In May 2018, a New Jersey appeals court threw out a $6.7 billion contract between the state and OptumRx for prescription drug benefit management and ordered that the contract to be the next pharmacy benefit manager for New Jersey’s 835,000 public workers be rebid. In its ruling, the court found that the winning bid included language that improperly broke from the bid specifications and actually gave OptumRx a “clear competitive advantage.”
This stems from a decision in 2017 wherein New Jersey began a new way of bidding out its pharmacy benefits management contract via an online reverse auction. The auction included three bidders, with the winner OptumRx, UnitedHealth’s prescription subsidiary. The other two bidders were Caremark PCS Health LLC and Express Scripts.
Express Scripts brought this lawsuit by appealing the contract award to the state’s acting director of purchase and property, and then to the appellate division. Express Scripts had been New Jersey’s existing pharmacy benefits manager prior to the online reverse auction.
The appellate division had ordered a stay of OptumRx taking over for Express Scripts in December 2017, but on January 1, 2018, New Jersey ignored that stay and went ahead with the contract anyway. Five months later, in May 2018, the appellate court determined that the bid did not conform to the bid solicitation, because it included language reserving the right to modify the financial terms of the deal to protect its profit if the state made changes to the plan design.
“Optum’s additional language … permitted it to ‘hedge’ its bid, thereby reducing its financial risk from adverse plan design changes,” the court said. “That set it apart from the other bidders who agreed to be bound by all of the terms of the bid solicitation.” The court invalidated the contract, saying its size, complexity, and potential savings for the public are not a shield from this type of review, noting, “No savings can justify the impairment to the integrity of the bidding process caused by an irregular proceeding.”
A spokeswoman for Express Scripts, told NJ Advance Media it is “encouraged by the decision and looks forward to the opportunity to participate in the re-bidding process.”
What About Express Scripts?
Interestingly enough, According to a contract template Axios obtained earlier this year, Express Scripts has the right to change “rates, administrative fees and/or rebates, solely as necessary to return (Express Scripts) to its contracted economic position” if the following events with their employer clients occur:
- A material change in: (i) the conditions or assumptions stated in this agreement; or (ii) the size, demographics or gender distribution of sponsor’s membership compared to data provided by sponsor.
- Sponsor changes its formulary, benefit designs…or otherwise takes an action that has the effect of lowering the amount of rebates earned.
- Sponsor elects to use on-site clinics or pharmacies to dispense prescription drugs to members which materially reduces rebates and/or the number of covered drug claims submitted online.
- More than 5% of claims are incurred in Massachusetts, Hawaii, Alaska, or Puerto Rico.
- Rebate revenue is materially decreased because brand drugs move off-patent to generic status or due to a change in law.”