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Rural pharmacy denied funds required for survival

Virginia Lawyers Weekly//March 28, 2023

Rural pharmacy denied funds required for survival

Virginia Lawyers Weekly//March 28, 2023//

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Although the debtor is owed more than a million dollars by a pharmacy services administrative organization, which that organization refuses to transfer because of an alleged overpayment, and the debtor may have to go out of business without the funds, which would cause irreparable harm to the surrounding community, the debtor’s motion for injunctive relief was denied because it was unlikely to succeed on the merits.


The debtor, Cavalier Pharmacy Inc., is an independent retail community pharmacy in Wise, Virginia. Health Mart Atlas LLC, or HMA, is a pharmacy services administrative organization which, among other things, coordinates receivables processing and drug pricing contracts for supplies to pharmacies like the debtor.

The debtor asserts that as of the “Petition Date, the Debtor was due monies from accounts receivable, or monies due to Debtor from insurance companies for prescriptions filled for customers of the Debtor, in the amount of $280,000.00; additionally HMA has refused to turn over the monies due to Debtor since the Petition Date, and HMA continues to withhold all funds due to Debtor, which the Debtor estimates now to be approximately $300,000.00 ….”

The debtor and HMA are parties to a pharmacy participation agreement, or PPA, “pursuant to which HMA markets networks of independent pharmacies (such as the Debtor) to ‘Payors’ (e.g., prescription drug plans and the like), enters into agreements with Payors governing the submission of covered pharmaceutical reimbursement claims and payments, and processes pharmacy reimbursement payments on behalf of the Debtor in exchange for a monthly fee.” HMA asserts that the PPA expressly provides for recoupment rights in favor of HMA for amounts received from payors in the event HMA “determines that the Debtor is, or is reasonably anticipated to be, subject to a negative charge, recoupment, true-up or other fee or clawback from a Payor.”

The debtor argues that “CVS Caremark, an insurance company of some of Debtor’s customers, alleges Debtor owes CVS Caremark money as a result of an audit performed by CVS Caremark. CVS Caremark claims it is owed approximately $1,041,272.21 from the Debtor.” The debtor’s owner testified that HMA is withholding money under a contractual claim of recoupment not only from CVS Caremark, but also from other insurance companies to offset the alleged overpayment by CVS Caremark.

The debtor has moved for a temporary restraining order and preliminary injunction, seeking to require HMA to turn over the funds the debtor contends belong to it.


A preliminary injunction is warranted where the plaintiff has established ‘ that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.’”

In this case, three of the four elements tip decidedly in the debtor’s favor. Irreparable harm will no doubt befall the debtor if it is forced to close its doors because HMA can essentially reduce its income stream to zero. The owner/pharmacist, six full time employees and two part time employees will likely no longer have employment in a region where jobs are scarce.

The balance of equities favors the debtor in that HMA services approximately 6,200 independent pharmacies, and the cash flow it administers and the revenue it receives is clearly substantial. This is but one pharmacy in HMA’s massive network, yet one with a positive cashflow desperately seeking to reorganize and continue its services to the community.

Arguably, the strongest factor weighing in favor of the temporary injunction is the public interest. Closing this independent pharmacy, which provides a wide range of unique and critical services to this rural community, will be devastating to the debtor, to the town of Wise, to Wise County and to residents of the surrounding areas.

But the debtor must prove it has a likelihood of success on the merits, and the test is will it be successful in this litigation where it seeks turnover of its receivables, an injunction and a finding that the automatic stay is violated. The court finds that the debtor has not carried this burden.

Debtor’s motion for injunctive relief denied.

Cavalier Pharmacy Inc. v. Health Mart Atlas LLC, Case No. 23-07002, March 8, 2023. WDVA Bankr. at Roanoke (Black). VLW No. 023-4-006. 12 pp.

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