CVS Caremark has been ordered to pay $95m (which could rise to $285m if treble damages are imposed) after a federal judge found the pharmacy benefit manager improperly inflated Medicare Part D drug prices by failing to report required pharmacy discounts, violating the False Claims Act. 

The ruling follows a bench trial in March and stems from a whistleblower lawsuit that was initially filed in 2014 by a former Aetna actuary named Sarah Behnke.

Under Medicare Part D rules revised in 2010, government subsidies are required to be based on the prices actually paid to pharmacies, including the negotiated discounts. 

US District Judge Mitchell Goldberg of the Eastern District of Pennsylvania ruled that CVS Caremark failed to report post-sale pharmacy price concessions, especially with respect to Walgreens and Rite Aid, which it is required to do under Medicare Part D rules. This caused inflated costs to be passed onto the federal government, or specifically, the Centers for Medicare & Medicaid Services (CMS).

Although the whistleblower initially alleged CVS Pharmacy was also involved, the judge cleared CVS Pharmacy and CVS Health Corp of liability, finding insufficient evidence to link them to the pricing manipulation.

Behnke’s qui tam suit

Behnke had originally claimed that Caremark caused $240m to $330m in damages by overfilling Medicare. Qui tam cases are lawsuits filed by a private individual on behalf of the government to recover funds lost due to fraud against the government, and they are typically brought under the False Claims Act.

This whistleblower case stemmed from her findings in 2012 and 2013 that the insurer wasn’t paying the same prices for Medicare Part D drugs as Caremark’s other clients.

Caremark claimed that the higher prices were because of “market conditions,” Judge Goldberg said.

Behnke’s concerns over Aetna charging it more and others less to offset costs prompted an internal investigation conducted by the law firm Crowell & Moring LLP. The firm concluded that Caremark’s conduct was an accepted practice in the industry, Judge Goldberg said.

While the firm’s investigation was ongoing in 2014, Behnke filed her qui tam suit, and the judge obviously was not persuaded by the “everyone is doing it” argument.

“We are pleased that the ruling was in our favor as to the issues of falsity for CVS Pharmacy and CVS Health Corporation’s liability, and disappointed the court found against Caremark on other issues,” a CVS spokesperson said.

Pharmacy Benefit Managers

Pharmacy Benefit Managers (PBMs) serve as third-party administrators of prescription drug programs for health plans, employers and other entities.

They have been in the news for the past few years thanks to ongoing concerns expressed by lawmakers and state attorneys general about their outsized role in dictating pricing, and becoming so huge (thanks to their common ownership with pharmacies) that they pose significant risks to healthcare consumers.

Earlier this year, the National Association of Attorneys General (NAAG), on behalf of a bipartisan coalition of 39 state and territory attorneys general, penned a letter to congressional leadership urging Congress to pass a law “prohibiting PBMs, their parent companies, or affiliates from owning or operating pharmacies.” And then Arkansas adopted a first-in-the-nation bill that did just that: It blocks PBMs from owning pharmacies in that state.