Dive Brief:
- A federal judge has ordered CVS Caremark to pay almost $290 million in damages and penalties after a whistleblower proved the pharmacy benefit manager overcharged Medicare for prescription drugs.
- On Tuesday, Judge Mitchell Goldberg of Pennsylvania’s eastern district court tripled the damages he’d previously ordered Caremark to pay to $285 million, and tacked on a $4.9 million civil fine.
- CVS — which tried and failed to convince Goldberg to decrease the penalty — said it plans to appeal the ruling.
Dive Insight:
The case against Caremark stretches back more than a decade. In 2014, a whistleblower accused the PBM of knowingly misrepresenting the cost of drugs at Walgreens and Rite Aid stores, causing Medicare prescription drug plans, including Aetna, to inflate how much their beneficiaries were paying. As a result, those plans overcharged Medicare for the drugs for years.
The whistleblower, Sarah Behnke, is a former head actuary for Medicare Part D at Aetna, which CVS bought in 2018.
Actual damages due to Caremark’s scheme reached $95 million. But Goldberg elected to triple the amount as allowed under the False Claims Act, which lets whistleblowers bring complaints on the government’s behalf and share in potential damages.
Caremark argued tripling damages was excessive. Goldberg allowed that the fine is significant, but said it was fair based on Caremark’s actions.
“The evidence at trial made clear that the fraud was financially motivated, not the result of some innocent or mistaken belief,” the judge wrote in his decision. “Time and again, Caremark was presented with an opportunity to explain its scheme to CMS and other industry participants, and time and again, Caremark concealed the true nature of its pharmacy contracts.”
Caremark’s lawyers also tried to lower the $4.9 million civil penalty, arguing that the plans were responsible for filing false claims, not the PBM itself, and that the behavior was limited to just two pharmacies over two years.
But Caremark knew its actions would result in illegal claims, according to Goldberg.
“Caremark devised a scheme to earn hidden spread or indirect profit on Part D purchases, and in the process, caused CMS to over-subsidize prescription drug costs,” the judge wrote in his decision. In addition “Caremark should not pay less because it only committed fraud with respect to two of the largest pharmacy chains in the country,” Goldberg said.
“We are pleased that the Behnke ruling in June was in our favor as to certain issues for CVS Pharmacy and CVS Health Corporation’s liability, and disappointed the Court found against Caremark on other issues. We plan to appeal,” a CVS spokesperson said over email.
Tuesday’s penalty comes one month after CVS was hit with another major fine — $949 million — in a separate government fraud case, this one centered around the healthcare juggernaut’s long-term care pharmacy division. CVS is also appealing that decision.
Payouts in the hundreds of millions of dollars are significant but pale in comparison to CVS’ annual revenue, which reached $372.8 billion in 2024.
Still, the rulings come amid intensifying public scrutiny of PBMs, which sit in between drugmakers, payers and pharmacies in the pharmaceutical supply chain. Congress and antitrust legislators have been increasingly critical of major PBMs for leveraging their position and market power in order to profit, though PBMs contend they save patients, payers and the American taxpayer money by lowering drug costs.
