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Anthem's feud with Express Scripts gets uglier

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Express Scripts Holding Co. has turned the tables on Anthem, blasting the health insurer in a new lawsuit by arguing Anthem is the party at fault for the deterioration of their drug pricing agreement.

Last month, Anthem sued pharmacy benefits manager Express Scripts for more than $15 billion in damages after months of public animosity between the two investor-owned behemoths. Anthem alleged Express Scripts, which negotiates prices with drugmakers on behalf of payers and employers, was not passing along enough drug price savings, and Express Scripts therefore was reaping “an obscene profit windfall.”

But Express Scripts countered with a lawsuit of its own filed Tuesday in U.S. District Court for the Southern District of New York. The PBM denied Anthem's allegations and elevated the rhetoric, making a messy outcome all but certain.

Anthem and Express Scripts have been working under a 10-year pricing contract since 2009, when Express Scripts agreed to buy Anthem's struggling in-house PBM for $4.7 billion. Express Scripts offered two scenarios to Anthem, according to the redacted lawsuit: Take the $4.7 billion and higher pricing for Express Scripts' services over the duration of the contract, or take less cash upfront and better pricing over the long term.

“Although Anthem could have passed this upfront money through to its members—in the form of reduced drug pricing—instead, Anthem used the upfront payment to repurchase its stock, which applied upward pressure to Anthem's stock price, thereby enriching Anthem's shareholders and management (who held substantial stock options),” Express Scripts argued. In 2009, Anthem, then known as WellPoint, repurchased 57.3 million shares at a cost of $2.6 billion.

Anthem did not mention the sale of its PBM in its complaint filed last month.

Express Scripts also alleged that Anthem is the party that has failed to negotiate new terms in good faith. The current agreement allows Anthem to conduct a market check periodically to see if Express Scripts is obtaining the best prices available for prescription drugs.

Anthem CEO Joseph Swedish told investors this year that an internal analysis showed the insurance company was owed up to $3 billion in savings from Express Scripts. But Express Scripts, according to Anthem, refused to negotiate on new drug pricing terms for more than a year.

Not so, Express Scripts countered. The PBM said it made “five separate counter-proposals to Anthem between June 2015 and March 2016,” all of which were within the $2 billion to $2.8 billion range that Anthem executives had asked for or expected.

“Anthem—under the control of new management—is now improperly attempting to rewrite the PBM agreement, erroneously claiming that it has a right to $13 billion in reduced pricing over the remaining four-year term of the PBM agreement,” the lawsuit reads. “This is simply not true.”

An Anthem spokeswoman released a statement that said Express Scripts' positions “are without merit. Anthem stands behind the merits of our lawsuit and looks forward to the opportunity to prove the actual facts as the lawsuit moves forward.”

Charles Rhyee, a financial analyst at Cowen & Co., said in a note to investors that Express Scripts' claims actually are “more convincing” than Anthem's, noting that the $4.7 billion upfront cash payment “should be taken into consideration.”

At the very least, according to Leerink Partners managing director Ana Gupte, the countersuit suggests negotiations between Anthem and Express Scripts “have reached an impasse with a lengthy legal battle in the cards.

Bob Herman writes for Modern Healthcare, a sister publication of Business Insurance.