NASHVILLE - A lawsuit filed by Collegedale-based McKee Foods is asking a federal judge to determine whether a 2021 Tennessee law restricting how employers' third-party pharmacy benefits managers operate runs afoul of federal law.
Privately held McKee Foods, known for its Little Debbie brand of snack cakes, filed the lawsuit in November in U.S. District Court in Chattanooga. It names Thrifty Med Plus Pharmacy, an Ooltewah-based pharmacy, as a defendant.
In its filing, McKee Foods says Thrifty Med Plus of Ooltewah was removed as a provider from its health plan prescription drug program in 2019 after an audit by McKee's pharmacy benefit manager. The filing says it included findings that certain prescriptions under the plan "were not filled appropriately and/or were filled inaccurately." That caused losses that were not in accordance with the plan, the company alleges.
Thrifty Med Plus is now citing passage of the 2021 law to seek reinstatement to McKee's employee drug benefit program.
(READ MORE: McKee Foods plans $500 million expansion in Collegedale to add 482 jobs)
U.S. District Judge Charles Atchley in late January set a July 17 date for a trial in Chattanooga with no jury.
Pharmacy benefit managers work in conjunction with drug manufacturers, wholesalers, pharmacies and health insurance providers and handle negotiations and payments within the supply chain.
Major managers include Express Scripts, CVS Caremark and OptumRx, part of UnitedHealth Group Insurance.
McKee Foods is seeking a declaratory judgment on the legality of the 2021 law, Public Chapter 569, which passed last year by overwhelming majorities in the legislature and with the active support of Republican House Speaker Cameron Sexton.
Rep. Esther Helton, R-East Ridge, a nurse by training, carried the legislation in the House, and all Hamilton County lawmakers present in the legislature voted in favor. A somewhat similar bill sponsored by Helton failed in 2019 amid opposition from pharmacy benefit managers. In 2021, Sexton took a major role, speaking forcefully in favor of the legislation in committee.
Helton's House Bill 1398 made it all the way through committees and was approved in an 88-1 floor vote last year.
The Senate version, Senate Bill 1617, was sponsored by Sen. Shane Reeves, a Murfreesboro Republican and pharmacist. It had support from Lt. Gov. Randy McNally, a retired pharmacist. Senators passed it 28-4.
As explained by Helton in committee last year, the legislation prohibits pharmacy benefit managers "from interfering with patients' rights to choose the pharmacy or provider" they want.
"In Tennessee, we believe patients should have choice in their health care, whether it be choosing your doctor, choosing your pharmacy or choosing the right treatment plan for you," Helton said.
In its suit, McKee questions whether the state can go into some areas of the pharmacy benefit manager regulatory sphere given that the federal Employee Retirement Income Security Act takes precedent.
Accoridng to the lawsuit, "McKee Foods is entitled to remove a pharmacy from the plan network, including when McKee determines that the pharmacy has committed acts that violate the plan and/or that cause potential harm to plan participants and beneficiaries."
Thrifty Med Plus, owned by Greg and Julie Bohannon, says in its response that an audit of Thrifty Med was conducted and "that Thrifty Med was removed without cause from the prescription drug program."
The company says in the filing that it sought reinstatement "because its exclusion contravenes" last year's law.
"Thrifty Med expressly denies that the audit referred to in this paragraph uncovered 'inconsistencies' and generally denies the remainder of the allegations in the paragraph," Thrifty Med Plus' response continues.
The company also takes issue with McKee's interpretation of the law.
Neither the Bohannons nor McKee are commenting on the lawsuit.
(READ MORE: Ooltewah pharmacy Thrifty MedPlus celebrates 15 years)
But a McKee offical confirmed Wednesday to the Times Free Press that the company is in the process of starting its own employee pharmacy.
"As we have planned for well over a year, McKee Foods is building a new combined family health center and pharmacy that offers convenience, low prices and drive-through service to our employees, while maintaining our existing pharmacy benefit manager. As we're sure you can appreciate, we cannot comment further due to the fact that we are engaged in ongoing litigation," company government relations manager Connie Vaughan stated.
McKee Foods employs some 6,000 workers, 3,000 of whom live in Tennessee.
During a House Insurance Committee hearing earlier this week, proponents explained that Tennessee's 2021 law was intended to allow independent pharmacies to continue serving health plans.
The law bars pharmacy benefit managers from reimbursing pharmacies at lower rates than their actual costs to dispense a drug, a complaint lodged by a number of pharmacies and operations, including Cempa Community Care in Chattanooga, which provides primary care and similar services to low-income residents.
Independent pharmacies also complain about patient steering, a practice used by some benefit managers or pharmacies owned by health plans to channel prescriptions to their own retail, mail order or speciality pharmacies.
"Just yesterday, Cempa had a patient with a commerical insurance plan which required speciality plans and steering," said Cempa CEO Shannon Stephenson.
Stephenson said patients may need life-saving care and shouldn't be expected to drive three to five hours to a far-off pharmacy or wait for mail order prescriptions.
Helton said afterward she is not in a position to discuss the lawsuit.
"But I will say this: I've talked to Greg Bohannon, who's a pharmacist at Thrifty Med. He basically told me that they performed extremely well in all the audits and the state didn't find any wrongdoing by Thrifty Med."
Rep. Robin Smith, R-Hixson, also a nurse by training, recalled after the hearing that the benefit managers began in the 1970s and 1980s to help independent pharmacies manage their overheard.
"Now they've turned into extensions of insurance companies," she said.
Court ruling
Sexton told the Times Free Press last week that he and other proponents plan to come back with new legislation this session. That's in response to a U.S. Supreme Court ruling in December in which justices ruled 8-0 that a state of Arkansas plan regulating rates that benefit managers can pay for prescription drug plans provided to beneficiaries was not preempted by federal law.
Health care attorney Stuart Silverman told Bloomberg News following the Supreme Court's Arkansas ruling that the decision opens the door for other states to enact similar legislation to control health care costs.
Sexton said he believes the Supreme Court ruling will form the basis of another bill this year.
In a statement to the Times Free Press on Tuesday, Michael Power, senior director of state affairs with the Pharmaceutical Care Management Association, which represents the benefit managers, had his take on Tennessee lawmakers' current effort: "At a time where businesses are being squeezed by rising health care costs, labor shortages and supply chain disruption," he said, "the 2021 law will increase the cost of prescription drugs for businesses, taxpayers and everyday consumers. This is government overreach."
Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow on Twitter @AndySher1.