SOAH DOCKET NO C TDI CASE NO Argus Health Systems, Inc. Administrative Hearings. First Amended Notice of Hearing

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1 SOAH DOCKET NO C TDI CASE NO Texas Department of Insurance, Petitioner Before the State Office V. of Argus Health Systems, Inc. Respondent Administrative Hearings First Amended The Texas Department of Insurance (TDI) is seeking revocation of license, an administrative penalty based on the factors in Chapter 84 of the Insurance Code, and restitution. This is formal notice that a public hearing will be held before an Administrative Law Judge at 9:00 a.m. on October 14, 2015 in the offices of the State Office of Administrative Hearings, 300 West 15 th Street, 4 th Floor, Austin, Texas. The hearing shall be conducted in accordance with the provisions of TEX. GOV T CODE, Chapter 2001 and 1 TEX. ADMIN. CODE, Chapter 155. Unless otherwise directed by the Administrative Law Judge, the hearing shall continue from day to day in the offices of the State Office of Administrative Hearings until concluded. YOU MUST FILE A WRITTEN RESPONSE TO THE NOTICE OF HEARING WITH THE STATE OFFICE OF ADMINISTRATIVE HEARINGS WITHIN 20 DAYS OF THE DATE THE NOTICE OF HEARING WAS MAILED. FAILURE TO FILE A WRITTEN RESPONSE BY THIS DEADLINE SHALL ENTITLE TDI TO SEEK DISPOSITION BY DEFAULT PURSUANT TO 1 TEX. ADMIN. CODE AND 28 TEX. ADMIN. CODE 1.88 AND IF YOU FAIL TO FILE A WRITTEN RESPONSE, THE SCHEDULED HEARING CAN BE CANCELED AND WITHOUT FURTHER NOTICE TO YOU THE COMMISSIONER OF INSURANCE CAN ISSUE AN ORDER IN WHICH THE ALLEGATIONS IN THE NOTICE OF HEARING ARE DEEMED ADMITTED AS TRUE AND THE RELIEF SOUGHT IN THE NOTICE OF HEARING, INCLUDING REVOCATION OF YOUR LICENSE IS GRANTED BY DEFAULT. IF YOU FILE A WRITTEN RESPONSE BUT THEN FAIL TO APPEAR ON THE DAY AND TIME SET FOR HEARING, WITHOUT FURTHER NOTICE TO YOU, THE COMMISSIONER OF INSURANCE CAN ISSUE AN ORDER IN WHICH THE

2 Page 2 of 7 ALLEGATIONS IN THE NOTICE OF HEARING ARE DEEMED ADMITTED AS TRUE AND THE RELIEF SOUGHT IN THE NOTICE OF HEARING, INCLUDING REVOCATION OF YOUR LICENSE, IS GRANTED BY DEFAULT. You must file a written response. Your written response must be sent to each of the following three addresses: 1 (1) Docketing Division State Office of Administrative Hearing 300 West 15th Street, Room 504 P.O. Box Austin, Texas (512) (fax); (2) Chief Clerk Texas Department of Insurance, MC113-2A P.O. Box Austin, Texas (512) (fax); (3) Patrick Quigley, Staff Attorney Texas Department of Insurance Enforcement Section, MC110-1A 333 Guadalupe Street Austin, Texas (512) (fax). The Commissioner of Insurance has authority and jurisdiction pursuant to TEX. INS. CODE , , Chapter 541, Chapter 542, Chapter 843, , Chapter 1301, and Chapter 4151; 28 TEX. ADMIN. CODE and TEX. GOV T CODE Argus Health Systems, Inc. (Argus) holds a certificate of authority to act as a third party administrator issued by the Texas Department of Insurance (TDI) pursuant to TEX. INS. CODE The allegations against Respondent are as follows: 1. Argus holds a certificate of authority to act as a third party administrator, license number issued by TDI on 09/16/ Argus acts as a pharmacy benefits manager (PBM) for one or more insurers in Texas, by adjudicating pharmacy claims. In order to act for an insurer in this 1-1 TEX. ADMIN. CODE and ; and 28 TEX. ADMIN. CODE 1.29(c) and 1.90(e). 2

3 Page 3 of 7 capacity, a written agreement, setting forth the services provided is required by TEX. INS. CODE Scott & White was licensed/eligible/registered by TDI on October 13, 1981 and issues or sells health benefit plans. 4. A health benefit plan means a plan that provides benefits for medical, surgical, or other treatment expenses incurred as a result of a health condition, a mental health condition, an accident, sickness, or substance abuse, including an individual, group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or an individual or group evidence of coverage or similar coverage document. TEX. INS. CODE When an insurer sells a health benefit plan, it receives premiums. The insurer has legal duties and obligations to adjudicate claims made by members or insureds for benefits covered under the health benefit plan. 6. Argus entered into written agreements with insurers, health maintenance organizations, and plans offered by Scott & White, Cigna, and Humana Health Insurance Company (insurers) to adjudicate the insurers pharmacy claims made by providers for treatment expenses provided to members/insureds. Argus is the insurers agent for contracting with pharmacies and adjudicating these claims. The insurer pays Argus for each pharmacy claim Argus adjudicates. The written agreements delegate the insurer s activities to adjudicate its pharmacy claims, so Argus is acting as the insurer s agent. However, Argus has no discretion to accept or deny a pharmacy claim that is governed by the terms of each health plan and the specifications that are programmed into Argus IPNS (Integrated Pharmacy Network Solutions). If members or providers have problems with a claim, Argus directs them to the insurer. The written agreements give Argus the right to contract with pharmacies. However, the insurer still remains responsible for the activities of Argus. 7. Argus contracted with Texas pharmacies, which allowed the pharmacy to be in the network of each insurer that Argus had contracted with to adjudicate its pharmacy claims. For a member or insured to have a prescription filled and covered by insurance, Argus required the pharmacist to use Argus s online platform. A pharmacist enters the patient s insurance information through Argus platform, verifies coverage, collects the required copayment from the patient, and the pharmacy claim is normally processed and adjudicated in seconds. Argus charges the pharmacy a transaction fee or transmission fee for this service. TDI asserts this fee is for the adjudication of the claim. The insurer sends payment to Argus, who then sends the payment to the pharmacy, minus the transaction fee. 8. The insurer is also charged a fee by Argus for each pharmacy claim it adjudicates. 3

4 Page 4 of 7 9. TDI asserts these PBM services are nothing more than those which Argus must provide to the insurer and its members/insureds, to fulfill its obligation under its contract to adjudicate the pharmacy claims. Argus fees violate TEX. INS. CODE The insurer s obligations and duties under the policy require it to adjudicate pharmacy claims. The insurers have entered into a contract with Argus to adjudicate its pharmacy claims. The insurer cannot charge a fee to a pharmacy to adjudicate a pharmacy claim; therefore, Argus cannot charge a fee to a pharmacy to adjudicate or process pharmacy claims. 10. The contracts that health care providers and facilities enter into to be in insurers networks limits the payments made by the insurer. Providers agree to accept the discounted contract price and the co-payment from the insured as payment in full. The provider cannot seek more money from the insured. 11. Pharmacy claims are simple and the transaction is adjudicated by a computer program in seconds electronically. 12. The contract delegates many of the insurer s duties and obligations to the PBM. A copy of a contract between an insurer and Argus, 174 pages, describes it fully. The PBM then contracts with pharmacies, which allow pharmacies to be in the insurer s network. These are adhesion contracts. The contracts dictate drug prices, benefits, requirements for payments, and the amount of money the pharmacy pays the PBM for the adjudication or processing of the pharmacy claim. 13. The contract between Argus and insurer addresses liability and exposure when the pharmacy claims are not paid timely. 14. Insurers are required to submit quarterly claims payment information to TDI. If an insurer violates the claims payment provisions for more than two (2%) percent of clean claims, the Insurer may be fined $1, per claim per day. 15. Argus has filed annual reports with TDI for 2010, 2011, 2012, and In these reports, Argus claimed that its fully insured plans are Scott & White and RxEdo. RxEdo is not a licensed insurer. Argus has filed false information and misrepresented the name of an insurer in these required annual reports. Argus failed to include at least two insurers in its verified annual reports. 16. According to its annual reports, Argus has paid the following number and amounts of pharmacy claims Total # of claims paid Total $ amount paid Scott & White & White 2,453,106 $73,083, RxEdo 983,890 $28,973, Scott & White & White 2,500,046 $74,423, RxEdo 1,193,813 $28,739,

5 Page 5 of 7 Scott & White & White 2,522,583 $94,761,569 RxEdo 1,031,345 $33,144, Scott & White & White 2,563,066 $110,644,948 RxEdo 1,154,230 $34,735, Argus receives payment from the insurers for pharmacy claims it adjudicates. Argus then sends payment to the respective pharmacies, less the transaction or transmission fee Argus charges. The pharmacies are not receiving full payment for the pharmacy claims; therefore, Argus, and its insurers are violating the prompt pay statutes. Because the full amount of the clean claims are not being paid to providers, the insurers are falsely reporting prompt pay data to TDI. 18. The contract addresses maximum amounts an insurer pays for drugs. This provides an opportunity for a PBM to make money on the spread. The price the insurer pays is the average wholesale cost, maximum allowable cost, wholesale acquisition cost, or some other cost. The pharmacy agrees to accept the lesser of average wholesale cost, maximum allowable cost, wholesale acquisition cost, or amount insurer pays. For example, the insurer may pay $10 for the drug and the pharmacy has agreed to accept $8 for the drug provided, so the PBM makes an additional $2 from this transaction. 19. PBMs also contract with drug manufacturers. PBMs make money from manufacturer rebates, which it shares with the insurers. PBMs receive money, rebates, from manufacturers for the gross volume of their drugs sold. 20. PBMs also have a primary source of revenue with mail order business. Many patients require prescription drugs annually. Normally, when someone buys a product in bulk, there is a discount or savings. Most health benefit plans limit prescription drugs to a 90 day supply. One would expect that a patient would pay one co-payment and there would be savings to the insurer and patient. Usually, the patient pays 3 co-payments for a 90 day supply of prescription drugs. The insurer also pays the same for a 90 day supply or three 30 day supplies. This may save two pharmacy dispensing fees. However, a 90 day supply has to go to the PBM who handles this with its mail order business. The drugs are mailed to the insured. Any pharmacy could fill and deliver a mail order prescription, but the PBM contract with the insurer cuts off this competition. The PBM uses all of the pricing data, to get the maximum amount of money from its client, but by only charging one dispensing fee it appears to save the insurer money on the equivalent of three 30 day prescriptions. 21. For years, Argus has required pharmacies to pay a fee for each pharmacy claim that is processed electronically. In doing this, it has violated the Insurance Code and has been unjustly enriched at the expense of Texas pharmacies and our citizens. 5

6 Page 6 of Argus claims it provides information services, yet it will not provide information requested by TDI to examine its practices. Argus has intentionally failed to provide TDI information requested by the department, thwarting our ability to perform our regulatory duties. 23. Argus has contracted for years to adjudicate Humana s pharmacy claims, but Argus failed to include this insurer on the required annual reports filed with TDI. 24. Argus claims to be fully transparent, but will not provide financial information to TDI. 25. Argus charges pharmacies five to fifteen cents for each claim it processes. Argus processes about 750,000,000 pharmacy claims per year nationwide. The conduct above, constitutes grounds for disciplinary action against the respondent because: 1. Argus engaged in unfair acts and practices that violated TEX. INS. CODE Chs. 541 and 542. Including, but not limited to engaging in an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. 2. Argus engaged in false, misleading, or deceptive acts or practices under Section 17.46, Business & Commerce Code (b)(1), (2), (3), (5), (7), (12), and (24). 3. Argus violated TEX. INS. CODE Argus violated TEX. INS. CODE (5). 5. Argus violated TEX. INS. CODE Argus violated TEX. INS. CODE If one or more of the above allegations is found to be true, the commissioner could enter an order ordering Respondent and their representatives to cease and desist from charging a transaction fee or transmission fee to pharmacies for processing or adjudicating pharmacy claims. Additionally, the commissioner could enter an order imposing any other sanction provided by law pursuant to TEX. INS. CODE , , , which TDI seeks in the maximum amount allowed by law per violation against Argus, and ordering Argus to pay restitution, with interest, to each pharmacy, wrongfully charged and underpaid. Argus has the right to appear at this hearing and be represented by and through an attorney or any other duly authorized representative. IMPORTANT SECURITY NOTICE: ALL VISITORS TO THE WILLIAM P. CLEMENTS BUILDING WITHOUT AN AGENCY OR DPS ISSUED ID CARD MUST PROVIDE THE BUILDING SECURITY OFFICER WITH THE STATE OFFICE OF ADMINISTRATIVE HEARINGS DOCKET NUMBER AND RECEIVE A VISITOR'S PASS IN ORDER TO BE ALLOWED ACCESS TO THE 6

7 Page 7 of 7 HEARING ROOM. INDIVIDUALS SHOULD ALLOW ADDITIONAL TIME TO GO THROUGH THE SECURITY PROCESS. Respectfully submitted, Patrick Quigley, Attorney Enforcement Section, MC110-1A Texas Department of Insurance 333 Guadalupe Street Austin, TX Tel. (512) Fax (512) Patrick.quigley@tdi.texas.gov CERTIFICATE OF SERVICE I certify that a true and correct copy of the above document was sent to Argus Health Care Systems, Inc., by regular mail on July 21, 2015 at 1300 Washington Street, Kansas City, MO and to its attorney, Kim Yelkin by fax at Patrick Quigley 7

SOAH DOCKET NO C TDI CASE NO Texas Department of Insurance, BEFORE THE STATE OFFICE Petitioner

SOAH DOCKET NO C TDI CASE NO Texas Department of Insurance, BEFORE THE STATE OFFICE Petitioner SOAH DOCKET NO. 454-15-4787.C TDI CASE NO. 6438 Texas Department of Insurance, BEFORE THE STATE OFFICE Petitioner OF Argus Health Systems, Inc. Respondent ADMINSTRATIVE HEARINGS BRIEF OF AMICUS CURIAE