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Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, June 5, 2012

Arbitration Award Upheld in Atlanta District Court

As reported in, an arbitrator awarded Fox Insurance Company (“Fox”) over $3.3 million, in an arbitration Fox and ProCare, its former pharmacy benefit manager.   On May 21, 2012, the U.S. District Court for the Northern District of Georgia, Atlanta Division, issued its decision confirming the arbitration award.

NatMuseum.RavennaProCare is a pharmacy benefit manager (“PBM”) that provides such services to over 290 insurance companies, including Fox.  Pursuant to a client services agreement (“the Agreement”), ProCare acts as Fox’s attorney-in-fact by making payments to pharmacies.  The Agreement provides:   Fox “shall have the right to request that ProCare conduct an audit of a specific participating Pharmacy Provider if it believes such pharmacy is not accurately administering Client’s benefit plans or the terms of this Agreement”.  “Any identified overpayments to a participating Pharmacy Provider relating to Fox’s Covered Persons, shall be returned to Fox by ProCare minus any administrative fees associated with this service”.  Such a refund “may be accomplished ... through application of a credit against future claim invoices” Also included in the Agreement was a provision stipulating that any controversy related to the Agreement or breach thereof was to be settled by binding arbitration governed by the commercial rules of the American Arbitration Association.

In May 2010 ProCare initiated an arbitration proceeding seeking to recover money allegedly owed by Fox.  Fox filed an answer and counterclaim, and requested an audit, as premitted under the Agreement.  The audit authorized by the arbitration panel identified $1,949,063.68 associated with approximately 165 pharmacies that was subject to reclaim based on waste or abuse, and awarded Fox $1,658,739.17 in additional damages.  The panel ordered ProCare to collect the $1,949,063.68 identified in the audit and return that sum to Fox. 

While ProCare did not contest the damage award, it filed a motion to vacate the arbitration award, contending the $1.9 million sum constituted an award against the non-party pharmacies and that the arbitration panel thereby overstepping its authority.  The District Court rejected this challenge.  To the extent that the non-party pharmacies believe they are entitled to any portion of the $1.9 million, they may seek those funds from Fox, ProCare, or both.  The Agreement allowed for the collection of overpayments through application of a credit against future invoices, and this is exactly what the arbitration panel ordered.  Although ProCare’s obligations under the Agreement may conflict with its obligations under contracts with certain pharmacies, that conflict does not mean that the arbitration panel exceeded its authority.  Indeed, the Agreement states that ProCare must return overpayments without mention of ProCare’s contracts with participating pharmacies. 

The District Court also rejected ProCare's argument that the arbitration panel improperly ordered a setoff against funds that ProCare held in trust, in violation of Georgia law.The District Court noted taht Fox’s claim to funds held by ProCare arises from the Agreement, not from a Georgia statute.  In any case, even if the arbitrator incorrectly interpreted Georgia law with respect to setoff, a “panel’s incorrect legal conclusion is not grounds for vacating or modifying the award.” 

Thus, ProCare’s Motion to Vacate the Arbitration Award was denied.

[Chistina Phillips & JT]

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