Claiming it has tried in vain for more than a year to renegotiate its drug prices with pharmaceutical benefit manager Express Scripts, Anthem Inc. has sued the company in federal court for nearly $15 billion in damages.Anthem maintains that's the amount of savings it should have received from Express Scripts, based on a report Anthem commissioned that analyzed drug prices and market conditions. The health insurance giant also accused ESI of negotiating in bad faith and stonewalling what Anthem claims is its right to renegotiate its pricing.
The lawsuit said ESI's true purpose is to reap "an obscene profit windfall" that's caused Anthem to "lose existing business and not gain new business" because ESI's allegedly high drug costs don't allow Anthem to be as competitive as possible.
The five-count lawsuit asks for breach-of-contract damages of about $13 billion for past overpayments, plus a declaration that Anthem is free to terminate its contract with ESI due to alleged breaches. The suit demands "not less than" $150 million for damages associated with ESI's alleged failures, according to the lawsuit. Anthem also seeks a jury trial, according to the filing.
Anthem also wants another $1.8 billion to cover its costs for a one-year "transition period" should it decide to part ways with ESI. Anthem said in a statement it "has not made any decision whether to end its contract with Express Scripts at this time."
In its suit, the health insurer said it has the right to "competitive benchmark pricing" under its agreement with ESI. But a 2015 market analysis for Anthem by Health Strategies LLC revealed "ESI's current pricing to Anthem exceeded competitive benchmark pricing by more than $3 billion annually, and $13 billion over the remaining term of the agreement, plus approximately $1.8 billion during the post-termination transition period."
Even after advising ESI it was in breach of contract, Anthem alleges ESI would not respond to its calls and correspondence demanding compliance, according to the court filing.
ESI responded to the filing by issuing a statement saying the lawsuit was without merit. "Express Scripts values its relationship with Anthem and will continue to honor its commitments under the contract, as we would do with any client. Express Scripts has consistently acted in good faith and in accordance with the terms of its agreement with Anthem. We believe that Anthem's lawsuit is without merit," the statement said.
ESI Vice President of Communications Brian Henry said the company had no further comment beyond the statement.
The lawsuit was filed by Anthem with the United States District Court for the Southern District of New York on March 21.
The dispute became public at an investors conference in January, when Anthem Chairman Joseph Swedish claimed the insurer was entitled to $3 billion in annual cost reductions from ESI.
He said at the time "very specific language" in its contract with ESI called for Anthem to conduct market studies "to get the best pricing" for prescriptions and other services. Swedish added a new contract with ESI was due Dec. 1, 2015, "but so far we've received nothing from ESI offering market-competitive pricing."
Express Scripts handles Anthem's drug dispensing, billings and other back-office functions. The two companies have a 10-year agreement stemming from ESI's purchase of what was Anthem's pharmaceutical benefits manager, NextRx, late in 2009 for nearly $4.7 billion (Best's News Service, Dec. 2, 2009). That agreement ends in 2019.
Anthem is hoping to close its $54 billion acquisition of Cigna Corp. in the second half of this year after shareholders approved the deal late last year (Best's News Service, Dec. 3, 2015). Cigna's pharmaceutical benefits manager is in-house, although some functions are with competitor UnitedHealth Group, following its purchase last year of pharmaceutical manager Catamaran.
Anthem Inc.'s operating insurance units have a current Best's Financial Strength Rating of A (Excellent).