A group of independently-owned pharmacies are urging the Illinois Supreme Court to review a decision by the Fifth District Appellate Court compelling arbitration in a reimbursement fraud claim against OptumRx.
Philadelphia attorney Mark Cuker of Jacobs Law Group and Alton attorney Keith Short of Keith Short & Associates filed the lawsuit in July 2020 on behalf of approximately 48 pharmacies in St. Clair County Circuit Court.
OptumRx is a pharmaceutical benefit manager (PBM) and “unilaterally determines how much plaintiffs are paid for the generic drug prescriptions they provide to customers,” the lawsuit states.
Cuker told the Record that OptumRx deals in secrecy as the prices and reimbursement payments are dictated to pharmacies using a provider manual.
“The PBM industry needs secrecy like you and I need oxygen,” he said.
He added that individual pharmacies don’t know what large corporate pharmacies are being paid or what the PBM is getting paid.
“In a free market, information is critical so people make the right economic decisions,” he said.
Cuker said OptumRx deliberately underpays independent pharmacies in an attempt to drive them out of business.
“It’s been the wild west,” he said. “They’ve been doing what they want and making up their own rules.”
According to the lawsuit, OptumRx develops and maintains prescription drug formularies, negotiates rebates and discounts with prescription drug manufacturers and establishes a network of pharmacies to dispense prescription drugs.
The pharmacies claim OptumRx sets unreasonably low reimbursement rates.
The plaintiffs claim OptumRx contracts with health insurance companies to administer drug benefit programs on behalf of the insurance company. Pharmacies are recruited to enroll in the PBM network of providers, which are then allowed access to the provider manuals from OptumRx. The manual is treated as a contract between OptumRx and the pharmacies, even though they are never signed and the pharmacies are not informed of its content beforehand.
The independent pharmacies claim they entered into a contract with OptumRx before it merged with Catamaran in 2015. OptumRx allegedly modified its contracts following the merger, including its arbitration clause for “all disputes.”
In August 2021, OptumRx moved to compel arbitration in accordance with the updated arbitration clause in its manual. The plaintiffs challenged arbitration, arguing that it was hidden within the manual.
The plaintiffs included 35 declarations stating they never saw the contracts, never signed a provider manual, were not allowed to negotiate the terms of the provider manual, were unaware of the arbitration requirement and said the costs were unaffordable.
They also argued that the arbitration provision’s terms were unconscionable because of the excessive costs associated with a requirement that each claim be individually arbitrated.
Cuker noted that it cost more than $78,000 for an arbitration with three arbitrators to address a single motion for consolidation in a similar case against OptumRx.
He told the Record that a contract is supposed to be “a meeting of the minds,” but here the pharmacies are bound to an agreement they never see beforehand with an arbitration clause buried in a 150-175 page manual.
“You’re bound to it before you even see it or can see it,” he said.
Cuker said OptumRx’s arbitration clause “makes it impossible for the pharmacy to prevail.”
“Part of their business model is to create an arbitration system that is basically rigged,” he said.
Cuker explained that pharmacies incur “enormous costs to litigate the same issues” because they cannot consolidate their claims.
Additionally, he said OptumRx’s arbitration provision does not allow discovery, which he called “astonishing” and “unheard of.”
St. Clair County Circuit Judge Heinz Rudolf denied the motion to compel arbitration in March 2022. He found that the relevant manual was the one in effect when the plaintiff pharmacies began working with OptumRx, which did not include the arbitration provision.
He also agreed that the arbitration clause was procedurally unconscionable and oppressive and failed to inform the pharmacies that they would be responsible for half of the arbitration costs. Further, the clause was unconscionable because OptumRx could change the provision without notice or input from the pharmacies.
Rudolf found that the arbitration clause was substantively unconscionable because of its limits on discovery and trial, inflated costs, ban on consolidating claims and its mandatory California jurisdiction.
OptumRx appealed to the Fifth District Appellate Court, which reversed Rudolf on April 14.
Justice Barry Vaughan delivered the 64-page Rule 23 decision with Justice Mike McHaney concurring and Justice Judy Cates dissenting.
The appellate court concluded that only a “modest amount” of unconscionability has been proven.
“We do not find the arbitration clause “permeated by unconscionability,” Vaughan wrote. “The greatest level of unconscionability stemmed from the costs associated with arbitration with at least some of the plaintiffs establishing a financial inability to proceed with arbitration in the manner required by the clause at the time the contract was entered.”
The appellate court did not find oppression, stating that the plaintiffs failed to demonstrate why they had no meaningful choice to sign with the other 75-80% of the market share.
Further, the appellate court noted that OptumRx included a table of contents in its manual, which the pharmacies could have used to find the arbitration clause.
Marinette County Circuit Judge James Morrison filed an order on June 30 disagreeing with the Fifth District’s findings.
Morrison wrote that he has “great respect for the decision of judges throughout the United States and no criticism whatsoever for the decision of courts in California, Illinois or Florida with respect to these issues before them and the decisions that they have recently made.”
“This court does not have a binding obligation, however, to follow the decisions of those courts for any number of reasons, one of which can be that the facts and circumstances in individual cases can bear on these issues,” he added.
Morrison noted that many contracts containing arbitration provisions are provided on a “take it or leave it basis” by parties with greater knowledge and bargaining position. He wrote that courts must be “mindful” of such contracts when asked to enforce the agreements, “especially where those agreements give up rights to have disputes decided in ones home jurisdiction, by a jury of ones peers, after full discovery and subject to judicial oversight and review.”
“This is not to say that there are not legitimate reasons for arbitration but this is to say that the imposition and implementation of these procedures needs to meet a test of minimal fairness and reasonableness,” he wrote.
Morrison acknowledged that other companies control 75-80% of the pharmacy market, but he wrote that the pharmacies “made a credible argument that they simply cannot do business if 20-25% of their total market is foreclosed to them because they have not been able to make a deal with Optum.”
“This puts Optum in the driver’s seat,” he wrote.
He added that OptumRx was not dealing in good faith when it added arbitration provisions to agreements after they were already implemented.
“This conduct causes the court also to be seriously concerned about whether the entire arbitration scheme, as conceived and applied, and as amended, is unconscionable,” he wrote.
Morrison’s order also states that the costs of arbitrating cases individually outweigh any benefit that could be achieved in arbitration.
“This is the product of a one sided agreement foisted upon pharmacies who need to make a deal with Optum or have a substantial part of a market closed to them and this is fundamentally unfair,” he wrote.
St. Clair County Circuit Court case number 20-L-396