CVS Unit Must Pay Nearly $290 Million in Medicare Whistleblower Lawsuit, Judge Rules

The fraud committed by Caremark was financially motivated and not the result of some ‘innocent or mistaken belief,’ the judge wrote.

A customer leaves a CVS Pharmacy in Irvine, Calif., on Feb. 11, 2021. John Fredricks/The Epoch Times

A federal judge has ordered CVS Caremark Corp., a pharmacy benefit manager (PBM), to pay nearly $290 million in damages and penalties after it overcharged Medicare for prescription drugs.

In an Aug. 19 decision, Judge Mitchell S. Goldberg of the U.S. District Court for the Eastern District of Pennsylvania tripled to $285 million the original damages he ordered CVS Caremark to pay in June, citing the federal False Claims Act. He also added a $4.87 million civil fine.

Goldberg said in June that CVS was liable for $95 million in damages but deferred ruling on whether to treble this amount under the act.

Caremark argued that it should only face minimum penalties. On Aug. 19, Goldberg rejected this, saying that “the fraud was financially motivated” and not the result of “some innocent or mistaken belief.”

PBMs act as intermediaries between drug manufacturers, pharmacies, and Medicare Part D health plan sponsors. Plan D sponsors hire PBMs to negotiate drug prices with manufacturers and determine the pharmacies’ reimbursement amount.

A lawsuit filed in 2014 alleged that Caremark had “intentionally, systematically, and recklessly” submitted false or fraudulent Medicare Part D actual drug costs to the Centers for Medicare and Medicaid Services (CMS) since at least 2007. The case was filed by whistleblower Sarah Behnke, who worked at Aetna Inc., owned by CVS Health, the parent company of CVS Caremark.

Aetna is a Plan D sponsor. CVS Health also owns another Plan D sponsor, SilverScript Insurance Company.

According to the Aug. 19 opinion, Behnke successfully established that Caremark knowingly caused Aetna and SilverScript to misrepresent to the CMS the amount that Medicare Part D beneficiaries paid for prescription drugs.

Anticipating that a 2010 rule change would affect its profits on Part D drugs, Caremark “devised a scheme to earn hidden spread or indirect profit on Part D purchases,” Goldberg wrote in his opinion. This caused CMS to “over-subsidize prescription drug costs to the tune of some $95 million,” the opinion reads.

“When CMS and other industry participants asked questions, Caremark consistently concealed the true nature of its scheme,“ Goldberg wrote. ”Caremark’s actions cost CMS close to $100 million and made the administration of Medicare Part D—a program aimed at lowering drug costs for a vulnerable population—more difficult.”

Even though the company was given an opportunity to explain its scheme to CMS and other industry participants several times, Caremark “concealed the true nature of its pharmacy contracts,” he said.

CMS relies on companies such as Caremark to report Part D drug prices accurately, according to the opinion. The company’s conduct “broke CMS’s trust, and as a result, the public’s trust in CMS,” Goldberg wrote.

Under such circumstances, tripling the penalties and adding civil penalties is warranted, the judge wrote.

CVS Caremark did not respond to a request for comment.

CVS Health also owns CVS Pharmacy, which is the largest pharmacy chain in the United States based on prescription drug market share, according to Statista data.

Louisiana Lawsuit, CVS Response

CVS is also facing lawsuits from the state of Louisiana. State Attorney General Liz Murrill said in July that she had filed three separate complaints against the company.

According to Murrill, CVS engaged in unfair, deceptive, and unlawful practices that “harmed Louisiana patients, independent pharmacies, and the public at large.”

One of the lawsuits alleged that CVS used its market power and other advantages to push drug prices higher than they would be under a competitive market.

Another lawsuit blamed the company for using its market power to impose “unethical and exceedingly high fees on independent pharmacies ... under threat of being expelled from the CVS network,” which amounts to unfair competition and trade practice.

In an emailed statement to The Epoch Times, CVS said in June that it should not have to pay higher rates for “less efficient pharmacies” and that this would result in higher costs for consumers.

“Importantly, CVS Pharmacy remains the lowest cost pharmacy and a critical partner in lowering prescription drug costs for Louisianans,” CVS stated.

The company stated that its business structure allows for “better access, affordability, and advocacy” for those it serves.

Removing CVS pharmacies from Louisiana will increase the state’s costs by more than $4.6 million, according to the pharmacy chain.

“We strongly dispute the baseless and inaccurate claims made in these lawsuits and will vigorously defend ourselves against them,” a spokesperson said.

In June, Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) reintroduced the Pharmacy Benefit Manager Transparency Act. It aims to lower prescription drug prices and ensure greater transparency from PBMs, Grassley’s office said in a June 12 statement.

The bill bans unfair and deceptive pricing schemes and also mandates PBMs to report how much money they make via pharmacy fees and spread pricing to the Federal Trade Commission, according to the statement. Under spread pricing, PBMs charge payers such as Medicaid a higher price than they pay pharmacies for a drug, allowing these companies to pocket the difference.

“For too long, Americans have been left in the dark while PBMs—the mysterious middlemen—manipulate prescription drug prices,“ Cantwell said. ”We need to hold PBMs accountable for skyrocketing drug costs.

“With these bipartisan bills, I’m continuing to fight for accountability and transparency in the drug market so we can shine a light on unfair practices and make sure patients get a fair deal on the medications they need.”

Katabella Roberts contributed to this report.