,and ismotivatedpurelybybusinessinterests.

CVSCaremarkHas Limited theNetworkAccessofCompetingDispensingPhysiciansbyUnjustifiablyReinterpretingCMSRegulations. Asdescribedingreaterdetail inSection4below, inearly2016,CVSCaremarkundertooktore-interpretlongstandingCMSregulationsinsuchawayastoeffectivelycutoutphysicians from continuing to dispense medications to their Medicare Part D patients. Citing their“ongoing regulatory review,” CVS Caremark has taken the position that beginning January 1, 2017,dispensingphysicianswillnolongerbeincludedinCVSCaremark’sMedicarePartDnetworks.Instead,CVSCaremarknowtakesthepositionthatCMSMedicarePartDrulesdefinea“sponsor”networkasapharmacyonlynetwork,andtherefore,considersphysiciandispensingfacilitiestobe“out-of-network.”22

CVSCaremarkhasfurtherstatedthatitwillholddispensingphysicianssubjectto“thesametreatmentunder out-of-network rules.”23 CVS Caremark therefore intends to cease reimbursing dispensingphysiciansforprescriptionmedicationdispensedtoMedicarebeneficiaries.ThisservesasperhapsthemostblatantexampleofPBMs’effortstoimproperlylimitdispensingphysicianaccesstoPartDplans,attheexpenseofpatients.

The scope of CVS Caremark’s recent action is likely to expand beyond exclusion of just dispensingphysicians. CVS Caremark has also made pronouncements suggesting that many physician-ownedpharmacies would no longer meet the PBM’s terms and conditions for participation in the “retailpharmacy”networkscontainedintheProviderAgreementandProviderManual.Thus,thisactionappliesnotjusttoMedicarePartDnetworks,butalsoimpactscommercialplansaswell.

In short, dispensing physicians and physician-ownedpharmacies are being denied network access forMedicarePartDbeneficiariesandarebeingconsidered“out-of-network,”andCVSCaremarkiseffectivelyseekingtoshutoutallphysiciandispensingandphysician-ownedpharmaciesfromdispensingmedicationstoCVSCaremark’sMedicarepatients.

CVSCaremarkcurrentlystandsaloneinthisinterpretation.NootherPBMormajorpayorhastakenthesepositionsorinterpretationsofCMSregulationsandnootherPBMhastakenthepositionthatdispensingphysicians are “out-of-network.” This is especially significant given that dispensing physicians andphysician-ownedpharmaciesmakeupasubstantialportionofthetotalproviderpopulation.24Itseems,therefore,thatCVSHealthseeksmerelytocaptureagreaterpercentageofthespecialtydrugmarket,andisusingitsPBMtoeffectuatethatbusinessobjectivebycurtailingnetworkaccess.

WhitePaperGoal.Throughthis“WhitePaper,”ourgoalistoassistpatientandprovideradvocacygroupsineducatinglawmakers,regulators,CMS,PlanSponsors,MedicareBeneficiaries,andthepublicatlargeastothevalueofphysiciandispensing,usingCVSCaremark’srecentactionsasacasestudy.ThisWhitePaperexploresthefinancialandeconomicmotivesofPBMlimitationofphysiciandispensing,throughthelensofCVSCaremark’sactions,andanalyzestheFederalandStatelegalissuesinvolved.

WhitePaperScope.Insettingthecontextforthediscussion,thisWhitePaperdrawsuponthebackgroundof the specialtypharmacy industry (including the consolidationofPBMsandpayors and the resultinginfluenceonCVSCaremark’sdecision);thoroughlyexplainsCVSCaremark’srecentactions;exploresthe22CVSHealthCorp.,LettertoCongressmanEdWhitfieldfromSeniorVicePresidentofGovernmentandPublicAffairsMelissaA.Schulman(Feb.19,2016)[“CVS-WhitfieldLetter”].23Id.24 See Express Scripts, Inc., Lower Rx Costs With a New Site of Care (Jun. 23, 2016), http://lab.express-scripts.com/lab/insights/specialty-medications/lower-rx-costs-with-a-new-site-of-care;seealsoHolcombandHarris,supranote7;Mungeretal.,supranote8.

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legal concepts impacted by PBMs’ actions to limit network access (including the legality of physiciandispensingandtheerrorofCVSCaremark’srecentinterpretationofCMSregulations);andelucidatestheclinical andeconomicbenefits of physiciandispensing. Wehaveaddressed these issuesbyprovidingreferencestoindustrystandardsandpractices,citationstoapplicable lawsandregulations,analysisofadministrativeguidance,andcasestudiesinvolvingrealworldexamples.

OncologyContext.WhilemanyPBMactions–includingthoseofCVSCaremark–willimpactdispensingphysiciansandphysician-ownedpharmaciesofallkinds,toillustratesomeofthemoredirectandsevereeffectsofthisaction,welargelydiscussedphysiciandispensingintheoncologycontext.Wehavechosenexamplesfromthisfieldbecauseoftheuniquenatureofthemedicationsdispensedtotreatoncologypatients,andthecrucialrolethatdispensingphysiciansplayinthisspace.Oncologylendsitselfwelltoillustratingtheissuesatplaywithphysiciandispensing,particularlyasoraloncolyticagentsdispensedtopatientforself-administrationareanincreasinglyimportantcomponentofcancertherapy.

Ultimately,throughthisWhitePaper,weintendtodemonstratehowPBMactiontolimitnetworkaccessbydispensingphysicians–includingspecifically,CVSCaremark’s“reinterpretation”ofCMSregulations–isplainlywrong,andhow,basedonthehistory,customandpracticeofphysiciandispensing,therightsofdispensingphysicians(inadditiontophysician-ownedpharmacies)mustbeappropriatelysafeguarded,particularlyintheMedicarePartDcontext.

3 Background3.1 WhatIsPhysicianDispensingandHowDoesItDifferFromTraditionalPharmacyDispensing?

Physiciandispensingoccurswhenphysiciansprovidetheirpatientswithmedicationdirectlyatthepointofcare,insteadofprovidingapatientwithaprescriptiontobetakentoandfilledatapharmacy.Insomelimitedcircumstances,patientswillalsohavetheirmedicationdeliveredtotheirhome,buttheinitialfillistypicallyatthetimeandpointofcare.

PhysiciandispensinghasbecomeincreasinglypopularintheUnitedStates,andhasexpandedtoincludea variety of medications in both the retail and specialty space. This increased popularity has largelybenefitedoverallpatientcare,asstudieshaveshownthatpatientcompliancewithdrugtherapyis60%to70%higher fromadispensingphysician thanapharmacy.25 Themany clinicalbenefitsofphysiciandispensingarediscussedingreaterdetail inSection6.1below.Additionally,asthephysician’spracticecandirectlyaccessthedispensingrecords,andinsomecasesactuallyconsolidatetheinformationintothe EHR, the physician is in a better position to assure patient compliance with their drug regimen.Moreover,in-officephysiciandispensingsavesthepatienttime,asthepatientnolongerneedstofillaprescriptionatapharmacy,andalsosavesthephysiciantime,asin-officedispensinggreatlyreducestheneedforpharmacycallbacks.

Another common form in the oncology context is the physician-owned pharmacy, which is when aphysicianorphysiciangroupwhollyownsanin-officepharmacy.Thismodelisverysimilartoadispensingphysicianframework,withtheexceptionthatthephysician-ownedpharmacyisindependentlylicensedasapharmacyby theapplicableBoardofPharmacyand followsallof the requirementsapplicable tolicensedpharmacies(includingtheuseofapharmacist-in-charge).

25WilliamShell,TheHistoryofPhysicianDispensing,CompleteClaimsProcessing,Inc.,http://www.ccpicentral.com/history-of-physician-dispensing.php(lastvisitedJul.8,2016).

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Whiledispensingphysiciansoftentimesdispenseretailmedication,attimestheyalsodispensespecialtymedicine.Whilethereisnoclearorstandardizedlegaldefinitionof“specialtymedicine,”theytypicallyhaveoneormoreofthefollowingcharacteristics:(1)highcost,(2)specialhandlingprocesses,(3)treatararedisease,(4)requireongoingassessmentofapatient’sresponse,(5)requirepatientadministrationtraining,(6)requireapriorauthorizationfromaninsurancecompany,and/or(6)arepartofaFoodandDrugAdministration(FDA)RiskEvaluationandMitigationStrategies(REMS)program.

Additionally, a number of specialty medications administered by physicians and physician-ownedpharmacies require special handling and storage techniques. Specifically, the handling of specialtymedicationsoftenrequiresacapitalintensivestoragefacility,alongwithspecialandcostlypackagingandclose coordination with patients to ensure proper administration and storage of the medicine oncedelivered.

Closecommunicationwithpatientsisessentialfordispensingphysiciansandphysician-ownedpharmaciesdispensingspecialtymedications.Physiciansmusthaveproperprocedures inplace inorder to remaincognizantofanychangesinthepatient’sconditionandtoensurepatientadherence.Physiciandispensingofdrugs(eitherdirectlybythephysicianorviaaphysician-ownedpharmacy),especiallyoncologydrugs,providesthisandisthereforecriticaltothehealthcaresystem.

The relationship between oncologists and their patients promotes medication adherence and is farsuperiortoPBM’smailordermethod.TheconsolidationofPBMsandpayers,aswellasPBMownershipof specialty pharmacies and the economic motives of CVS Health, now combine to challenge thesignificantpatientbenefitsofphysiciandispensing.

3.2 ConsolidationofPBMsandPayors,andtheResultingInfluenceonRecentPBMActions

BeforeoutliningthehistoryofPBMconsolidation,itiscriticaltounderstandthatintheMedicarePartDcontext,allMedicarepaymentsaremadetoprovidersthroughPBMs.ThepowerofPBMstodecidewhatclassesofprovidersare“in-network”hastheabilitytoalterpatientcareandthehealthcarelandscape.

Medicare’s Payment Framework. Dispensing physicians and physician-owned pharmacies rely onpaymentsunderaMedicarepatient'sprescriptiondruginsurancebenefitfromPBMsandcontractwithPBMs throughvariouspharmacynetworks. APBM is a third-party administratorofprescriptiondrugprogramscoveredbyaPlanSponsor(i.e.healthinsurancecompany,union,self-insuredemployergroup,oragovernmentalhealthprogram,suchasMedicare).APBMisprimarilyresponsibleforprocessingandpayingprescriptiondrugclaimssubmittedbyparticipatingprovidersonbehalfofcoveredbeneficiaries.APBM’sroleisnotlimitedtoprocessingandpayingprescriptiondrugclaims.Rather,PBMsalsoprovidebundledservices related to theadministrationofpharmaceuticalbenefits, including formularydesign,formulary management, negotiation of branded drug rebates, and controlling network access ofparticipatingpharmacies.

PBMsplayacriticalroleintheadministrationofprescriptiondrugprograms.However,overthepasttenyears,thePBMmarketplacehastransformedconsiderably.Changesincludebothhorizontalandverticalintegrationamonginsurancecompanies,PBMs,chainpharmacies,specialtypharmacies,andlongtermcarepharmacies.Asaresult,asmallernumberoflargecompaniesnowwieldnearlylimitlesspowerandinfluenceovertheprescriptiondrugmarket.

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WithonlyfivePBMs,networkaccesstoeachiscritical.Over80%ofthePBMmarketplace(or80%ofthecoveredlivesintheUnitedStates)iscomprisedofonlyfivePBMs.26Thelackofcompetitioninthemarketplacestems,inlargepart,fromaseriesofmergers,integrations,andconsolidations.Thisconsolidationand integration is undoubtedly a factor leading PBMs, such as CVS Caremark, to push dispensingphysicians“outofnetwork,”asthePBMsrecognizethepotential increasedrevenueandmarketshareassociatedwith specialtymedicine often dispensed by physician practices (especially in the oncologymarket).Assuch,itseemsclearthatthepushtomakedispensingphysicians“out-of-network”hasmoreto do with economic self-dealing by PBMs, such as CVS Caremark, than it does with a legitimateinterpretationofFederalandStatelaw.

Vertical Consolidations. To understand the implications of CVS Caremark’s recent push to makedispensingphysicians“out-of-network,”abriefreviewoftheindustryconsolidationisrelevant.ItbeganwithaseriesofverticalconsolidationsinwhichsomePBMsacquiredpharmaciesandotherPBMsacquiredinsurancecompanies.In2007,theshareholdersofCaremarkRx,oneofthenation’slargestPBMsatthetime,approveda$26.5billion takeoverofCVSPharmacy,whicheffectively created the first verticallyintegratedretailpharmacyandPBM.27Verticalintegrationoftheindustrycontinuedin2011,asBlueCrossBlueShieldofNorthCarolina,oneofMedco’slargestcustomers,beganshiftingitsPBMbusinessawayfromMedcoandtoPrimeTherapeutics,28aPBMthatiswhollyownedbyagroupofthirteenBlueCrossplansacrossthecountry.Thereafter,in2012,UnitedHealthcare(“United”),thenation’slargestinsurancecompany, beganmigrating the administration of its plans fromMedcoHealth Solutions toOptumRx,United’swhollyownedPBM.29Assuch,thenation’slargestinsurernowhasitsownverticallyintegratedPBM.WithfewerPBMs,aprovider’snetworkterminationmeansthataproviderisunabletoservicealargepercentageofthepatientpopulation.Duetoitssizeandmarketshare,terminationfromanyonePBM – including particularly CVS Caremark – often spells irreparable harm for a provider seeking toparticipateintheMedicarePartDprogram.

HorizontalConsolidationandtheRacetoBetheLargest.ConsolidationofthePBMandpayorspacehasnotbeenlimitedtoverticalintegration.In2011,twoofthenation’sthen-largestPBMs–MedcoHealthSolutions,Inc.andExpressScripts,Inc.–announceda$29billionmerger.Afteracontentiousregulatoryapprovalprocess,theFederalTradeCommissionultimatelyapprovedthemergerin2012.30

Thereafter,theindustrycontinuedconsolidationbothhorizontallyandvertically.In2013,aregionalPBM–SXCCorporation–agreedtobuyanotherregionalPBM–Catalyst,Inc.–for$4.4billiontoformanationalPBM,knownasCatamaranCorp.31InJuly2015,CatamaranwasacquiredbyUnited,OptumRx’sparentcompany,for$12.8billion.ThetwoPBMsarenowintegratingoperationsandoperateunderonename,OptumRx. In2015,RiteAidacquiredthePBM–EnvisionRx–forapproximately$2billion.32Laterthat

26Hiltzik,supranote4.27 Evelyn M. Rusli, Caremark Approves CVS Merger, Forbes (Mar. 16, 2007, 4:59 PM),http://www.forbes.com/2007/03/16/caremark-approves-update-markets-equity-cx_er_0316markets29.html.28 Jon Kamp, Medco Faces Loss of Blue Cross Customer, Wall St. J. (Aug. 3, 2011, 6:04 PM),http://www.wsj.com/articles/SB10001424053111903454504576486653127464070.29 Anna Wilde Mathews, UnitedHealth’s Answer to Express Scripts-Medco Merger?, Wall St. J. (Jul. 21, 2011, 8:34 AM),http://blogs.wsj.com/deals/2011/07/21/unitedhealths-answer-to-express-scripts-medco-merger/.30ReedAbelsonandNatashaSinger,F.T.C.ApprovesMergerof2oftheBiggestPharmacyBenefitManagers,N.Y.Times(Apr.2,2012),http://www.nytimes.com/2012/04/03/business/ftc-approves-merger-of-express-scripts-and-medco.html.31MichaelJ.DeLaMerced,SXCHealthSolutionstoBuyCatalystHealthfor$4.4Billion,N.Y.Times,(Apr.18,2012,asupdated3:07PM),http://dealbook.nytimes.com/2012/04/18/sxc-health-solutions-to-buy-catalyst-for-4-4-billion/.32RiteAidCompletesAcquisitionofLeadingIndependentPharmacyBenefitManagerEnvisionRx,Bus.Wire(Jun.24,2015,10:23AM), http://www.businesswire.com/news/home/20150624005906/en/Rite-Aid-Completes-Acquisition-Leading-Independent-Pharmacy.

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year,WalgreensannounceditsintentiontoacquireRiteAidandEnvisionRxfor$9.4billion.33Thatmergeris pending. Also in 2015, Aetna, the nation’s third largest insurer, announced its intention to acquireHumana,thenation’sfourthlargestinsurer,aswellasHumana’swhollyownedPBM,HumanaPharmacySolutions,for$37billion.34Finally,in2015,AnthemannounceditsagreementtobuyCigna(includingitsPBMarm)for$48billion,whichwouldresultin,yetagain,fewerplayersinthespace.35However,onJuly21, 2016, the Justice Department filed lawsuits to block both the Aetna-Humana and Anthem-Cignamergers, asserting that themergers would quash competition, leading to higher prices and reducedbenefits.36Whilethesemergers(whichwouldbringthenumberofmajorinsurersdowntothree)maybeblocked,muchof thedamage is alreadydone, as there are still only fivemajor insurers handling themajorityofpatientsintheUnitedStates.

ExclusionfromaPBM’sMedicareNetworkIsanInsurmountableBlowtoDispensingPhysicians. It isnot difficult to understand why exclusion from a particular PBM’s Medicare network (including CVSCaremark’s)couldputaprovideroutofbusiness.WhenthatproviderisanoncologypracticeservingthevulnerableMedicarepatientpopulation,thecalltoreverseCVSCaremark’sdecisionshouldbeespeciallystrong.

Asmoreconsolidationovertimehasyieldedfewerpayors,thenumberofstandaloneMedicarePartDprescriptiondrugplansofferedin2016hasfallenprecipitously–by42%since2007.37Particularlyalarmingis the fact that about two-thirds of allMedicare Part D Prescription Drug Plan (“PDP”) enrollees areconcentratedinnetworksacrossjustthreepayors:United,CVSCaremark,andHumana.38Fewerpayorsexponentiallyincreasestheimportanceofnetworkaccessforproviders(includingdispensingphysicians)foreachindividualPBM.ExclusionfromonePBMwithamarketshareof35%meansthattheproviderlosesoutonamajorportionofthepatientpopulation.

PBMMergersandConsolidationsinLastFiveYears

2011

33DanaMattioli,MichaelSiconolfi,andDanaCimilluca,Walgreens,RiteAidUnitetoCreateDrugstoreGiant,WallSt.J.(Oct.27,2015,9:01PM),http://www.wsj.com/articles/walgreens-boots-alliance-nears-deal-to-buy-rite-aid-1445964090.34AetnatoAcquireHumanafor$37Billion,CombinedEntitytoDriveConsumer-Focused,High-ValueHealthCare,Bus.Wire(Jul.3, 2015, 2:08 AM), http://www.businesswire.com/news/home/20150702005935/en/Aetna-Acquire-Humana-37-Billion-Combined-Entity#.VZYpMeTD9OI.35MichaelJ.DelaMercedandChadBray,AnthemtoBuyCignaAmidWaveofInsuranceMergers,N.Y.Times(Jul.24,2015),http://www.nytimes.com/2015/07/25/business/dealbook/anthem-cigna-health-insurance-deal.html.36 Leslie Picker, U.S. Sues to Block Anthem-Cigna and Aetna-Humana Mergers, N.Y. Times (Jul. 21, 2016),http://www.nytimes.com/2016/07/22/business/dealbook/us-sues-to-block-anthem-cigna-and-aetna-humana-mergers.html.37TheKaiserFamilyFoundation,MedicarePrescriptionDrugBenefitFactSheet (Oct.13,2015),http://kff.org/medicare/fact-sheet/the-medicare-prescription-drug-benefit-fact-sheet/.38AdamJ.Fein,MedicarePartD2016:75%ofSeniorsinaPreferredPharmacyNetwork(PLUS:WhichPlansWonandLost),DrugChannels(Jan.20,2016),http://www.drugchannels.net/2016/01/medicare-part-d-2016-75-of-seniors-in.html.

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2013

2015

Thisrapidevolutionofpharmacybenefitsandpayorindustryshowshowalimitednumberofcorporationswield an outsized level of control and influence in the prescription drug coverage marketplace.EliminatingphysiciandispensingfromtheMedicare(andallCVSCaremark’s)networkwillonlyexacerbatethecontrolPBMsexertoverdispensingdecisions,whichisadangeroussituationforvulnerablepatientpopulations,includingthecancerpopulation.

3.3 BecausePhysicianDispensingComprisesNearlyOne-HalfoftheSpecialtyDrugSpend,ExcludingItWillHaveaProfoundandIrreversibleImpactonBothProvidersandPatients

Over thepast five years, drug spending, andespecially spendingon specialtymedications, has grownexponentially.Indeed,morethantwo-thirdsofthegrowthinoverallmedicinespendingisattributabletospecialtymedicine.39In2015,37%ofthetotalUnitedStatesspendingondrugswasattributedtospecialtymedications,andspecialtymedicationsareprojectedtoaccountfor50%oftotaldrugspendby2018.40By2020,specialtydrugspendisprojectedtototalabout$400billion,representingabout9.1%ofnationalhealthspending.41Moreover,dispensingphysicianscompriseabout46%ofthespecialtymedicalspend42and,accordingtoa2014studyconductedbytheUniversityofUtah,14%ofallprescriptionspurchasedbyparticipatingconsumersweredispenseddirectlybyaphysician.43Asaresult,PBMshaveadjustedtheirbusinessmodels tocaptureprofitsassociatedwith specialtydrug spending.AllmajorPBMs, includingPrimeTherapeutics,OptumRx,ExpressScripts,andCVSCaremark,haveacquiredorlaunchedtheirownspecialtypharmaciesinanattempttogainmarketshareinthegrowingspecialtydrugspace.

Ultimately, the PBM industry’s quest to capture specialty medicine profits has been overwhelminglysuccessful.Estimatesindicatethattheindustry’sthreelargestplayers–ExpressScripts,CVSCaremark,andWalgreens–collectivelycontrolabout63%ofspecialtydrugrevenue.44Asprofits in thespecialty

39Constantino,supranote5.40ExpressScripts,Inc.,supranote6.41 UnitedHealth Center for Health Reform&Modernization, The Growth of Specialty Pharmacy: Current Trends and FutureOpportunities (Apr. 2014), available at http://www.unitedhealthgroup.com/~/media/uhg/pdf/2014/unh-the-growth-of-specialty-pharmacy.ashx.42SeeExpressScripts,Inc.,supranote6;seealsoHolcombandHarris,supranote7.43SeeMungeretal.,supranote8.44 Adam J. Fein, Six Factors Driving New Specialty Pharmacies, Pharm. Commerce (Mar. 3, 2014),http://pharmaceuticalcommerce.com/opinion/six-factors-driving-new-specialty-pharmacies/.

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medicinerealmcontinuetosoar,sodotheprofitsfortheindustry’slargestPBMs.In2011,ExpressScriptsreportedover$14.5billioninrevenueassociatedwithhomedeliveryandspecialtypharmacysegments.In2015,thenumberhadgrowntomorethan$40.8billion,45andasevidencedby2016SecondQuarterResults, specialty pharmacy claims grew as a percentage of overall claims processed.46 Furthermore,evidenceindicatesthattheindustry’slargestplayerswillcontinuetobenefitfromspecialtydrugspend.Indeed,onMay3,2016, LarryMerlo,CVSHealthCorporation’sPresidentandChiefExecutiveOfficer,statedthat“[i]nthefirstquarter,specialtyrevenues increased23%,and[CVS’s]volumescontinuedtooutpacethemarket.”47Meanwhile,CVSHealthtoutsitselfashaving“thelargestU.S.specialtypharmacywith$40billioninrevenue.”48Itisexpectedthatthespecialtydrugmarketwillcontinuetoseeincreasedprofits,butthequestionremainswhetherthoseprofitswillonlyberealizedbythelargestplayersintheindustry. CVS Caremark’s expulsion of dispensing physicians from the Medicare Part D network isdesignedsimplytoincreasethecompany’sshareofthespecialtydrugmarket.

3.4 ConversionfromIntravenousOncologyDrugs,ReimbursableUnderPartBMedicalInsurance,toOralOncolytics,ReimbursableUnderPartDbyPBMs

Thelastfewyearshaveseenashiftinthetreatmentofcancerpatientsfromphysician-administered(i.e.infusedorinjected)chemotherapy–traditionallycoveredunderMedicare’sPartBmedicalbenefit–tooraloncolytics–whichare typicallypaid forbyMedicareunder thePartDpharmacybenefit. PBMs,seekingtoexcludecompetitionandcapturethelucrativemarketforthisnewregimeofprescriptiondrugs,have taken note. Recent conclusions – like CVS Caremark’s – that dispensing physicians are “out-of-network”isoneofthePBMs’businessstrategiestocapturethisbusinesssegment.

Treatmentofcancercontinuestoimproveasresearchyieldsresultsintreatingspecificcancers.Amongtherecentdevelopmentsisanincreasedfocusonoraloncolytics.Infact,recentstudiesshowthatofthe836anti-cancerdrugscurrentlyinclinicaldevelopment,25%areoraloncolytics.49

While oral chemotherapy has existed for decades, oral oncolytics are becoming more popular thanintravenous chemotherapy for numerous reasons. Primarily, oral oncolytics aremore convenient forpatients. Instead of traveling to the hospital or outpatient center, or receiving home intravenoustreatment, patients can self-administer their chemotherapy at home in oral pill form. Importantly,recentlyapprovedandavailableoraloncolyticshavehitthemarketplace,andaremoretargetedtodisruptspecificbiologicprocessesinspecifictypesofcancercells.Thistargetedapproachtotreatmentexhibitsahigherdegreeofsafetyandeffectivenessascomparedtotraditionalchemotherapies,becausetraditionalchemotherapy impactsbothcancerandrapidlygrowinghealthycells. However,eventheseadvancedtreatments can be very toxic and can have severe patient side effects if not monitored closely anddynamically.

45StockAnalysisonNet,https://www.stock-analysis-on.net/NASDAQ/Company/Express-Scripts-Holding-Co/Analysis/Revenues(lastvisitedJul.8,2016).46ExpressScriptsAnnounces2016SecondQuarterResults,http://phx.corporate-ir.net/phoenix.zhtml?c=69641&p=irol-newsArticle&ID=2187940(lastvisitedAug.10,2016).47YahooFin.,EditedTranscriptofCVSearningsconferencecallorpresentation3-May-1612:30pmGMT(May3,2016,6:32PM),http://finance.yahoo.com/news/edited-transcript-cvs-earnings-conference-223253578.html.48CVSHealthCorporation,CVSHealthataGlance,https://cvshealth.com/about/facts-and-company-information(lastvisitedJul.8,2016).49Egerton,supranote11.

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These developments have resulted in an increasing volume of chemotherapy drugs for whichreimbursementfallsunderPartDratherthanthetraditionalPartB.Thisshiftintheindustryhasresultedindispensingphysicians,whoseserviceswerepreviously coveredunderPartB,becoming increasinglyreliantonparticipationinMedicarePartDnetworks,asareplacementtotheMedicarePartBdirectbillingandfee-for-serviceframework.ThisshifthasprovidedthePBMswithanopportunityforanewavenueofservicetooncologypatients,whereasbefore,thisparticularareaofbusinesswasreservedtophysiciansadministeringinjectablechemotherapyintheirclinicsandbillingunderPartB.CVSCaremarkisobviouslyexploitingthisnewopportunitytoexcludephysiciancompetitionfromMedicarePartDnetworks.

4 CaseStudy:CVSCaremark’sAttempttoPushDispensingPhysicians“Out-of-Network”

Asmentioned above,while thisWhite Paper seeks to address all problemswith PBMs attempting toimproperlydirectbusinesstotheirwholly-ownedspecialtypharmacies,weutilizeCVSCaremark’srecentactionsasastrikingandparticularlyegregiousexampleofthesenegativePBMefforts.

Startinginearly2016,CVSCaremark“re-interpreted”longstandingCMSregulationsinsuchawaythatwill effectively cut out physicians from continuing to dispensemedications to theirMedicare Part Dpatients.Ostensibly,CVSCaremarkhastakenthepositionthatbeginningJanuary1,2017,thephysiciandispensingclassof tradewillno longerbe included inCVSCaremark’sMedicarePartDnetwork. CVSCaremarkhasmadethisdecisioninaccordancewiththeirrecentinterpretationoftheCMSMedicarePartDrulesthatdefinea“sponsor”networkasa“pharmacyonly”network,andtherefore,considersphysiciandispensing facilities tobe“out-of-network”andsubject to“thesametreatmentunderout-of-networkrules.”

CVSCaremarkhasbeguncommunicatingthisnewpositioninavarietyofways.Mostprominently,CVSCaremarkbegancommunicatingthispositionincorrespondencetodispensingphysicianpractices(andtheirrepresentatives)inearly2016.50InthiscorrespondencetoaCongressmanrepresentingadispensingphysicianpractice,CVSCaremarkstated:

[CVS Caremark’s] ongoing regulatory review…made clear that CMS considers such physiciandispensing facilities as out-of-network providers. CMSMedicare Part D rules define “sponsornetworks”aspharmacyonlynetworks,and“retailpharmacy”isdefinedasalicensedpharmacyfromwhichenrolleescanpurchaseadrugwithoutbeingrequiredtoreceivemedicalservices.

CVSCaremarkfurthertookthepositionthatCMShadallegedlyagreedthatcoveredPartDdrugsthatareappropriatelydispensedandadministeredinaphysician’sofficewillbesubjecttothesametreatmentunder“out-of-networkaccess”rules.CVSCaremark–despitehavingcredentialed,contracted,andpaiddispensing physicians as “in-network” Medicare Part D providers for over a decade – seeminglyunilaterallytookthepositionthatDispensingPhysiciansare“out-of-networkproviders”underMedicarePartDandnowsubjecttonetworkexclusion.NootherPBMormajorpayorhastakenthispositionorinterpretation.

CVSCaremark’srecentinterpretationappearsatfirstblushtoimpactonlydispensingphysicianpractices(asopposedtophysician-ownedandlicensedretailpharmacies),andappearstoapplytoMedicarePartDnetworksonly.However,otherstatementsandactionsbyCVSCaremarkstronglysuggestabroaderapplicationandimpact.Infact,inthatsameFebruary2016letter,CVSCaremarktookanewpositionthat

50SeeCVS-WhitfieldLetter,supranote22.

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the two-physician practice apparently did not meet the PBM’s terms and conditions to be a retailpharmacyprovider,basedonavarietyoffactors.These“factors”applywithequalmeasureandlogictoall dispensing physician practices (even those participating in commercial networks). Thus, CVSCaremark’s true actions are to exclude dispensing physicians and, ostensibly, physician-ownedpharmacies,fromallCVSCaremarknetworks–governmentalorprivate.51ThisisbeingdoneundertheguiseofnotmeetingCVSCaremark’s“definition”ofaretailpharmacy.

4.1 FinancialandEconomicMotivesofCVSCaremarkIndustry consolidation, alongwith themassive success of CVS Caremark’s aggressive strategy to limitnetworkaccessforindependentspecialtypharmacies,hasledtoCVSCaremarkdevelopingever-evolvingstrategiestoacquireyetagreatershareofthespecialtypharmacymarket.CVSCaremark’snewactionservesasaprimeexampleofrecentPBMconductthat, if leftunchecked,posesanimmensethreattoMedicarepatientsandtotheoverallhealthcaresystem.

CVSCaremark’slatesttacticistoreinterpretlawsandregulationstoeffectivelyeliminateitscompetitionintheoraloncolyticmarket.However,CVSCaremark’sunilateralreinterpretationsofexistinglawsandregulations come at the expense of patient choice and fair competition,52 and are not supported byFederalandStatelaw.

Frankly,CVSCaremark’srecentreinterpretationof“communityretailpharmacy”anddeterminationthatphysiciandispensingfacilitiesaretobetreatedasout-of-networkprovidersunderMedicareillustratesCVS Caremark’s assault on competing providers in the industry. CVS Caremark’s self-servingreinterpretationof“communityretailpharmacy”willleadtohundredsofthousandsofMedicarecancerpatientsalonehavingtoswitchproviderstoobtaintheironcologymedications.Theactionwillsimilarlyresult in dispensing physicians losing the vast majority of their patient population, as CVS Caremarkmanagesthebenefitsforacriticalpercentageofpatientsutilizingphysiciandispensingservices.Whilethosepatientscouldtheoreticallyswitchtoanyin-networkpharmacy,CVSCaremarkwilllikelyemployanumber of strategies to capture that business. More specifically, CVS Caremark has often utilized“specialtynetworks”and“PreferredCostSharingNetworks”53torouteprescriptionstonarrownetworksof“preferredproviders.”54Amongthose“preferredproviders”wouldbeCVSHealth’sretailandspecialtypharmacies, further ensuring that this business is captured. Notably, CVSCaremark routinely creates“specialtypharmacy”networkswhereitsownCVSSpecialtypharmacyisoneofonlyafew(ifnottheonly)participatingprovidersenjoyingnearlyexclusiveaccesstospecialtyclaims.Totheextentthesenarrownetworksareutilized,CVSCaremarkwillonlyfurtherstrengthenitsgripontheretailandspecialtymarket.

51WhilethisWhitePaperaddressesonlythe impactondispensingphysicianpracticesandphysician-ownedpharmacies,CVSCaremark’sactionspotentiallyencompassamuchlargerrangeofprovidersnotmeetingthePBM’sstrictinterpretationof“retailpharmacy,”suchasspecialtypharmacies,mailorderpharmacies,longtermcarepharmacies,closeddoorpharmacies,etc.52See,e.g.,JamesLangenfeld&RobertManess,TheCostofPBM“Self-Dealing”UnderAMedicarePrescriptionDrugBenefit30-31 (2003),available athttp://www.ncpanet.org/pdf/pbm-selfdealing090903.pdf (study concluding that self-dealing by PBMswouldcosttheU.S.GovernmentandMedicarebeneficiariesbillionsofdollarsduringtheperiod2004-2013);seealsoCarolUkens,PBM Mail Order Would Up Medicare Rx Cost, Study Finds, Drug Topics (Oct. 6, 2003), at 34, available athttp://www.drugtopics.com/drugtopics/article/articleDetail.jsp?id=111109(discussingthesamestudywhichfoundthat“lettingPBMsfavortheirownmail-orderpharmacieswouldincreasethecostofaMedicareRxbenefitbybetween$14.5billionand$29billionovera10-yearperiod,comparedwiththecostofusingindependentmail-orderpharmacies.”).53PursuanttoTheSocialSecurityAct[codifiedat42U.S.C.1395w-104],MedicarePartDplansarepermittedtocreate“PreferredCostSharingNetworks,”whichconsistofsub-networksofpreferredprovidersthatofferlowercostsharingtotheirbeneficiaries.54SeePBMWatch,PartDReformInformationCenter,http://www.pbmwatch.com/part-d-reform-information-center.html(lastvisitedJuly8,2016).

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Theseprofit-drivenactionsbyCVSCaremark(whoseparentcompanyownsthenation’slargestpharmacychainandspecialtypharmacies)arenotsupportedbytheapplicablelawandregulations.

5 LegalConcepts5.1 PhysicianDispensingIsLegalandPermittedbyFederalLawandtheMajorityofStates

NotwithstandingCVSCaremark’s suggestions to the contrary, physiciandispensing is completely legalunderFederalandStatelaw,and,infact,isspecificallypermittedandevenencouragedinmanycontexts.ThissectionoftheWhitePaperseekstodescribetheoverallpracticeandexplaintheimportancewithinthecontextofrelevantlawsandregulations.

“Physiciandispensing,”whereaphysiciandispensesdrugsdirectlyfromtheirofficeratherthanaretailpharmacy,isanalternativetohavingafullretailpharmacyattachedtotheoncologypractice.PhysiciandispensingisclearlypermittedonaFederallevel,andisgenerallypermittedattheStatelevel,especiallyintheoncologycontext,asdiscussedindetailbelow.

5.1.1 FederalLawPermits,andtheMedicare-SponsoredOncologyCareModelEncourages,PhysicianDispensing

Generallyspeaking,physiciandispensingispermittedunderFederallaw,solongasphysiciandispensingispermittedintheStatewherethephysicianislocated.WhilethereisnospecificFederalguidancefornon-controlledsubstances,DEAregulationsallowaregisteredpractitionerto“engageinthoseactivitiesthatareauthorizedunderstatelawforthejurisdictioninwhichthepracticeislocated.”55Thiswould,therefore, give registered physicians the right to dispense controlled substances where otherwisepermittedbyStatelaw.

In addition, the Federal Trade Commission (“FTC”) has written opinions on the practice of physiciandispensing, in relation toState lawrestrictions. TheFTCsupportsphysiciandispensing, finding that it“maximizes consumers’ option in the purchasing of prescription drugs.”56 “Dispensing by physiciansbenefits consumers by maximizing the number of qualified sources from which they may purchaseprescriptiondrugs,andbyenablingconsumerstoavoidmakingaseparatetriptoapharmacy.”57Thus,even the FTC has strongly supported the importance of dispensing physicians within a robust andcompetitivemarketplace.

Physician Dispensing Is Permitted by the Stark Law. The Federal prohibition against physician self-referral,commonlyknownastheStarkLaw(42U.S.Code§1395nn),prohibitsaphysicianfromreferringMedicareandMedicaidpatientsforcertain“designatedhealthservices”(“DHS”)toanentitywithwhichheorshe(oranimmediatefamilymember)hasafinancialrelationship,unlesstherelationshipfitswithinanexception.DHSisdefinedtoinclude,amongotherproductsandservices,outpatientprescriptiondrugs55 U.S. Department of Justice [“DOJ”], Drug Enforcement Administration [“DEA”], Office of Diversion Control, Practitioner’sManual: An Informational Outline of the Controlled Substances Act, at 7 (2006), available athttp://www.deadiversion.usdoj.gov/pubs/manuals/pract/pract_manual012508.pdf.56U.S.FederalTradeCommission [“FTC”],Letter to theCaliforniaAssembly fromDirectorofBureauofCompetition Jeffrey I.Zuckerman, available at https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-hon.tim-leslie-concerning-california.b.1732-restrict-ability-physicians-dispense-prescription-drugs-their-patients/p874680.pdf (lastvisitedJul.12,2016).57FTC,LettertoMarylandStateBoardofMedicalExaminersfromDirectorofBureauofCompetitionJeffreyI.Zuckerman(Dec.31, 1986),available athttps://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-maryland-state-board-medical-examiners-concerning-practice-and-regulation/af-47.pdf.

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coveredunderMedicarePartD.58PhysiciandispensingfallswithintheambitoftheStarkLaw,asitisareferralwithin the sameentity,ownedby thephysician, forDHS. However, thisarrangement canbedeemed compliant, and a physicianmay lawfully refer patients to a pharmacy that he or she owns,providedthearrangementfitswithinoneofthe“Exceptions”totheStarkLaw.

Here,theIn-OfficeAncillaryServicesexceptiontotheStarkLawapplies.Itcontainscertainsupervision,building,andbillingrequirements,allofwhichhaveseveraloptionswhichmaybesatisfied.59 The In-OfficeAncillaryServicesExceptiontreatsDHSdeliveredinaphysician’sofficeasanintegralpartofthepatientencounterandnotawhollyseparateservice,eventhoughtheDHScanbebilledasaseparateencounter. Generally, these statutory exceptions and safe harbors have been promulgated by thegovernmentoutofabeliefthatprotectedconductsupportsabeneficialpublicpolicyconcern.Here,thedispensingphysician ispersonally furnishingtheprescriptions, in theirownofficewheretheyperformotherservices,andtheprescriptionsarebilleddirectlybysuchphysician,satisfyingtherequirementsoftheException.Assuch,physiciandispensingisclearlyandexplicitlypermittedbytheStarkLaw.

Physician Dispensing Is Permitted by the Anti-Kickback Statute. Likewise, the Anti-Kickback Statuteprohibitsindividualsfromknowinglyorwillfullyoffering,paying,soliciting,orreceivinganyremunerationdirectly or indirectly, in cash or in kind, (A) “in return for referring an individual to a person for thefurnishingorarrangingforthefurnishingofanyitemorserviceforwhichpaymentmaybemadeinwholeorinpartunderaFederalhealthcareprogram”(whichincludeMedicareandMedicaid),or(B)“inreturnforpurchasing,leasing,ordering,orarrangingfororrecommendingpurchasing,leasing,ororderinganygood, facility, service, or item for which paymentmay bemade inwhole or in part under a Federalhealthcareprogram.”60Thus,anarrangementwherebyaphysiciandispensesdirectlytohisorherownpatientscreatespotentialAnti-KickbackStatuteimplications,asthephysicianmayreceiveremunerationintheformoftheprofitsmadebythebillingoftheprescriptionclaimasaresultofthereferrals.However,therearecertainexplicitExemptionsandSafeHarborstothisstatute,andphysiciandispensingdoesnotviolatetheAnti-KickbackStatuteifstructuredappropriately.

WhereanarrangementfulfillsalloftherequirementsofanExemptionorSafeHarbor,thearrangementortransactionwillqualifyforprotectionfromprosecutionundertheAnti-KickbackStatute.Itshouldbenoted,regardingboththeStarkLawandAnti-KickbackStatute,thattheexceptionsandSafeHarborsexisttoallowphysicianstotakepartinarrangementsthatwouldotherwisebeprohibited.Theexistenceofthe exceptions to these laws is an indication that certain practices are considered permissible, and arecognition that there are certain “legitimate and beneficial activities,”61 such as physician pharmacyownership,thatshouldbeprotectedfromscrutiny,aslongascertainsafeguardsareinplace.

SimilartotheStarkLaw’sIn-OfficeAncillaryServicesexception,theAnti-KickbackStatutecontainsaSafeHarborthatincludesancillaryservicesprovidedbya“grouppractice,”62whichexceptsfromremunerationgeneratedasaresultofgeneral investment interests inthephysician’sownpracticeorgrouppractice(providedcertainstandardsaremet).63 Amongthechiefrequirements,thepracticeorgroupmustbewholly-ownedbylicensedhealthcareprofessionalswhopracticeinthepracticeorgroup,andthepractice

58See42C.F.R.§411.351,etseq.59Seegenerally42U.S.C.§1395nn,etseq.6042U.S.C.§1320a–7b(b).61H.R.Rep.No.100-85,at27(1987).6242U.S.C.§1395nn(h)(4).6342C.F.R.§1001.952(p).

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must be a unified, centralized business as it relates to physician dispensing.64 As such, physiciandispensingispermittedundertheAnti-KickbackStatutesolongasitmeetsthisexception.

TheMedicare-SponsoredOncologyCareModelEncouragesPhysicianDispensing.Arecentlyannouncedinitiativeby theU.S.DepartmentofHealth andHumanServices (“HHS”)on cancer care forMedicarebeneficiarieslendsdirectFederalsupportforphysiciandispensing.Specifically,CMS’InnovationCenter’s(“CMMI”)announcedonJune29,2016thatithasselected200physiciangrouppracticesand17healthinsurancecompaniestoparticipateinacaredeliverymodelthatsupportsandencourageshigherqualityand more coordinated cancer care.65 As described in greater detail below, the Medicare-sponsoredOncology Care Model (“OCM”) focuses on physician-led care, and providing patients with timely,coordinated diagnostic and treatment services. Importantly, the Model explicitly contemplates thatparticipants intheprogramwill includenotonlypatientsreceivingphysician-administereddrugsbilledunderMedicarePartB,butalsooralchemotherapydrugsdispensedunderPartD,andarethusconsidered“physician dispensing.” As such, current Medicare programs operating under Federal law fullycontemplatephysiciansdispensingproductstotheirpatients.Medicare’sOCMprogramstandsindirectoppositiontoCVSCaremark'sexpulsionofdispensingphysiciansfromtheMedicarePartDnetwork.

Thus, it isclear fromboththeStarkLawandtheAnti-KickbackStatute,whichcontainexceptions thatdirectlytrackthemechanicsofthepractice,aswellasMedicare’sowninitiative,thatphysiciandispensinghasbeendirectlycontemplatedandfoundpermissibleunderFederalauthorities.

5.1.2 StateLawWidelyPermitsPhysicianDispensingPhysiciandispensing isalsowidelypermittedunderapplicableState law. ManyStateseitherexplicitlypermit physicians todispensemedications to their patients, or areotherwise silenton the topic, andtherefore,permissive,inregardstophysiciandispensingbyplacingnolimitationsonthepractice.

InthemanyStateswherephysiciandispensingisexpresslypermitted,aphysicianisgenerallypermittedtoprescribe,dispenseandchargeforprescriptionsdispensedtohisorherownpatients,solongasthephysicianobtainsspecificlicensurewiththeStatefordispensing.Forexample,inVirginia,physiciansareexplicitlyallowedtodispensemedicationprovidedtheyare“licensedbytheBoard[ofPharmacy]tosellcontrolledsubstances.”66Notably,manyoftheStatesthatrequirephysicianstobelicensedtodispensemedications,causethephysiciantobelicensedbytheBoardofPharmacy(asopposedtotheBoardofMedicalExaminers)todoso;thisisanimportantdistinction.

More specifically to oncology drugs, State law in some jurisdictions additionally considers physiciandispensingofoncologydrugstobeespeciallyappropriate,evenifitlimitsphysiciandispensinginothercontexts. For example,whileNewYork allowsonly a 72-hour supply of a drug tobedispensedby aphysicianandNew Jersey limits to a seven-day supply, bothof these Stateshaveexpressexceptions,which include “drugs dispensed pursuant to an oncological or AIDS protocol,” allowing for regulardispensingofthesedrugs,inrecognitionofthedistinctneedsofthesegroupsofpatients.67

64Seeid.Thissectionreferencesthein-officeancillaryservicesexceptiontotheStarkLaw,ascodifiedat42U.S.C.§1395nn(b)(2).65 HHS, HHS Announces Physician Groups Selected for an Initiative Promoting Better Cancer Care (Jun. 29, 2016),http://www.hhs.gov/about/news/2016/06/29/hhs-announces-physician-groups-selected-initiative-promoting-better-cancer-care.html.66Va.CodeAnn.§54.1-3304.1.NotethatVirginiaconsidersallprescriptiondrugs“controlledsubstances,”notjustthosethatareconsidered“controlledsubstances”bytheDEA.67SeeN.J.Stat.Ann.§45:9-22.11,etseq.;seealsoN.Y.Educ.Law§6807,etseq.

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Inall,thereare44States68thateitherexplicitlypermitphysiciandispensing(e.g.,throughBoardlicensing),or that otherwise allow for the practice as part of the general, plenary authority granted to licensedphysicians, and another two states that expressly allow it in the oncological context.69 Thus, Stateprohibitionsonphysiciandispensingisadistinctminority,andingeneral,physiciandispensingislegalinalmostalljurisdictions.

5.1.3 CMSRegulatoryFrameworkFavorsPhysicianDispensingFinally, theconceptofphysiciandispensing finds further supportdirectly in theMedicare regulations.Specifically,thelanguageoftheMedicareregulationsstatethat“[a]PartDsponsormustensurethatPartDenrolleeshaveadequateaccesstovaccinesandothercoveredPartDdrugsappropriatelydispensedandadministeredbyaphysicianinaphysician’soffice.”70ThisillustratesMedicare’sviewthatphysiciandispensingisapermittedpracticeontheFederallevel.

5.2 Physician-OwnedPharmaciesAreEquallyPermissibleandLegal

Physician-ownedpharmacies,definedasapharmacywholly-ownedby,andintegratedin,thephysicianpractice(asdistinguishablefromdispensingphysicianpractices)areequallypermissibleunderapplicablerules. Physician-owned pharmacies, to which physicians would refer Medicare patients to receiveoncolytic drugs, are permissible when structured to fit within both applicable Safe Harbors and/orExceptionstotheFederalAnti-KickbackStatuteandStarkLaw,andareoperatedinaccordancewithStatelaw.

5.2.1 FederalLawPermitsPhysicianstoOwnandOperateLicensedPharmaciesinAccordancewithCertainSafeHarborsandExceptions

Physician-ownedpharmaciesoperateacrossthecountry incompliancewithFederal lawbyfalling intoexpressly enumerated Safe Harbors and Exceptions to certain Federal rules, thatmight otherwise beimplicatedbasedonthepotentialforself-referral.ThetwoprimaryFederalstatutesimplicatedwhenaphysicianownsapharmacyandreferstoitaretheStarkLaw(42U.S.C.§1395nn)andtheAnti-KickbackStatute(42U.S.C.§1320a-7b).Bothlaws,aswellthemechanismsforhowphysician-ownedpharmaciesfallwithintherespectiveExceptionsandSafeHarbors,areaddressedbrieflybelow.

StarkLaw.Asoutlinedabovein5.1.1,foraphysiciantoreferapatientforDHStoanentitythatheorsheowns,thephysicianmustfitwithinanexceptiontoStarkLaw.Inthisregard,aphysiciancouldlegallyownandoperateapharmacypursuanttotheparametersofthe“In-OfficeAncillaryServicesException”totheStarkLaw.Asdiscussedabove(seesupra5.1.1),thisExceptionpermitsthefurnishingofcertainDHSthatare ancillary to the referring physician’s professional serviceswhere certain supervision, location andbillingrequirementsaresatisfied.71

Inthisinstance,theservicesareprovided“byanindividualwhoissupervisedbythereferringphysicianorbyanotherphysicianinthegrouppractice;”“inabuildinginwhichthereferringphysician(oranotherphysicianwhoisamemberofthesamegrouppractice)furnishesphysicians’servicesunrelatedtothefurnishingofdesignatedhealthservices;”and“billedbyanentitythatiswhollyownedbysuchphysicianor suchgrouppractice.”72 Because thepharmacyserviceswill typicallybe furnishedbynon-physician

68SeeMungeretal.,supranote8.69SeeN.J.Stat.Ann.§45:9-22.11,etseq.;seealsoN.Y.Educ.Law§6807,etseq.7042C.F.R.§423.124.7142U.S.C.§1395nn(b)(2).72Id.

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personnel, aphysicianneedonlyprovide“direct supervision”bybeingpresent in theoffice suiteandimmediately available to provide assistance and direction throughout the time services are beingfurnished.73ForpurposesofapplyingtheExceptiontoprescriptiondrugs,prescriptiondrugsaredeemedtobefurnishedwhenthedrugsaredispensedbythepharmacy.74Assuch,thisflexibilitymeansthataphysician-ownedpharmacyispermittedundertheStarkLaw.Thus,properlystructuredphysician-ownedpharmaciesacrossthecountrycomportwithFederallaw.

Anti-KickbackStatute.JustastheGroupPracticeSafeHarbor(discussedinSection5.1.1supra)appliestophysiciandispensing,italsoservicestoprotectphysician-ownedpharmacies.Theanalysisisessentiallyidenticaltothatforphysiciandispensing.

As such, Federal lawclearlyallowsphysician-ownedpharmacies,providedcertain conditionsaremet.FederallawwouldnotcontaintheseExceptionsandSafeHarborsifphysician-ownedpharmacieswerenotpermissible,andCongressandCMSwouldcertainlynothavegonethroughtherigorsofimplementingthese explicit Exceptions and Safe Harbors if these types of dispensers were not contemplated toparticipate in, and submit claims to, theMedicare PartD Program, and dispense outpatient drugs toMedicarebeneficiaries.Thus,thisfurtherhighlightsthelegitimacyofphysiciandispensingandphysicianownership of pharmacies under the framework of Federal healthcare programs. As a result, CVSCaremark’s recent expulsionof dispensingphysicians as out-of-networkproviders is inconsistentwithFederallaw.

5.2.2 StateLawJust as with the Federal rules, many States have statutory analogues that would permit physicianownershipofpharmacies.Theselawsacttoexpresslyallowphysicianstoownandoperateaseparatelylicensedpharmacy.Forexample,TexashasaPatientNon-Solicitationlaw,whichprohibitspaymentoracceptanceofpaymentforreferralstoorfromahealthcarepractitioner.75Whileaphysicianreferringtoapharmacyinwhichheorshehadanownershipinterestwouldimplicatethisstatute,thestatutepermitsanypracticepermittedbytheFederalSafeHarbors,76therebyallowingforphysician-ownedpharmaciesin the State. Likewise, Florida prohibits referrals by physicians to an entity in which they have anownershipinterestforhealthcareservices,butcontainsanexceptionsimilartotheStarkLaw’sIn-OfficeAncillaryServicesException,excludingsupervisedservicesprovidedtoaproviderorgroup’sownpatientsfromthedefinitionofreferral.77 Therefore,ifthephysician-ownedpharmacydispensedtotheowner-physician’s own patients, under the direct supervision of the physician, it would be permitted underFlorida law. Once again, these State laws serve as evidence of the permissibility of physician-ownedpharmaciesintheStatesthatallowit,andsupporttheconclusionthatthereisnolegitimatereasontodoawaywiththepracticewhereotherwisepermittedbylaw.

5.3 CVSCaremark’sInterpretationofCMSRegulationsIsWrongandUnsupported

TurningbacktotherecentactionsbyCVSCaremark(asoneexampleofbroaderPBMconduct), theseactions must be weighed against applicable Medicare rules and regulations. When analyzed in thiscontext,CVSCaremark’sinterpretationofCMSRegulationsissimplywrong.

73SeePhysicians’ReferralstoHealthCareEntitiesWithWhichTheyHaveFinancialRelationships,66Fed.Reg.856,881(Jan.4,2001).74Id.75Tex.Occ.CodeAnn.§102.001.76Tex.Occ.CodeAnn.§102.003.77Fla.Stat.§456.053.

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5.3.1 CVSCaremark’sInterpretationisContrarytotheHistoryofPhysicianDispensingUndertheMedicareFrameworkandCMSRegulations

TheMedicareprogramdatesbacktothepassageofTitleXVIIIoftheSocialSecurityActin1965,whichprovidedhealthinsurancetopeopleage65andolder,regardlessofincomeormedicalhistory.Atthetime,MedicarewasdividedintotwoParts:PartA(hospitalinsurance)andPartB(supplementarymedicalinsurance). While at the outset, outpatient prescription drug coverage was not included within theMedicare program, Medicare did always cover those prescription drugs that were dispensed in thephysician’s office and not self-administered by the patient, in an effort to keep physicians fromhospitalizingapatientjustforaneededdrug.78Thereafter,inthe1990s,Congressauthorizedcoveragefor orally-administered, outpatient drugs for cancer treatments.79 By 2001, Medicare coveredapproximately454physician-dispensedprescriptiondrugsunderthePartBsegment.80Thus,Medicarehasalonghistoryofpermittingphysiciandispensing.

It was not until November 2003, and the passage of theMedicareModernization Act of 2003, thatCongresscreatedtheMedicarePartDprogram.MedicarePartD,alsocalledtheMedicareprescriptiondrugbenefit, became the Federal governmentprogramaimedat subsidizing the costsof prescriptiondrugs and prescription drug insurance premiums for Medicare beneficiaries, providing third partycoverage foroutpatientdrugspurchasedbybeneficiariesatavarietyofpractice sites, including retailpharmacies,mailorderpharmaciesandfromotherproviders.

Nowhere in theMedicareModernization Act of 2003 did Congress specifically differentiate betweenpharmaciesandphysicians,orotherwiseexcludephysiciansfromparticipating indispensingnetworks.Nothingwas interpretedorcreatedatthistimetodetractfromthe longstandingpracticeofphysiciandispensingorphysicianownershipofpharmacies,ortosuggestthattheseproviderswouldnotbeabletoparticipateequallyinMedicarePartDplannetworks.

AlthoughMedicarePartDwascreatedin2003,theprogramdidnotgointoeffectuntilJanuary1,2006.During that time, CMS undertook to begin writing rules and regulations to put theMedicare Part Dprogram into place. It was during this process that CMS introduced the specific regulation that it isbelieved CVS Caremark now relies upon. Specifically, 42 C.F.R. § 423.124, the regulation addressing“specialrulesforout-of-networkaccesstocoveredPartDdrugsatout-of-networkpharmacies,”becameeffectiveMarch22,2005.Theruleprovided,interalia,that“[a]PartDsponsormustensurethatPartDenrolleeshaveadequateaccesstovaccinesandothercoveredPartDdrugsappropriatelydispensedandadministeredbyaphysicianinaphysician'soffice.”81Becausethislanguageappearsintheruleaddressing“out-of-networkaccess”tocoveredPartDdrugs,CVSCaremarkhasostensiblytakenthepositionthatitshouldrenderdispensingphysiciansas“out-of-network”providersbydefault,andblockanypaymentstothemorparticipationbytheminPartDnetworks.

However,assetforthintherules’history,asevidencedbytheFederalRegistercommentandresponsesection,CMSclarifiedthatPartDplanswouldberequiredtoestablishreasonablerulestoensure“access”to drugs dispensed out of physician offices.82 The discussion in the Federal Register acknowledged78 See generallyThomas R.Oliver, Philip R. Lee, andHelene L. Lipton,A Political History ofMedicare and PrescriptionDrugCoverage, 82 Milbank Q. 283 (2004), available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2690175/pdf/milq0082-0283.pdf.79SeeMedicarePaymentAdvisoryCommission[“MedPac”],ReporttotheCongress:VariationandInnovationinMedicare,at149–70(Jun.2003),availableathttp://www.medpac.gov/documents/reports/June03_Entire_Report.pdf?sfvrsn=0.80U.S.GovernmentAccountabilityOffice[“GAO”],MedicareOutpatientDrugs:ProgramPaymentsShouldBetterReflectMarketPrices,at4(Mar.14,2002),availableathttp://www.gao.gov/assets/110/109174.pdf.8142C.F.R.§423.124(a)(2).82MedicarePrescriptionDrugBenefit,70Fed.Reg.4194-01,4268(CMSJan.28,2005)(finalrule).

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physician dispensing and administration of Part D drugs as a necessary practice, and called for aframeworktoensureaccess.83Thus,CVSCaremark’srecent“re-interpretation”ofthisregulation(whichhasbeenon thebooks foroveradecade)belies the legislativeand regulatoryhistoryofnotonly theMedicareprogramasawhole,butalsotheregulatoryhistoryoftheveryregulationtheyseektointerpret.Rather,itonceagainbecomesclearthatCVSCaremark’sregulatoryinterpretationtoexcludedispensingphysiciansismotivatedbyprofits,ratherthanatrueeffortatcompliance.

5.3.2 CustomandPracticeAmongCVSCaremarkandOtherPBMsFavorsPhysicianDispensing

Dispensingphysiciansbeing“in-network”becomesevenclearerwhenconsideredagainstthebackdropofCVSCaremark’s(andotherPBMsandPartDPlanSponsors’)customandpracticeofallowingdispensingphysicians to participate as in-network providers for a variety of Part D networks. Specifically, CVSCaremark’s exclusion of physician dispensing and possibly physician-owned pharmacies from the CVSCaremarkretailnetworkisastrikingdeviationnotonlyfromCVSCaremark’sownpractices,butiscontrarytoanyotherPBMinterpretationofCMSregulationandguidance.

Foroveradecade(sincetheMedicarePartDProgramtookeffectin2006),CVSCaremarkhascontinuallyallowedphysicianpracticestoparticipateasin-networkproviders,andtosubmitclaimsunderMedicarePartD for reimbursement. Upuntil itsmost recent re-interpretation,CVSCaremarkhas credentialeddispensing physicians and physician-owned pharmacies, and has treated them – for all intents andpurposes – as in-network “retail pharmacies.” While CVSCaremarkmight haveheld them to certainstandardsmoreapplicabletopharmaciesforauditingpurposes(i.e.,record-keepingrequirements),CVSCaremarkhadheretoforenottakenissuewiththeirgeneralstatusasphysiciansratherthanpharmacies,andconsistentlyallowedthemtoparticipateinMedicarePartDnetworks.

ThistreatmentisconsistentwiththeactionsofotherPBMsandPartDPlanSponsors.Specifically,PBMsroutinelycreateavenuesfordispensingphysiciansandphysician-ownedpharmaciestoparticipateasin-network providers. For example, certain PBMs will create options in their credentialing forms for“dispensingphysicians”asabusinesstypetocredentialwiththePBM,defining“dispensingphysician”generally as a prescriber whose State license permits dispensing take-home medication from thephysician’soffice.84Furthermore,inothernetworkupdatesandMedicarePartDAddenda,PBMshavestatedthata“dispensary”meansaclinicwhereprescriptionsaredispensedbyaprescribingphysicianorotherpractitioner.

Likewise,whileotherPBMsmay includecertaindifferentiationsbetween“GeneralRetailPharmacies”(i.e., “traditionalpharmacy servicesprovidedbya licensed,non-wholesalepharmacy thatmaintainsareasonablestockofcommonlydispensedmedicationsinanticipationofwalk-incustomers,isopentothegeneral public, and where patients can obtain medication while they wait”), and “Limited RetailPharmacies”(i.e.,“traditionalpharmacyservicesprovidedbya licensed,non-wholesalepharmacythatmaintainsareasonablestockofcommonlydispensedmedicationsinanticipationofwalk-incustomers,isonlyopentoalimitedpopulationsuchasemployeesorpatientsofcertaindoctors,andwherepatientsobtain medication while they wait”), they will still generally contract with dispensing physicians orphysician-ownedpharmacies,evenintheMedicarePartDcontext.Thus,thesePBMsclearlyrecognizethelegitimateparticipationofadispensingphysicianasanin-networkprovider.

83Id.at4328.84Due toconfidentiality requirementswithin thevariousPBMcontracts,directquotation fromandreference to thespecificcontractualdocumentscannotalwaysbemade.

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Morestrikingly,noneoftheotherPBMshavemadeasimilarreinterpretationofCMSregulationsintheway CVS Caremark has. Rather, this change in interpretation ismade completely unilaterally by CVSCaremark,and isnotbasedonanychangestotheCMSregulationsrelatingtophysiciandispensingorphysician-owned pharmacies. A review of all major PBMs’ ProviderManuals and survey of physiciandispensing and physician-owned pharmacies found no similar action by Express Scripts, OptumRx, orPrimeTherapeutics–thenation’sotherlargestPBMs.Critically,CVSCaremark’schangedpoliciesarenotbasedonanyactualchangesinrulesorpolicymadebyCMS.CVSCaremarkhasnotsoughtapprovalfromCMS or other Federal regulatory body for its unilateral decision to change its networks to excludephysiciandispensing,whichotherwisebenefitsthecareandtreatmentofMedicarebeneficiaries.

5.3.3 CVSCaremark’sRecentActionsAreBlockedbytheFederalAnyWillingProviderLaw

Federallaw–enactedtoprotectproviders’accesstoandparticipationin–governmentprograms,actsasafeguardagainstlargePBMs(likeCVSCaremark)wieldingunbridledpowerandexcludingentireclassesofproviders.TheSocialSecurityActestablishedtheMedicareprogram,anddictatesboththescopeofbenefits and coverage, as well as provisions for provider enrollment and payment.85 These FederalstatutesgoverningtheMedicareprogramcontrolwhatpowersaregrantedtoCMSintheadministrationoftheMedicareprogram,andsupersedeanyregulationenactedbyCMSthatrunscountertothelanguageofthestatute. Importantly,theFederalstatutescodifyingtheMedicareprogramincludeexplicit“AnyWillingProvider”laws,whichrelatedirectlytonetworkaccessforMedicareproviders,suchasdispensingphysicians and physician-owned pharmacies. These statutes apply to all Part D Sponsors, as Part DSponsorsareunderthepurviewofCMS,pursuanttocontractsbetweenthePartDPlanSponsorsandCMS.PartDSponsors,suchasCVSCaremark,arenotpermittedtodothatwhichCMScannotdo.PartDSponsorsaregovernedbyCMS,andtheregulationspromulgatedbyCMSaresubordinatetotheenablingMedicarestatutes,includingtheMedicareAnyWillingProviderLaw(42U.S.C.§1395w-104).

TheMedicareAnyWillingProviderLawexplicitlyrequiresthatallPartDprescriptiondrugplanspermit“theparticipationofanypharmacythatmeetsthetermsandconditionsundertheplan.”86 Whilethissectionreferencestheparticipationof“anypharmacy,”theMedicarestatutesandregulationstakenasawhole(asfurtherdescribedbelow),canbedirectlyinterpretedtoclearlyextendthisrequirementnotonlytophysician-ownedpharmacies,butalsotodispensingphysicianswherepermittedbyStatelaw.

ThisMedicareAnyWillingProvider(“AWP”)requirementappliesdirectlytoCVSCaremark.WhenaPartDPlanSponsor,suchasCVSHealth,entersintoacontractwithCMSasadown-tierprovidertoprovidedrugcoveragetoMedicarebeneficiaries,thePartDPlanSponsor(andultimatelyCVSCaremarkasthedown-tier PBM) must “agree to have a standard contract with reasonable and relevant terms andconditions of participation whereby any willing pharmacy may access the standard contract andparticipateasanetworkpharmacy.”87Thus,CVSCaremarkisexpresslygovernedbyFederalLawandisrequiredtomaintainacontractwithCMScontainingtheAWPterms.

CMStakestheMedicareAWPrequirementsveryseriously.Asatestamenttoitsresolve,CMShasrecentlyissuedAetnaa$1millioncivilmonetarypenalty,andrequiredittosubmitacorrectiveactionplanduetoa determination that “Aetna’s contracting process for CY 2015 did not comply with Part D program

85Seegenerally42U.S.C.§1395,etseq.8642U.S.C.§1395w-104(b)(1)(A).8742C.F.R.§423.505.

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requirementsbecauseAetnadidnotpermittheparticipationofanypharmacythatmetthetermsandconditionsundertheplan,asrequiredbysection1860D-4(b)(1)(A).”88Specifically,CMSstatesthat:

tocomplywiththeAWP[anywillingprovider]requirement,aPartDplansponsormustmakestandardtermsandconditionsavailableforallPartDplansitoffers.Forthosetermstobereasonableandrelevant,theymustidentifyforthepharmacytheplan(s)towhichthey apply, and the offermust include language that obligates the Part D sponsor toinclude thepharmacy in the identifiedplan(s)upon thepharmacy’sacceptanceof thetermsandconditions.89

Therefore,CMSclearlyrequiresthatPartDSponsorscomplywiththeMedicareAWPrequirements,andCVS Caremark’s refusal to contract with any provider that is willing to comply with their terms andconditionsisaviolationoftheseFederalstatutes.

Asnotedabove,theseFederalstatutoryAWPrequirementsapplydirectlytophysician-ownedpharmaciesandphysician-dispensers.WhiletheMedicareAnyWillingProviderLawutilizestheterm“pharmacy”insettingforththeAWPrequirements,theterm“pharmacy”isnotdefinedintherelatedstatutorysectionsandregulations.Intheabsenceofadirectandspecificdefinition,90rulesofstatutoryinterpretationwoulddefaulttothecommonlyunderstooddefinitionofapharmacy,whichhistoricallyhasbeendeterminedattheStatelevel.

Inthisvein,numerousStatesdefinea“pharmacy”orthe“practiceofpharmacy”insuchawaythatwouldextend to physician dispensing, and certainly to physician-owned pharmacies. For example, NorthCarolinadefines“pharmacy”as“anyplacewhereprescriptiondrugsaredispensedorcompounded.”91Delaware defines “pharmacy” in a similar manner – “a place where drugs are compounded ordispensed.”92Likewise,avarietyofStatesspecificallyrequiredispensingphysicianstobedirectlylicensedorpermittedbytheStateBoardofPharmacy,including,amongothers,Virginia,93NorthCarolina,94andFlorida.95 Based on the fact that dispensing physicians often fall within the State law definition of“pharmacy”andattimesareevendirectlylicensedbytheStateBoardsofPharmacy,dispensingphysiciansmaybevalidlyconsidered“pharmacies”underthe“anywillingprovider”requirementsofMedicarePartD,therebyrequiringPartDPlanSponsorstocontractwiththemasin-networkproviders.Thisisinlinewiththelegislativeintentofthisstatute.

Further,withrespecttophysician-ownedpharmacies,theseentitiesarespecificallylicensedpharmacies,inspectedandregulatedbytheirrespectiveStateBoardsofPharmacy.Theyholdpharmacylicensesno

88 CMS, Letter to Aetna from Acting Director of Medicare Drug Benefit and C & D Data Group Amy K. Larrick RequestingImplementationofCorrectiveActionPlan(Jan.28,2015)[“2015CMS-AetnaLetter”],availableathttp://www.ncpa.co/pdf/aetna-awp-cap-jan-2015.pdf.89CMS,LettertoMedicarePartDPlanSponsorsRegardingCompliancewithAnyWillingPharmacy(AWP)Requirements(Aug.13,2015),availableathttp://www.amcp.org/WorkArea/DownloadAsset.aspx?id=20065.90InotherpartsoftheCMSregulations,however,“retailpharmacy”isdefinedas“anylicensedpharmacythatisnotamailorderpharmacyfromwhichPartDenrolleescouldpurchaseacoveredPartDdrugwithoutbeingrequiredtoreceivemedicalservicesfromaproviderorinstitutionaffiliatedwiththatpharmacy.”42C.F.R.§423.100.Evenifitwerearguedthatphysiciandispensersdidnotfallunderthecategoryof“retailpharmacies,”accesstonon-retailpharmaciesisincludedintheMedicareAWPprovisionsintheregulationsforPartDplansponsors,andPartDplansponsorsarepermittedtosupplementtheircontractedpharmacynetworkwithnon-retailpharmacies(i.e.,mailorderpharmacies,homeinfusionpharmacies,long-termcarepharmacies,specialtypharmacies,etc.).91N.C.Gen.Stat.§90-85.3.92Del.CodeAnn.tit.24,§2502.93Va.CodeAnn.§54.1-3304.1.94N.C.Gen.Stat.§90-85.21.95Fla.Stat.§465.0276.

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differentthananyotherretailpharmacy.Assuch,theyarewithoutquestionpulledwithinthepurviewoftheMedicareAnyWillingProviderLaw.

Together,thesefactseviscerateCVSCaremark’sinterpretation.Theexplicitnatureandintentofthesestatutory directives not only supersede the regulations cited by CVS Caremark, but create clear andbindingdirectivesonthePBMtoallowtheseprovidersintoPartDnetworks.

Moreover,CVSCaremarkcannotcircumventitsstatutoryMedicareAWPobligationsbycreatingundulyburdensometermsandconditionsforparticipation–somethingitisostensiblyseekingtodobyimposinganunnecessarilynarrowdefinitionof“retailpharmacy”inanefforttoexcludedispensingphysiciansandphysician-owned pharmacies. In this regard, the regulations implementing the Medicare AnyWillingProviderLawgoontostatethatPartDPlanSponsors“mustcontractwithanypharmacythatmeetsthePart D Sponsor’s standard terms and conditions,”96 and do not specify that this is limited to “retail”pharmacies. CMS has recently interpreted these provisions to require that terms and conditions bereasonable,andhasadmonishedPartDSponsorswhentheyhaveestablishedtermsandconditionsthatareundulyburdensomeoronerous, and serve as artificial barriers of entry to limit network access.97Again,here,CVSCaremark’sstatementsthataproviderinthePBM’sretailpharmacynetworksmustcarryafullarrayofmedicationsanddrugtherapiesforpatients,andmustnotbea“closeddoor”facility,onlytreating patients under their care, are both designed as arbitrary requirements to deny access todispensing physicians and physician-owned pharmacies that otherwise comport with an applicableFederalSafeHarbor.TheserequirementsarenotcomparabletothetermssetforthbyotherPBMsintheindustry, and prove once again, that CVS Caremark’s current actions are motivated by profits, notcompliance.

5.3.4 ByDenyingNetworkAccesstoPhysicians,CVSCaremark’sActionsViolateMedicarePatientChoiceLaws

InadditiontoviolatingtheFederalstatutoryrequirementthatwillingandableprovidersbeadmittedintoMedicarePartDnetworks,CVSCaremark’sactionsinblockingnetworkaccesstodispensingphysiciansandphysician-ownedpharmaciesrunafouloftheMedicareFreedomofChoiceLaws. Specifically, theFederalMedicarestatute,42U.S.C.§1395a,entitled“FreeChoiceByPatientGuaranteed,”statesthat“[a]ny individualentitled to insurancebenefitsunder [Medicare]mayobtainhealth services fromanyinstitution, agency, or person qualified to participate under [Medicare] if such institution, agency, orpersonundertakestoprovidehimsuchservices.”98ThislawisdesignedtobeconsistentwiththehistoricalframeworkoftheoverallMedicareprogram,andtoensureaccessbypatientstotheprovideroftheirchoice.WhiletheAnyWillingProviderLawarguablyinurestothebenefitoftheprovider,theFreedomofChoiceLawinurestothebenefitofthepatient.

In this context, the law is written to apply equally to all providers, so long as they are qualified toparticipateintheMedicareprogram.Inthiscase,eachofthedispensingphysicianshaveandmaintainvalidMedicareprovidernumbers,andarecredentialedwithMedicare.Hence,theyareclearlyqualifiedtoparticipateunderMedicare,astheysubmitclaimsformedicalservicesonthePartBside.

As such,Medicarebeneficiaries arepermitted to seek care fromanyentityparticipating inMedicare,including dispensing physicians. Denying a patient the right to see a provider of his or her choosingviolatestheMedicareFreedomofChoiceLaw,andwhencoupledwiththeMedicareAnyWillingProviderLaw(discussedabove),stronglyweighsinfavorofdispensingphysiciansbeing“in-network”forMedicare

9642C.F.R.§423.120(a)(8)(i).97Seegenerally2015CMS-AetnaLetter,supranote88.9842U.S.C.§1395a(emphasisadded).

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patients.Again,thisrequirementfindsauthorityinaFederalstatute(42U.S.C.§1395a),governingCMSandtheMedicareprogramasawhole.Asaresult,totheextentCMS’sactionsarecurtailedbystatute,sotooarethevariousMedicarePartsandPlanSponsors,andsotooisCVSCaremarkasadownstream-entity(notwithstandingaregulationitseekstointerprettothecontrary).

5.3.5 CVSCaremark’sActionsAlsoImplicateAnyWillingProviderLawsandPatientFreedomofChoiceLawsUnderVariousStates’LawsandMedicaidRegulations

ThestatutesgoverningtheMedicareprogramarenottheonlystatutorybasesforanywillingproviderandpatientfreedomofchoicelaws.Anywillingproviderandfreedomofpatientchoiceprinciplesarealsofoundinavarietyofothersources,includingtheFederalMedicaidstatutes,individualStateMedicaidregulations,andapplicableStateinsurancecodes.

WithrespecttotheMedicaidprogram,Federallawestablishingtheprogramalsoguaranteesbeneficiariesfreechoiceofproviders,withtheportionoftheSocialSecurityActwhichaddressesstateplansformedicalassistancestatingthat“anyindividualeligibleformedicalassistance(includingdrugs)mayobtainsuchassistancefromanyinstitution,agency,communitypharmacy,orperson,qualifiedtoperformtheserviceor services required (including an organization which provides such services, or arranges for theiravailability,onaprepaymentbasis),whoundertakestoprovidehimsuchservices...”99

InadditiontothisFederalmandate,manyStateshaveenactedtheirownMedicaidanywillingproviderrequirements. For example, Pennsylvania’sMedicaid statutes provide that anymanaged care entityunder contract with the Department of Public Welfare “must contract on an equal basis with anypharmacyqualifiedtoparticipate intheMedicalAssistanceProgramthat iswillingtocomplywiththemanagedcareentity’spharmacypaymentratesandtermsandtoadheretoqualitystandardsestablishedbythemanagedcareentity.”100Thesetermsfocussolelyonwillingnesstoacceptpaymenttermsandtocomplywithqualitystandards.InadditiontotheFederalrequirement,lawsandregulationsliketheseserve tocurtailCVSCaremark’sactionas it relates to thevariousStateMedicaidManagedCarePlansadministeredbythePBM.Simplyput,CVSCaremarkcannotexcludedispensingphysiciansorphysician-ownedpharmaciesfromtheseMedicaidnetworks.

Finally,amajorityofStatesadditionallyhavetheirownpatientfreedomofchoiceandanywillingproviderlawsthatapplytoallinsurancepoliciesissuedintheparticularState,orinuretothebenefitofallpatientsresidingintheState.Forexample,theNorthCarolinaInsuranceCodecontainsbothanywillingproviderandfreedomofchoicerequirements,statinginrelevantpartthatahealthbenefitplanshallnot:

(1) Prohibit or limit a resident of this State, who is eligible for reimbursement forpharmacyservicesasaparticipantorbeneficiaryofahealthbenefitplan,fromselectingapharmacyofhisorherchoicewhenthepharmacyhasagreedtoparticipateinthehealthbenefitplanaccordingtothetermsofferedbytheinsurer;

(2)Denyapharmacytheopportunitytoparticipateasacontractproviderunderahealthbenefitplanifthepharmacyagreestoprovidepharmacyservicesthatmeetthetermsand requirements, including terms of reimbursement, of the insurer under a healthbenefitplan,providedthat ifthepharmacyisofferedtheopportunitytoparticipate, itmustparticipateornoprovisionsof[thisstatute]shallapply...101

9942U.S.C.§1396a.10062Pa.Cons.Stat.§449.101N.C.Gen.Stat.§58-51-37.

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Likewise,theDelawareInsuranceCodeincludesthe“PharmacyAccessAct,”whichprovidesthat“[a]nypersonintheStatemayselectthepharmacyoftheperson’schoiceaslongasthepharmacyhasagreedto participate in the plan according to the terms offered by the insurer,” and “[a]ny pharmacy orpharmacisthastherighttoparticipateasacontractproviderunderaplanorpolicyifthepharmacyorpharmacistagreestoacceptthetermsandreimbursementsetforthbytheinsurer.”102TheseStatelawsareprimeexamplesoftherobustrequirementsthatapplytoallcommercialinsuranceplansineachState.

TheclearimplicationfromthemyriadStateanywillingproviderlawsisthatinmostjurisdictions,andonanationalbasisforMedicaid,insurersarerequiredtoacceptintotheirpharmacynetworksanypharmacyproviders who are willing to accept their standard terms and conditions. While thisWhite Paper ispredominantly focusedon the implications of CVS Caremark’s actions on theMedicare program, it isimportanttonotethatCVSCaremarkhasextendedtheapplicationofitspoliciestobarnetworkaccesstodispensingphysiciansandphysician-ownedpharmaciesinconnectionwithallplans,includingMedicaidand the commercial payors for which it provides pharmacy benefit management services. This isproblematicformanyreasons,mostnotablyasCVSCaremark’sactionsareinclearcontraventionoftheStatelawsrequiringthataninsureracceptintotheirnetworkallpharmacyproviderswillingtomeettheirstandardtermsandconditions. CVSCaremark istherefore improperlyexcludingdispensingphysiciansand physician-owned pharmacies not just fromMedicare, but from all networks, public and private,commercialandgovernment,inviolationofthelawsofmultiplejurisdictions.

5.3.6 Medicare’sPatientAccessConsiderationsandGeographicLimitationsCVSCaremark’s recent action is also at oddswithoneof the consistent andoverarching goals of theMedicareprogram,whichistoensureadequateaccesstocarebyMedicarebeneficiaries.CongressandHHShaverepeatedlyexpresseddeepconcernwithenrollees’reasonable,adequate,and/orconvenientaccesstoparticipatingPartDproviders.Tothisend,CongresshasprovidedstatutorydirectionthatPartD Plan Sponsors are required to “secure the participation in its network of a sufficient number ofpharmaciesthatdispense(otherthanbymailorder)drugsdirectlytopatientstoensureconvenientaccess(consistentwith rulesestablishedby theSecretary).”103 These rulesgovern convenientor reasonableaccess to covered Part D drugs, including ensuring access to dispensing physicians. One such ruleestablished for physician dispensing in particular is contained in 42 C.F.R. § 423.124, et seq., whichprovides the following: “APartD sponsormust ensure thatPartDenrolleeshaveadequateaccess tovaccinesandothercoveredPartDdrugsappropriatelydispensedandadministeredbyaphysicianinaphysician’soffice...[anda]PartDsponsormustestablishreasonablerulestoappropriatelylimitout-of-networkaccesstocoveredPartDdrugs.”104 Takingallof theserequirementstogether, it isclear thatenrolleesmusthaveaccesstoPartDdrugs“appropriatelydispensedandadministeredbyaphysicianinaphysician’soffice.”Assuch,CVSCaremark’srecentactiondiminishesmandatorypatientaccess.

Commentary to these rules focuses on the question of what CMS would consider “appropriatelydispensed.”WhileCMShassuggestedthat“theapplicationofthisrequirementwillbelimitedtovaccinesandahandfulofdrugs(forexample,someinjectablelong-actingantipsychotics)thatareappropriatelydispensedandadministeredinaphysician’sofficeandarenotcoveredunderPartB,andthatplansmayestablish utilization management policies and procedures to ensure that out-of-network coverage is

102Del.CodeAnn.tit.18,§7303.Althoughthisisnotanexhaustivelist,otherexamplesofStateAWPLsinclude:Ala.Code§27-45-3,Colo.Rev.Stat.§25.5-5-504,215Ill.Comp.Stat.134/72,Ind.Code§27-8-11-3,N.H.Rev.Stat.Ann.§420-B:12,N.J.Stat.Ann.§26:2J-4.7,N.D.Cent.Code§26.1-36-12.2,S.C.CodeAnn.§38-71-147,S.D.CodifiedLaws§58-18-37,Tenn.CodeAnn.§56-7-2359,Tex.Ins.CodeAnn.§21.52B,Va.CodeAnn.§38.2-3407,Wis.Stat.§628.36.10342U.S.C.§1395w-104(b)(1)(C)(i).10442C.F.R.§§423.124(a)(2)and(c)(emphasesadded).

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limitedtosuchcoveredPartDdrugs,”105thiscertainlyisnotall-inclusive.Forexample,intheoncologymarket, physician-dispensed oral oncolytics (along with ESRD drugs, and other highly customizedtherapies) can be differentiated from themajority of drugs that are covered under Part D – say, forexample,drugsdispensedinareassuchasdermatologyorintheworkers’compensationcontext–wherethereisaclearprofitmotiveforthephysiciandispenser.Baseduponimprovedpatientoutcomesandmedicationtherapymanagementfororaloncolytics(asdiscussedingreaterdetail inSection6below),oraloncolyticsproperlyshouldbeincludedinthedrugsthatareappropriatelydispensedinaphysician’soffice.106

It is conceivable that CVS Caremark could seek to respond to these statutory “reasonable access”requirements, taking the position that CVS Caremark need only provide reasonable “out-of-networkaccess”tothedrugsdispensedbythephysicians,andthatitisjustifiedintreatingthemasout-of-networkproviders. However, in light of the nature and circumstances surroundingmany physician-dispensedmedications,includingspecificallyoncologymedications,thispositionwillaccomplishnothingmorethaneffectively denying allMedicare Part D beneficiaries any semblance of reasonable network access tophysician-dispensed medication, out-of-network or otherwise. Under the regulatory framework, ascontemplatedwhentheregulation(42C.F.R.§423.124)wasenacted,“[e]nrolleeswillberequiredtoself-paythephysicianforthecostofthevaccine(orothercoveredPartDdrugappropriatelydispensedandadministeredinaphysician’soffice)andsubmitapaperclaimforreimbursementbytheirPartDplan.”107Thiswouldbecomeasubstantialandinsurmountablehurdleforphysiciandispensing,asitwouldrequirethepatienttopayupfrontforthedrugs,which,inthecaseoforaloncolytics,areextremelyexpensive,intherangeof$10,000permonthfortheneworalmedications.108EvenifthePBMaffordedreasonableout-of-network coverage, Medicare beneficiaries would be effectively foreclosed from ever actuallyobtaining medications from dispensing physicians, given the enormously rising costs of medications(especially oncology medication). The effect of this requirement would essentially block physiciandispensingoforaloncolyticsofallkinds,despitetheadvantagestopatientsandtherecognitionbyCMSthatphysiciandispensingofPartDdrugscanbeappropriateinsomecircumstances.Mostimportantly,thispracticalrealitywouldresultinaviolationofMedicare’sreasonableaccessrequirements,whichataminimum,requirereasonableaccesstophysiciandispensedmedicationseven ifonanout-of-networkbasis.Byforcingdispensingphysiciansout-of-networkaltogether,CVSCaremarkeliminatesanyaccessby itsMedicarePartDbeneficiaries tophysician-dispensedmedication. Therefore, theonlyoptiontoensurecompliancewithMedicare’sreasonableaccessrequirementsistocontinuewiththelongstandingpracticebyMedicarePartDSponsors(includingCVSHealth)andallowdispensingphysicianstoremainin-network.

5.3.7 CVSCaremark’sRecentRegulatoryInterpretationIsInconsistentwithRecentandOngoingHHSInitiativesWhichSupportPhysicianDispensingforMedicarePatients

AsnotedinSection5.1.1above,aspartoftheCMSInnovationCenter’sdevelopmentofnewpaymentanddeliverymodelsdesignedtoimprovetheeffectivenessandefficiencyofspecialtycare,CMScreatedmultiplespecialtymodels,includingtheOncologyCareModel(OCM).TheOCM’schiefaimsaretoprovidehigherquality,morehighlycoordinatedoncologycareatthesameorlowercosttotheMedicareprogram,

105MedicarePrescriptionDrugBenefit,70Fed.Reg.4194-01,4268(CMSJan.28,2005)(finalrule).106Seeid.at4233(supportingtheconclusionthatCMSrecognizesthatoraloncolyticsareadifferentclassofdrugsthanmanyotherPartDdrugs,and that inmany instances, themostappropriateuseof thesedrugs is throughdispensingdirectlybyaphysician).107Id.at4268.108Egerton,supranote11.

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andwillincludegovernmentandcommercialpayorsinthemodel.TheMedicarearmoftheOCMincludesmorethan3,200oncologistsandwillcoverapproximately155,000Medicarebeneficiariesnationwide.TheOncologyCareModel beganon July 1, 2016 andwill run through June30, 2021, and focusesonMedicare fee-for-service beneficiaries receiving chemotherapy treatment. The OCM focuses onphysician-led care, andprovidingpatientswith timely, coordinateddiagnosticand treatment services,focused on patient needs. OCM participants are Medicare-enrolled physician groups that furnishchemotherapy treatment, which includes chemotherapy drugs dispensed under Part D (and are thusconsidered“physiciandispensing”)aswellasPartB.DispensingphysiciansareparticipatingintheOCM.This recentMedicare initiative is justoneofmany recentexamplesdemonstrating thatnotonlydoesMedicarepermitphysiciandispensing,butintheoncologycontext,thepracticeisfavoredaspromotingpatientcare.ThisfurtherrunscountertoCVSCaremark’srecentandunsupportedinterpretationoftheintendedMedicareframework.

5.3.8 PBMProfitMotivesandFederalHealthcareLawsCVSCaremark’s improperexclusionofdispensingphysiciansfromMedicarePartDnetworksfloutsthespirit and intent of the Medicare program and violates the PBM’s obligations as a sponsor andadministrator under the Part D program. All PBM actions (including CVS Caremark’s) must also beconsideredagainstthebackdropofFederalhealthcarelaws.Anytimepatientdirectingorsteeringoccursbasedonfinancialconsiderationsorprofitmotives,potentialimplicationsundertheFederalAnti-KickbackStatutemustbeconsidered.

PBMs,asagentsofMedicare,wieldtremendousinfluenceoverpatientaccesstodrugsaswellasarrangingtheprovidersfromwhompatientsmayreceiveservice.WhenPBMscreaterestrictive“networkaccess”rules, there is potential limitation on patient choice of provider and a concomitant decrease incompetition. If aPBM is able toeliminateanentire classof trade from itsnetworks (say, dispensingphysicians), and exploits this policy change to drive patients to the PBM’s wholly-owned retail andspecialtypharmacies,patientswillbedeniedtheabilitytoreceivetheirmedicationatthepointofcare.Restrictednetworksareharmfultopatientswhorequirespecialtymedications,includingthevulnerableelderly and disabledwho are a part ofMedicare Part D PDPs, as they limit the patient’s access anddecreasethelikelihoodthatthepatientwillactuallyfilltheprescriptionandreceivetheirmedication.

Moreglaringly, ifthePBM(astheagentforthePartDPlanSponsor)caneliminatenetworkaccessforphysicianprovidersandredirectspecialtypatientstoitsownspecialtypharmacy(inwhichthePBMholdsafinancialinterest),thenthePBMwilldirectlyprofitfromtherestrictednetworkandtheredirectionofpatients.Additionally,totheextentthatthePBMthentakesfurtherstepstodirectpatientstoitswholly-owned pharmacies after narrowing network access (namely, notifying beneficiaries that they can nolongerusetheirexistingproviderbutcanutilizeoneofPBM’sretail,specialtyormailorderpharmacies)109,saidPBM’sactionscoulddirectlyimplicatetheFederalAnti-KickbackStatute.

The FederalAnti-Kickback Statutemakes it unlawful and a criminal offense to knowingly andwillfullysolicitorreceiveanyremuneration(includinganykickback,bribe,orrebate)directlyorindirectly,overtlyorcovertly,incashorinkind,inreturnforreferringanindividualtoapersonforthefurnishingorarrangingfor thefurnishingofany itemorservice forwhichpaymentmaybemade inwholeor inpartunderaFederalhealthcareprogram.110TheAnti-KickbackStatuteclearlyappliestotheMedicareclaimsmanagedandadjudicatedbyPBMs,includingCVSCaremark,asFederalhealthcarepaymentsareinvolved.

109See,e.g.,BarbaraMartinezandDavidArmstrong,CVSAppearstoSteerPlanPatientstoItsStores,WallSt.J.(asupdatedMay13,2009,12:01AM),http://www.wsj.com/articles/SB124218519933814001.11042U.S.C.§1320a-7b(b)(1)(A).

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TotheextentaPBM(whoownsitsownretail,specialtyandmailorderpharmacies)steersbusinessawayfromdispensingphysicians,thenatural,probableandforeseeableresultisthatsaidPBMwillcapturethatbusiness that is now “up for grabs.” In this scenario, the PBM’s network exclusion of theMedicarepatient’streatingphysician,coupledwiththePBM’seffortstothencapturethatbusinessatitswholly-owned pharmacies, could be viewed as the referring, arranging for or recommending of service at aparticularproviderinsuchawaythatistieddirectlytofinancialremuneration.TheremunerationthatthePBMwouldreceiveinexchangeforthisreferralispaymentfromMedicareforeachpatientthatwaspreviouslyservicedbyadispensingphysicianandisnowservicedbythePBM’swholly-ownedpharmacies.ThisremunerationisdirectlytiedtothevolumeandvalueofthebusinessthatthePBMisultimatelyabletoredirectultimatelyto itsownpharmacies. Arrangements involvinghealthcareservicesunderwhichpaymentismadebasedonthenumberofreferralsthatanentityprovidesareconsideredkickbacks,andthese kickbacks are cause for concern, and violate theAnti-Kickback Statute. Furthermore, theAnti-KickbackStatutehasbeeninterpretedbroadlybycourtstocoveranyarrangementwhereonepurposeoftheremunerationistoinduceorrewardreferrals.Accordingly,totheextentthatthisremuneration(i.e.,the overall profit motivation) is one purpose of the action, then the Anti-Kickback Statute could beimplicated.

Ultimately,withoutmakinganycommentaryspecificallyonCVSCaremark’sactualactionsorintentions,thissectionoftheWhitePapermerelypointsoutthatthereareFederalhealthcarelawsthatseektocurb(boththroughcivilandcriminalpenalties)actionsbyhealthcarecompaniesthatputprofitsoverpatients.It is against this backdrop that the actions andmotivations of PBMsmust be considered, and theseconsiderationsfurtherunderscoretheconclusionthatdispensingphysiciansmustnotbeexcludedfromMedicarePartDnetworks.

6 TheClinicalandEconomicBenefitsofPhysicianDispensing

Lastly,PBMeffortstoremovedispensingphysicians’participationinMedicarePartDnetworksoverlookstheprovenclinicalandeconomicbenefitsofphysiciandispensing,aswellastheimportantroletheyplayinthehealthcaresystem.Itisunquestionablethattheoverarchingtrendinhealthcare,andspecificallyforMedicareoncologypatients,istowardsintegrationandcoordinationofcarethatplacestremendousemphasison thephysicianas theprimaryclinician responsible forpatientoutcomes. CVSCaremark’sexclusionofdispensingphysiciansfromnetworkaccessisindirectoppositiontothisevolvinghealthcareparadigmandnegativelyaffectsphysicians’abilitytoproperlymanagetheirMedicarepatients’care.Asaresult,patientslose,butCVSCaremark’seconomicmotiveissatisfied.

6.1 TheClinicalBenefitsofPhysicianDispensing,ParticularlyintheOncologicalContext

The management of patients with cancer is recognized as a unique challenge within the healthcarecontinuum. Traditional infusion chemotherapy is covered under Part B, and is administered in thephysician’s office. Chemotherapy under Part B is not paid or controlled by PBMs because it is not apharmacybenefit.However,oralchemotherapydrugsarebecomingincreasinglyavailable,withrecentstudiesshowingthatoftheover800anti-cancerdrugscurrentlyinclinicaldevelopment,aquarterareoral oncolytics.111 Providing pharmacy services to, and receipt of, patientmedication directly at thephysician’s office, is an extension of the traditional chemotherapy model, and helps to ensure that111Egerton,supranote11.

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patientsreceivetheirmedication,understandtheneedfordrugcompliance,andoptimizesthecontinuityofcare.PBMslikeCVSCaremark,usingnetworkaccessasaweapon,seektochangethatparadigm.

Medicationnon-adherence(whenpatientsfailtofillprescriptions)isasignificantproblemforhealthcarein general. A 2010 studybyHarvardMedical School found that almost 30%of prescriptions for newmedications,andover20%ofallprescriptionswereneverfilled.112Suchmedicationnon-adherencehasbeen shown to be related to greatermorbidity andmortality in chronic disease, and is estimated toincreasehealthcarecostsintheUnitedStatesbyover$170billionannually.113ItshouldbenotedthattheabandonmentrateforMedicarepatientsishigherthanthatforcommercialpatients.114Accordingtothelead author of the Harvard study, significant factors contributing to non-adherence are likely to beaffordability, physician-patient communication and the cumbersome process of filling out aprescription.115Furthermore,thereweresignificantdifferencesintheprescriptionfillratesbetweentheHarvardstudyandthoseconductedinEurope,orinintegratedcaresystemsintheUnitedStates.116Astudyofnon-adherenceamongpatientsatKaiserPermanenteofNorthernCalifornia,wherethepatientscould retrieve theirmedicationsalmost immediatelyandat thesame locationas theirdoctor’soffice,foundthatonly5%ofpatientsdidnotfilltheirinitialprescriptions.117Itisclearthatcentralizingpatientcare leads to increased medication adherence and thus, improved patient outcomes, which is alsorecognizedbyHHSwiththeMedicare-sponsoredOncologyCareModel(see,Section5.3.7,supra).

In-officedispensingstreamlinestheprocessofprovidingthepatientwithadrug,ratherthanusingthetypical specialty/mail order pharmacy route. Amajor advantage is the speedwithwhich the patientreceivestheirprescriptionatthephysician’sofficecomparedtootherdispensingsites.Whenapatientisprescribedanoralcancerprescription,itistypicalforittotakeonetotwoweeksforthedrugtoarrivewhenaPBMspecialty/mailorderpharmacyisused.118Thisisincontrasttophysiciandispensingwhichoccursatthephysicianofficeimmediately.Insomecircumstances,physiciansmaydispensethe“firstfill”bydelivering themedication to thepatient’shomeafter thepatienthas left theoffice.Although thispracticemayappearsimilartothepatientreceivingtheirmedicationfromamail-orderpharmacy,alltheother benefits of physician dispensing are applicable, such as integrated medical records, patientcounsellingandmonitoringofpatient receiptofmedication. Thephysician’sofficealsohas real-timeaccess to the patient’s insurance information, and can assist the patient in identifying financialassistance.119Sinceabandonmentratesincreasewithgreaterout-of-pocketcostsforthepatient,120thiseasyaccesstofinancialassistanceadditionallyincreasesadherence.Thecomplexityofdrugtherapyisanothersignificantfactorintheabandonmentoforaloncolytics,121butphysiciandispensingallowsthephysiciantocoordinateallaspectsofthepatient’smedicationmanagement,andtoprovidecounselingtothepatientupondispensing,whichincreasesadherencetodrugprotocols.Further,thephysicianmayscheduletoxicitychecks,toallowforearlyside-effectmanagementandrelateddoseadjustments,which,ifneeded,canbemadequicklyinordertooptimizetreatment.

112Fischeretal.,supranote3.113Id.114Schwartzbergetal.,supranote2.115PaulineW.Chen,supranote1.116Id.117Id.118Egerton,supranote11.119Barnesetal.,OralOncolytics:AddressingtheBarrierstoAccessandIdentifyingAreasforEngagement,AvalereHealth(2004),http://www.avalerehealth.net/wm/show.php?c=&id=842.120Schwartzbergetal.,supranote2.121Id.

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Separate pharmacies, including CVS Health’s retail and specialty pharmacies, are not able to providephysicianlevelservices.Whilepayorsmaythinkthatpharmaciesareinthebestpositiontosetupsystemsmonitoringpatientcompliance,thereisalackofcoordinationbetweensuchpharmaciesandphysicianoffices.122Forexample,ifapatientexhibitssideeffects,thepatientislikelytospeaktotheirphysician’soffice,ratherthanthepharmacy,andtheofficemaymodifythedosingschedule.123Thepharmacywouldlikely be unaware of this change, and, in the course ofmonitoring patient compliance, may provideconflicting instructions to the patient.124 This could lead to treatment complications and potentiallydangerous compliance issues for the patient.125 In these situations, physician dispensing has a clearclinicaladvantage,asiteliminatesthedisconnectbetweenthephysicianandpharmacyservices.

Physician dispensing is additionally supported by the American Medical Association, which finds itappropriate for physicians to dispense drugs in their office practices when the dispensing primarilybenefitsthepatient.126Intheoncologicalcontext,thebenefitstothepatientaresignificantandapparent.

These vast clinical benefits are wholly overlooked by PBMs, including CVS Caremark, who has takenunilateralactiontoexcludetheentireclassoftradefromcontinuingtoservicetheirMedicarepatients.Ultimately,ifnotstopped,theseactionsruntheriskofcausingloweredadherenceandpatientharm.

6.2 MedicareOutcomesBasedReimbursement;PhysicianControlOver,andFinancialResponsibilityfor,PatientOutcomes;andtheRelationshipBetweenMedicationTherapyManagementandQualityofCare

CMS, through a variety of rules, guidance, and agency statements, make it clear that physicianinvolvementindrugmanagementiscrucialtoqualitypatientcare.RecentmajorrevisionstoMedicareservetofurthersupportthepropositionthatphysiciandispensingisnotmerelycontemplatedbyCMS,butissubstantialelementtotheimplementation,andsuccess,ofmanynewprograms.

Congress andCMShaveattempted,with varyingdegreesof success, to introduceprogramsaimedatincreasingthequalityofhealthcaredeliveredtoMedicarebeneficiarieswhileconcomitantlyreducingtheoverallcosttotheMedicaresystem.OnApril22,2016,TheMedicareAccessandCHIPReauthorizationActof2015(Pub.L.114-10)(“MACRA”)wasenacted.TheintentofMACRAistomovetoasignificantlymore integrated healthcare quality model, and to create a “Merit-Based Incentive Payment System”commonlyreferredtoas“MIPS.”MIPSbecomeseffectivein2019,andwillinitiallyaffectphysicians,nursepractitioners,CRNAsandCNSs.MIPSwillutilize“performancecategories”todeterminethemetricsforpayments to these providers, and the categorieswill include: (i) quality; (ii) resource use; (iii) clinicalpracticeimprovementactivities;and(iv)meaningfuluseofcertifiedElectronicHealthRecords(EHR).

MACRA also created the concept of an alternative payment model (“APM”), which will serve as analternativetotheMIPS,andwillallowproviderstobecompensatedforcertainqualityandperformancemeasures,andinsomecases,willpenalizeprovidersthatfallbelowcertainbenchmarks.TheAmericanMedical Association has identified angina, asthma, cancer, chronic kidney disease, diabetes, epilepsy,ovarianandendometrial cancer,pregnancy,andstrokeasmedical conditions that lend themselves to122Barnesetal.,supranote119.123Id.124Id.125Id.126 See generallyAMA Code ofMedical Ethics,Opinion 9.6.6 Prescribing& Dispensing Drugs & Devices (2016),available athttp://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics.page.

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management with an APM model. MACRA also created the concept of “Advanced” APMs, whichcontemplateproviderstakingonmorethannominalriskinconnectionwithhealthoutcomes.TheOCM(asdiscussedinSection5.3.7above),isoneAPMontracktobeanAdvanceAPMin2018.

TheOncologyCareModel.Asnotedabove,OCMisapaymentmodeldesignedtotesttheeffectsofbettercarecoordination,improvedaccesstopractitioners,andappropriateclinicalcareonhealthoutcomesandcostsofcareforMedicarefee-for-service(FFS)beneficiarieswithcancerwhoreceivechemotherapy.OCMencouragesparticipatingpracticestoimprovecareandlowercoststhroughepisode-basedpaymentsthatfinancially incentivize high-quality coordinated care. CMS expects that these changes made by thepractices in response toOCMparticipationwill result in better care, smarter spending, and healthierpeople.127

OCMemploysasophisticatedsystemtocollectinformation,includingoutcomesandclaimsdata,thatisthenappliedagainstametricthatevaluatesthequalityandcostofthecaredeliveredduringaparticularepisodeofcare.TheepisodeofcareistriggeredbyparticularMedicarePartBclaimsoraMedicarePartDclaimforanoraloncolyticorotherchemotherapydrug.TheactualepisodeofcareexpendituresareaccountedforbycombiningtheclaimsdataforMedicarePartsA,B,andD,alongwithamonthlyenhancedoncologyservicepayment.Thisisthenmeasuredagainstabaselinemodel.Thephysicianorphysiciangroup is compensatedon the formula that takes into account thedifferencebetween the actual andbaselineexpenditure,ultimately,puttingthephysicianinadegreeofriskbasedonhealthoutcomes.

This new paymentmodel has the ability to dramatically impact the oncology physicians’ practices inmanagingpatientcareandensuringoutcomes.Withinthedisciplineofoncology,therehasbeenaneverincreasingshiftfromintravenousinfusionchemotherapyagentstooraloncolyticdrugs.Thistrendhasaconcomitantshiftinreimbursementfromhealthinsurance(MedicarePartB,wherenoPBMisinvolved)topharmacybenefitcoverage(MedicarePartD,whichiscontrolledbyPBMs).Thisshiftaltersthepoliciesthatphysicians,pharmaciesandotherprovidersmustnavigatetoprovideoptimal,cost-effectivecaretotheirpatients.Inthetraditionalin-officeinfusionmodel,patientsreceivetheirchemotherapytreatmentin thephysician’sofficeorhospital setting.Thepatientcondition ismonitoredateachencounterandtreatmentcanbemodifiedaccordingly.Moreover,thephysicianhasfirst-hand,actualknowledgethatthepatientisreceivinghisorherappropriatemedication.

When in-office chemotherapy is supplanted by oral oncolytic therapy, the patient has the option ofmakingonetriptothepharmacy,orinthecontextofamailorderpharmacy,themedicationisdeliveredright to the patient’s home, both a seeminglymore appealing experience for the patient. However,despitethefactthattheuseoforaloncolyticmedicationdispensedbyapharmacyseemsonitsfacetobebeneficialforthepatient,inmanycircumstancesitisnot,andcanhavesometroublingconsequences.Recentstudieshavefoundthatpatientsprescribedoraloncolyticsfailtofilltheirinitialprescriptions10%ofthetime,andanotherquarterofpatientshadadelayininitiatinganotheroncolytic.128Thisrateroseto25%whenthepatientresponsibilityportionwasover$500.129 Moreover, theuseofmandatoryorpreferred mail order networks by PBMs leads to increased waste of often-expensive and unwantedmedication, thereby increasingoverallhealthcare spending.130CVSCaremark’sexclusionofdispensingphysiciansfromtheirMedicarenetworkfavorsthelessdesirablemail-orderparadigm.

127Seereferenceinwebsitehttps://innovation.cms.gov/initiatives/Oncology-Care/.128SonyaB.Streeteretal.,PatientandPlanCharacteristicsAffectingAbandonmentofOralOncolyticPrescriptions,17Am.J.Manag.Care,5Spec.No.,SP38-SP44(May20,2011),availableathttp://www.ncbi.nlm.nih.gov/pubmed/21711076.129Id.130NationalCommunityPharmacistsAssociation,WasteNot,WantNot:ExamplesofMailOrderPharmacyWaste(Sept.2011),https://www.ncpanet.org/pdf/leg/sep11/mail_order_waste.pdf.

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Ultimately, the combination of CMS’s focus on quality and the less than desirable fill-rates for oraloncolytics, make a compelling case for inclusion of dispensing physicians in PBMs’ Part D networks.PhysiciansinallclinicaldisciplinesarebeingheldaccountablebyCMSforboththequalityandcostofthecarethattheyareproviding,yetCVSCaremarkisexcisingoneofthemostimportanttoolsavailabletothephysicianbyprecludingthephysicianfrombeingabletomanagethepatient’sdrugregimenandmonitorthatcompliance.

ChronicCareManagement.CMS’spolicypositiononphysicianmonitoringofpatients’drugcomplianceis alsoevidencedby theChronicCareManagement (“CCM”)program introducedbyCMS.CMS, in itsguidance on CCM states “[t]he Centers for Medicare & Medicaid Services (CMS) recognizes caremanagementasoneofthecriticalcomponentsofprimarycarethatcontributestobetterhealthandcareforindividuals,aswellasreducedspending,”andfurtherstatesthatpartofthecomprehensivecareplanthatCMSrequiresaspartofCCMis“medicationmanagement.”131

Together, Chronic Care Management and the Oncology Care Model are just two examples of CMSinitiativesthatclearlydemonstratetheimportanceplacedonproperdrugmanagementbyCMSandthatthequality of care andpatient outcomes are directly related to optimal drugprescribing andpatientcompliance.Physicians,nowmorethanever,needtheabilitytoorderanddispensemedicationtotheirpatients. Physicians are in the best position of any caregiver to prescribe, dispense, administer, andcounselpatientsontheapplicabledrugtherapy.CVSCaremark,byremovingtheabilityofphysicianstodispensemedicationsdirectlytotheirpatients,isinoppositiontovirtuallyeveryprogramthatCMShasrecentlyintroduced.

Moreover,physiciansarenowbeingheldfinanciallyaccountableforpatientoutcomes;outcomesthatareoftendirectlyrelatedtopatientcompliancewithaparticulardrugregimen.Yet,underCVSCaremark’spolicyexcludingdispensingphysiciansfromnetworkaccess,physicianswillhavetorelyonretailandmailorderpharmaciestofillprescriptionsandcounselpatients,despitethefactthatmanypatientswillfailtofilltheprescriptions.PhysiciansthatareexcludedfromtheMedicarenetworkwillbeblindtowhethertheir patients are actually receiving their prescribed cancer treatment, yet the physicianwill be bothprofessionallyandfinanciallyatriskforthepatients’outcome.

CVS Caremark is therefore placing physicians in an untenable position by enacting a policy that isdiametrically opposed to the direction of CMS policies and the overarching trend in healthcare ofoutcomes-basedreimbursement.Thiswillhavetheeffectofincreasingcoststotheoverallsystemtotheextentthatdispensingphysiciansarestrippedoftheirabilitytocoordinateallaspectsofcarefortheirpatientsinaclinicallysoundandfinanciallyresponsiblemanner.

7 ConclusionPhysiciandispensingisavitalpartofthecancercarecontinuum,andmustcontinuetobereimbursedbyPBMs, inordertoprovideneededaccesstovulnerablepatients. PBMactionaimedat limitingpatientaccessisimmenselyproblematic,notjustforpatients,butfortheoverallhealthcaresystem.Moreover,CVSCaremark’s actions to shutout anentire classof trade fromcontinuing to service the vulnerableMedicare Part D population, put profits over patients, and ignore vast clinical, economic and legalargumentstothecontrary.Ifleftunchecked,CVSCaremark’sandotherPBMs’actionsthreatentounravelcritical and longstanding components of the American healthcare system, and subvert public and

131SeegenerallyCMS,PaymentofChronicCareManagementServicesUnderCY2015MedicarePFS(Feb.18,2015),availableathttps://www.cms.gov/Outreach-and-Education/Outreach/NPC/National-Provider-Calls-and-Events-Items/2015-02-18-Chronic-Care-Management-new.html(lastvisitedJuly12,2016).

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governmentaleffortstoimprovefinancialaccountabilityaswellasthequalityofpatientcare.Interestedstakeholders, including patient and provider advocacy groups, lawmakers, regulators, CMSadministrators,PlanSponsors,MedicareBeneficiaries,andthegeneralpublicatlargemusttakeactiontosafeguardthesefundamentalrightsandcoreprinciples,intheinterestsofprotectingpatients.