NCPA Applauds Key Decision in Landmark Class Action Case Against CVS

Key Takeaways

A federal judge ruled that courts, not arbitrators, should decide arbitration eligibility in CVS Health's case.
The ruling challenges CVS's arbitration clause, deemed unconscionable due to unfair barriers.
The lawsuit questions the legality of CVS's DIR fees imposed on pharmacies.
The decision is seen as a victory for independent pharmacies, aiming to hold PBMs accountable.

Given the unfair aspects of CVS’s arbitration clause, delegating to an arbitrator to decide whether the case has to be arbitrated is “unconscionable,” says federal judge

The National Community Pharmacists Association today applauded a decision by a federal judge in Arizona in a landmark class action case against CVS Health, the largest pharmacy benefit manager in the country.

In the case, Osterhaus Pharmacy Inc. v CVS Health Corporation, Judge John J. Tuchi in the United States District Court for the District of Arizona ruled that a court, and not an arbitrator, should decide whether a plaintiff’s claims against the company must be sent to arbitration. Among other things, Osterhaus challenged a provision in its contract with CVS purporting to say all disputes must be decided by an arbitrator. CVS argued that even the question of what can be arbitrated has to be arbitrated. Tuchi agreed with Osterhaus that, given the many unfair barriers erected by CVS, even delegating the decision on what has to be arbitrated is unconscionable.

Matthew Seiler, NCPA general counsel, hailed the ruling as a victory for independent pharmacies.

“Caremark and the other PBMs stack the decks in their arbitration proceedings to avoid accountability for illegal acts,” said Seiler. “The ‘day in court’ they offer pharmacies costs more and takes away important rights that pharmacies would have if they could proceed in court. We are glad that the court recognized how Caremark’s forced arbitration clause is ‘substantively unconscionable.’ The arbitration process also keeps these cases secret. That allows Caremark and the other PBMs to continue to treat pharmacies unfairly and illegally extract junk fees. We are hoping this lawsuit helps to bring these unlawful practices into public view.”

Matt Osterhaus, an NCPA member, filed his case against CVS in September of last year. At issue is whether billions of dollars in backdoor fees that CVS imposes on pharmacies, otherwise known as DIR fees, are legal. As part of that case, Osterhaus challenged the legality of delegation clause. Other aspects of the case have yet to be decided.

“It’s payback time,” said NCPA CEO B. Douglas Hoey when Osterhaus filed the case. “Finally, community pharmacies have a chance to recover DIR fees that were unfairly taken. PBMs have been gaming the system for a long time, and it’s time to turn the tables.”