CVS offers hundreds of generic drugs at low, discounted prices for individuals that don't use insurance and pay in cash. The goal, Blues health plans in six states alleged, was to remain competitive as well as obfuscate its true prices from third-party payers.
CVS told the Blues plans that the out-of-pocket prices for these generic drugs were higher than what was charged, which would yield higher reimbursement rates that amounted to billions of ill-gotten gains, according to the complaint filed Wednesday in a Rhode Island federal court.
"This is fraud. And CVS was able to perpetrate and conceal this fraud for years," the lawsuit reads.
The lawsuit was filed by Blues plans in Alabama, Florida, Minnesota, Missouri, North Carolina and North Dakota.
CVS said in a statement that the savings programs were not in any way concealed or fraudulent.
"We did not overcharge plans for prescription drugs, and we will vigorously defend against these baseless allegations, which are completely without merit," the company said, adding that the generic-drug prices available through these programs were not the usual and customary price charged by CVS Pharmacy, nor the price available to the general public.
If the usual and customary price, or the price offered to the uninsured or someone who chooses to pay cash, is lower than the price pharmacy benefit managers negotiate with health plans and employers, payers like the Blues are only required to pay CVS the former. This ensures that health plans and their members do not pay more for a given generic drug than those who pay cash.
CVS felt the pressure from other big-box stores like Walmart when they began to offer cheaper generic drugs than CVS, the Blues plans alleged, which translated to lower revenue. But since CVS' generic-drug sales more directly impacted its profitability, the company wasn't willing to make that concession, the Blues claimed, citing an alleged internal document that read "making the program 'too attractive' creates higher risk for our 3rd party plan pricing and profitability."
CVS allegedly tried to find a way to both broadly offer discounts to retain critical pharmacy customers as well as avoid the unprofitable result of reporting the discounted prices as the usual and customary price, which would have translated to a loss of more than $547 million per year, according to an alleged June 2010 internal memo.
"CVS tried to have its cake and eat it too," the complaint reads.
CVS refused to disclose its cash pricing information to allow payers to discover CVS's true usual and customary prices, the Blues alleged.
The plaintiffs cited internal CVS documents that indicated that the company discussed whether its competitors were reporting generic-drug discount prices as the usual and customary prices. One CVS employee allegedly commented on Rite Aid's program, asking: "Without any enrollment fee, will this create some of the 3rd party compression we've discussed over the past several months?"
"I have been puzzled by their offering from the start. They expose themselves to other third parties and to Medicaid agencies. This is their new U&C," a CVS executive allegedly responded.
CVS employees allegedly had similar conversations about Walgreens and Kmart.
"I'm wondering if the Walgreens and KMART are billing usual and customary prices to all third party plans and only eating the difference on their own generic plan. Since they identify their plans as third party they might not be eroding their global reimbursement like Wal-Mart. These are some interesting points to note if we decide to enter the game," alleged internal documents in the complaint read.
CVS allegedly worked with its pharmacy benefit manager, Caremark, to avoid reporting its cash discount prices as its usual and customary prices.
One executive allegedly wrote that Caremark would provide CVS advice on "how to compete on price without exposing 3rd party contracts."