This ruling is particularly significant as it sheds light on the all-too-opaque process of drug pricing.
Culminating a decade of ongoing litigation, a federal judge in the Eastern District of Pennsylvania handed down a $95 million judgment against CVS Health’s pharmacy benefit manager (PBM) company, CVS Caremark, for overbilling the government for Medicare Part D sponsored drugs.
This case stems from a 2014 qui tam complaint filed by a relator alleging that Caremark violated the False Claims Act by causing Medicare Part D plan sponsors (health insurers who offer Medicare Part D coverage) who contracted with Caremark to provide PBM services to misrepresent to the government the amount they paid for prescription drugs on behalf of Medicare beneficiaries. In other words, the relator alleged that Caremark was effectively billing Medicare for higher reimbursements than it paid pharmacies for covered drugs, meaning that Caremark (through its contracted Medicare Part D plan sponsors) reported higher costs of drugs to the government than what it actually paid pharmacies for dispensing Medicare Part D drugs.
According to the 105-page opinion issued by Chief U.S. District Judge Mitchell S. Goldberg, the relator was the head Medicare Part D actuary for Aetna, which contracted with Caremark to become the insurer’s PBM at the time she brought this lawsuit.
Prior to 2010, Medicare Part D plan sponsors were permitted to report to Medicare the price that they paid to the PBM, even if that price was different from the amount the PBM paid to the pharmacy. The difference between the amounts the PBM paid to the pharmacy and received from the Medicare Part D sponsor is known as “spread pricing.”
Due to the reported unreliability of such reporting, Medicare in 2010 promulgated new rules for the drug costs that could be reported for Medicare Part D reimbursement. Medicare required that Medicare Part D plan sponsors report to Medicare the actual costs they paid for medication for Medicare Part D beneficiaries.
The relator alleged that Caremark’s Medicare Part D pricing setup was significantly higher than what similar Medicare Part D plan sponsors charged their beneficiaries for the same drugs, meaning Caremark was charging Aetna higher prices for the same Medicare Part D drugs that Caremark was charging to its other insurer clients. And Aetna was in turn required to report to Medicare Part D the “actual prices” paid to the PBM for Medicare Part D drugs. Because of Caremark’s high charges to Aetna, which were higher than what Caremark was required to pay for Part D drugs in reimbursement, Aetna and other Medicare Part D plan sponsors misrepresented the amounts they were required to report to the government as being higher than what they otherwise should have been. In light of such misrepresentations, Medicare ultimately paid Caremark more for the administration of Medicare Part D drugs than it should have.
This ruling is particularly significant as it sheds light on the all-too-opaque process of drug pricing. Independent pharmacies, meaning those not affiliated with or owned by PBMs, are beholden to the reimbursement structures dictated by PBMs such as Caremark. When PBMs are accused of having violated the False Claims Act by overbilling Medicare—when Caremark is supposed to be reporting the actual prices remitted in reimbursement to pharmacies for Medicare Part D drugs—it follows that the reimbursement paid to pharmacies is significantly less than what it otherwise should be. Caremark used the monies gained from a system of falsely billing Medicare to line its own pockets rather than increase reimbursement to pharmacies that are servicing and treating beneficiaries.
As a result of such schemes by PBMs leading to closings of independent pharmacies that compete with the PBM-owned pharmacies, the Federal Trade Commission, the House Oversight Committee, the House Judiciary Committee and numerous other federal and state agencies and state attorneys general are investigating such conduct, bringing enforcement actions, filing lawsuits and enacting legislation to help level the competitive playing field for independent pharmacies.
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