The whistleblower brought this suit under the federal False Claims Act.

In February 2014, whistleblower Sarah Benhke, the former senior Medicare Part D actuary at Aetna, filed a sealed complaint against CVS Caremark, the pharmacy benefit management department of healthcare giant CVS Health, accusing the company of billing Medicare Part D and Medicaid a higher price for prescription drugs than it pays to retail pharmacies, a practice known as “spread pricing.”

A few weeks ago, the complaint was unsealed when the government declined to intervene in the case. The two companies, CVS and Aetna, are also currently in the process of trying to merge.

To receive coverage under Medicare Part D, beneficiaries must affirmatively enroll in one of the hundreds of Part D plans offered by private insurers like Aetna. Part D insurers receive direct subsidies from the Centers for Medicare & Medicaid Services (CMS) to cover the population of patients enrolled in a given plan. The amount paid is determined via a process called “risk adjustment” and is based on a patient’s health status, demographics, and several other factors. The payments are made on a prospective basis, with the amount paid representing expected costs for the following year. If an insurer’s costs exceed the payment provided by CMS, the insurer may be eligible to recoup some of its losses through a risk-sharing agreement with CMS.

A pharmacy benefit manager, or PBM, is a third party that administers prescription drug programs of commercial insurers, Medicare Part D, state government employee plans, and other similar entities. In short, PBMs act as a middle-man between drug manufacturers and pharmacies on one side, and insurers (including Medicare) on the other. PBMs confirm insurance-enrollment status, determine copays, and negotiate drug prices. In 2016, CVS Health controlled about a quarter of the American PBM market, managing the pharmacy benefits of over 60 million Americans.

If a Part D plan uses a PBM, both the plan and the PBM are required to submit information regarding drug prices (including any discounts or rebates) to CMS. The plan also must report any difference between the aggregate amount the plan pays its PBM and the amount the PBM pays retail pharmacies.

The whistleblower’s complaint focuses on the CVS PBM’s actions, which allegedly caused CMS to be overbilled through its contracts with Aetna, which provides benefits to 750,000 Part D beneficiaries. In 2010, Aetna signed a contract with CVS Caremark under which the PBM’s responsibilities included administering a network of pharmacies to serve Aetna beneficiaries, negotiating drug prices on Aetna’s behalf, and providing Aetna with complete drug cost data. In 2012, CVS Caremark informed Aetna that the maximum allowable price for 229 drugs, representing 59 percent of Aetna beneficiaries’ drug utilization, would increase by an average of 13 percent.

Sarah Benhke, the whistleblower, performed an investigation following the price increase and discovered that CVS Caremark had been charging significantly higher rates than other Part D sponsors pay for the same drugs. For example, the price of lisinopril, a drug used to treat hypertension, ranged from $1.54 to $3.02 for other plans, but Aetna paid $4.69.

In 2013, Aetna alerted CVS Caremark to Behnke’s findings and asked whether the PBM could use this information to negotiate better prices for Aetna – or if CVS was getting some sort of rebate that they were not passing along to Aetna (and thus concealing from CMS). CVS Caremark allegedly responded that it had negotiated lower prices with retail pharmacies, but under its agreement with Aetna, it was not required to pass these prices on to the insurer. Aetna disagreed with this interpretation of the contract, although the complaint admits that this behavior would be acceptable on the commercial side of the business. Aetna also uses CVS Caremark as its PBM for administering commercial plans. According to the complaint, this caused CMS to pay higher prices than it would have if CVS Caremark behaved in a lawful and transparent fashion.

The whistleblower brought this suit under the federal False Claims Act (FCA), a law that allows private parties to report fraud against the government and receive a piece (15-30 percent) of the financial recovery as an award. Under the FCA, the government has an option to join the lawsuit and sue an alleged fraud perpetrator alongside the whistleblower, or, as happened in this case, decline to intervene.

The government may change its intervention decision and later seek to rejoin the case. If the whistleblower moves forward and recovers any damages from CVS, she stands to earn a higher award than had the government joined her case. CVS has denied the allegations and the case is proceeding to litigation.

We will continue to track this case as it unfolds.

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