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CVS faces class-action suit alleging overcharging of generic drugs

Seven health insurers with businesses that span the nation have sued CVS Health Corp., alleging the Woonsocket, R.I.-based retail giant schemed with pharmacy benefit managers to overcharge health plans for generic drugs.

These insurers’ federal class-action complaint, filed in Rhode Island district court, represents just one lawsuit accusing CVS of fraudulently hiding the real cost of medications, leaving insured customers paying more for drugs than those without insurance.

In the Rhode Island case, insurers—including Carefirst of Maryland, Group Hospitalization and Medical Services, CareFirst BlueChoice, Blue Cross and Blue Shield of South Carolina, BlueChoice HealthPlan of South Carolina, Group Hospitalization and Medical Services, Blue Cross and Blue Shield of Louisiana and HMO Louisiana—seek to recoup what they claim they overpaid for “many millions of transactions” over more than a decade.

“CVS tried to have its cake and eat it too,” the lawsuit said. “It tried to find a way to both broadly offer discounts to retain critical pharmacy customers, including cash paying customers, and also avoid the unprofitable result of reporting the discounted prices as the usual and customary price.”

According to the lawsuit, CVS unveiled its Health Savings Pass program in November 2008, offering a cash discount for 400 of the most commonly prescribed generic drugs to customers willing to pay a membership fee of just $9.99, with therapies for conditions ranging from arthritis to allergies to diabetes. CVS unveiled the initiative as a way to compete with other big-box retailers that were getting into pharmacy business at the time, including Walmart, Target, Costco and more.

But unlike its competitors, CVS failed to report the drug prices paid through this program to the insurers it had contracted with, violating industry and contractual standards that required it to report the “usual and customary” rate of their therapies, the suit said.

CVS hiding the cost of its medications is no accident, the lawsuit said—the retailer told its sales reps not to disclose drug prices through these programs, and consulted its Caremark pharmacy benefit manager about “[h]ow to compete on price without exposing third-party contracts.” Because CVS reported only the rate it contracted with insurers, rather than the cash discount it offered individuals, insurers say they were forced to pay a higher rate.

“CVS has now pocketed billions of dollars in ill-gotten gains through this unlawful scheme—including millions from plaintiffs,” the complaint reads.

In 2016, “various government agencies” began investigating CVS’s Health Savings Program, the lawsuit said. Fearing pushback from regulators, CVS rebranded the service to the Value Prescription Savings Card program, and hired ScriptSave to manage the initiative, the lawsuit said. But the service essentially operated in the same way—and does so to this day.

“This is fraud. And CVS was able to perpetrate and conceal this fraud for years,” the complaint reads.

Insurers seek to be reimbursed for twice the amount they say they were overcharged by CVS, prejudgment interest of 12{f771d91d784324d4be731abc64bffe0d1fd8f26504ceb311bcfd8e5b001778f4}, along with attorneys’ fees and costs and disgorgement. This could equal billions of dollars in penalties—in 2010, for example, the lawsuit claims that over 67 million of CVS’ scripts were billed at fraudulently higher rates for a total cost of $547 million.

If Rhode Island is not found to be the proper location to try the case, insurers allege that CVS’ practices have violated consumer protection laws in Maryland and Virginia, and break the unfair trade practices regulations in South Carolina. The class-action could be heard in those venues, they said.

CVS, for its part, disputes insurers’ allegations, saying that drug prices charged through its Health Savings Pass and Value Prescription Savings Card programs were not the “usual and customary” rates available and, therefore, the company is not guilty of fraud.

“We did not overcharge plans for prescription drugs, and we will vigorously defend against these baseless allegations, which are completely without merit,” a spokesperson wrote in an email.

The Rhode Island case represents just one of at least five other related lawsuits filed against CVS.

Capital BlueCross, Highmark, HealthNow, Horizon Healthcare Services and Blue Cross Blue Shield affiliates in Alabama, Florida, Minnesota, North Carolina, North Dakota and Kansas City have also sued CVS’ over its drug pricing.

The retailer also faces a similar class-action from the Sheet Metal Workers’ Local 20 Welfare and Benefit Fund and Indiana Carpenters Welfare Fund.


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