Dive Brief:
CVS must pay the government at least $95 million after a federal court ruled in favor of a whistleblower, finding its pharmacy benefit subsidiary Caremark overcharged Medicare for generic drugs.
Judge Mitchell Goldberg in the Eastern District of Pennsylvania ruled on Wednesday that Caremark inflated Medicare Part D drug prices to offset other costs.
But Goldberg said that the False Claims case did not prove liability against the parent company CVS Health or CVS Pharmacy. A CVS spokesperson on Wednesday said the company was “pleased” about the two liability rulings, but “disappointed” the court ruled against Caremark on other issues.
Dive Insight:
Sarah Behnke, a former actuary in CVS’ insurance subsidiary Aetna, filed the lawsuit in 2014, alleging the company had violated the False Claims Act by knowingly and falsely claiming funds from the U.S. government. Although the case was filed in 2014, it was sealed until 2018 after the Justice Department declined to intervene.
At issue in the lawsuit is Caremark’s pricing arrangement with insurers and pharmacies. PBMs like Caremark sit between insurers and pharmacies in the drug pricing supply chain, and can negotiate drug costs with retail pharmacies.
Medicare Part D plans, where the the federal government partially subsidizes the cost of prescription drugs, contract with insurers, or Part D sponsors, for their plans. Part D sponsors then can contract with PBMs to negotiate drug costs with pharmacies. In some cases, PBMs can charge different amounts for drugs from pharmacies than the amount paid for by insurers and pocket the difference, a technique called spread pricing.
To calculate the subsidies to provide, the CMS requires Part D sponsors to file reports detailing how much sponsors spent on drugs. Behnke alleged Caremark misrepresented the prices of generic drugs filled at some pharmacies and overcharged Medicare between 2010 and 2016.
Goldberg found Caremark inflated its pricing of Part D drugs to offset other costs in its pricing arrangement.
“Caremark knew that the more it paid for Part D drugs, the less it had to pay for commercial drugs,” Goldberg ruled. “Caremark knew if it paid less on commercial drugs, it could earn more spread.”
Caremark must pay $95 million back to the government. However, Caremark’s damages could rise further. Goldberg declined to rule Wednesday on the amount of civil penalties or number of false claims CVS violated. Because the lawsuit was brough by a whisteblower as a qui tam action under the False Claims Act, CVS could be liable for three times the government’s damages plus an inflation-adjusted penalty.
Opening briefs for those damages are due July 9.
PBMs have caught flak recently from lawmakers and regulators who accuse the middlemen of raising the price of prescription drugs. Iowa passed a law recently placing restrictions on PBMs, joining other states with similar laws like Texas, Georgia, Indiana and Montana.
