The Beginnings of Caremark Fraud
Pharmacy Benefit Manager (PBM) Caremark was originally founded in 1993 and has since evolved into a key player in the healthcare industry. The company gained significant prominence after being acquired by CVS Health in 2007, creating CVS Caremark. This merger allowed Caremark to leverage CVS’s vast network of retail pharmacies alongside its own PBM services, providing comprehensive prescription drug benefits to millions of Americans. Over the years, Caremark has expanded through strategic acquisitions and innovations in pharmacy benefits management, becoming one of the largest PBMs in the U.S. Its growth is thanks to effective drug price negotiations, high-cost specialty medication management, and cost-saving measures, making it essential in administering prescription drug plans.
While Caremark’s ascent in the PBM industry is impressive, it hasn’t been without controversy. By 2023, Caremark commands a significant portion of the U.S. PBM market with a 24% share. This dominance has attracted attention from regulators and whistleblower law firms. Our firm, focusing on False Claims Act cases, has observed instances where such dominance may lead to questionable practices like inflated drug pricing or undisclosed rebates that defraud healthcare programs. Caremark’s market influence highlights the need for stringent oversight to ensure transparency and compliance with legal standards.
A History of Caremark Fraud
April 2011
The retail pharmacy division of CVS Caremark Corporation agreed to pay $17.5 million to the United States and 10 states to resolve False Claims Act allegations, the Justice Department announced. CVS had allegedly submitted inflated prescription claims to Medicaid programs by billing higher amounts than owed for drugs dispensed to Medicaid beneficiaries with primary third party insurance.
Under the settlement, CVS paid $7,993,615.55 to the United States and $9,506,384.45 to the states, and amended a Corporate Integrity Agreement to ensure proper billing procedures and employee training. The case was brought by whistleblower Stephani LeFlore, a CVS pharmacist, who received a total of $2,595,460 for her role. This case highlighted the government’s commitment to combating health care fraud and protecting federal health programs.
October 2012
RxAmerica LLC, a wholly-owned subsidiary of CVS Caremark Corporation, settled a False Claims Act case involving Medicare’s Prescription Drug Program (Part D). The company agreed to pay the U.S. government $5.25 million to resolve allegations that it submitted false pricing information to the Centers for Medicare & Medicaid Services (CMS). RxAmerica provided prescription drug benefits to Medicare beneficiaries through a Part D plan. During 2007-2008, RxAmerica allegedly misrepresented prices for certain generic drugs on CMS’s web-based tool called Plan Finder. As a result, they received Medicare payments at inflated prices.
December 2013
Caremark agreed to pay $4.25 million to settle allegations of failing to reimburse Medicaid for prescription drug costs for dual eligibles. The government was slated to receive $2.31 million, while five states shared $1.94 million. The allegations, involving a computer platform called “Quantum Leap” to cancel reimbursement claims, arose from a whistleblower lawsuit under the False Claims Act.
September 2014
Caremark paid $6 million to settle allegations of failing to reimburse Medicaid for prescription drug costs for dual eligible individuals. Allegedly, Caremark’s RxCLAIM system incorrectly handled some claims, causing Medicaid to cover drug costs for dual eligibles that should have been paid by Caremark health plans.The settlement arose from a lawsuit filed by whistleblower Donald Well under the False Claims Act where the U.S. intervened & awarded Well $1.02M + interest.
April 2024
A False Claims Act whistleblower lawsuit was unveiled, moving forward to trial. The lawsuit claims that Caremark compelled two Medicare Part D Plan Sponsors, Aetna and SilverScript, to report inaccurate and exaggerated drug prices for purchases at three national chain pharmacies (Walgreens, Rite Aid, and CVS pharmacies), resulting in the federal government overpaying for these generic drugs.
Potential Common False Claims Act Violations by Caremark and Other PBMs
Pharmacy Benefit Managers (PBMs) like Caremark can commit False Claims Act (FCA) violations in various ways, primarily through fraudulent practices that lead to improper billing and payments. Some common ways include:
Inflated Drug Pricing: PBMs may report inflated prices for prescription drugs to Medicare and Medicaid, leading to overpayments by these programs. By setting higher prices than what is actually charged to pharmacies, PBMs can profit from the difference.
Undisclosed Rebates: PBMs often negotiate rebates with drug manufacturers. Failing to disclose these rebates to Medicare or Medicaid and not passing the savings to the government can result in FCA violations. This practice can lead to higher costs for government programs.
Improper Drug Substitution: Substituting prescribed drugs with more expensive alternatives without a valid medical reason can be a violation. PBMs may do this to receive higher rebates from drug manufacturers, thereby increasing costs for government healthcare programs.
Failure to Reimburse Medicaid: When PBMs fail to reimburse Medicaid for prescription drug costs paid on behalf of dual eligibles (those covered by both Medicaid and a private plan), they violate the FCA. This happens when private insurance plans, administered by PBMs, should have covered these costs but did not.
Kickback Schemes: Engaging in kickback schemes, where PBMs receive payments or other benefits in exchange for preferential treatment of certain drugs or pharmacies, can be a violation. Such schemes distort the market and lead to increased costs for healthcare programs.
Billing for Unnecessary Drugs: PBMs may be involved in schemes where they bill Medicare or Medicaid for drugs that are not medically necessary. This fraudulent practice leads to wasteful spending and violates the FCA.
Manipulating Formularies: PBMs have significant control over which drugs are included in formularies (lists of covered medications). Manipulating these lists to include higher-cost drugs due to financial incentives from drug manufacturers can be an FCA violation if it results in unnecessary higher costs to the government.
These practices highlight the importance of stringent oversight and transparency in the operations of PBMs to ensure compliance with legal and ethical standards, particularly when dealing with government-funded healthcare programs