Santa Clara, CA: CVS is facing a potential consumer fraud class action lawsuit alleging the it has engaged in a massive fraudulent scheme with third parties to increase generic prescription drug costs for consumers who buy them using insurance. The goal of the scheme is allegedly to increase profits.
According to the lawsuit, filed in the U.S. District Court for the District of Rhode Island, CVS knowingly colludes with third-party pharmacy benefit managers (PBMs) to raise the prices of generic drugs, charging consumers what it calls a “co-pay.” However, a significant portion of this amount in fact goes back to PBMs. CVS also earns more money from the transaction compared to customers who don’t use insurance.
Using their leverage with pharmacies, the PBMs negotiate lower prices that the insurance companies have to pay to pharmacies, the complaint asserts. In turn, pharmacies, benefit from having enrollees in the insurance plan come to their stores to have their prescriptions filled.
According to attorneys for the plaintiffs, “when customers go to CVS to fill their prescription, they assume they should use insurance to buy their drugs. In fact, pharmacists often insist on getting customers’ insurance information, even if the customers don’t want to use it. Now we know why – pharmacies are making more money from insurance purchases than cash purchases because of the secret deals they reached with PBMs.”
The lawsuit alleges CVS engages in is a two-pronged drug pricing scheme and has done since at least 2010. This scheme allegedly violates the Racketeer Influenced and Corrupt Organizations (RICO) Act and federal ERISA laws.
In the first part of the scheme, customers who use their insurance to fill prescriptions at CVS are actually charged a higher price for the same medication than those who pay with cash or don’t use their insurance, according to the suit. CVS does not informs customers that they can save money by not using insurance, the complaint claims.
Megan Schultz, named plaintiff in the lawsuit, alleges she used her insurance to purchase a certain generic drug at her local CVS. Under her plan she paid $165.68, but if she had paid cash, without using her insurance, she would have paid only $92, a 45 percent difference that CVS never told her about.
Further, the second part of the scheme involves CVS overcharging customers by collecting “co-pays” that exceed the pharmacists’ price and profit, again unbeknown to the customer, according to the complaint. CVS gives this extra cash back to PBMs, again part of an undisclosed agreement between the PBMs and CVS, the complaint alleges.
These contracts between CVS and the PBMs are sealed from public view under strict confidentiality agreements, barring consumers from ever learning the true source of their drug cost.
Customers who used their insurance at CVS or another pharmacy to buy one of the following generic prescriptions may be affected, this list includes some but not all of the affected prescriptions: Acyclovir, Albuterol, Alprazolam, Amoxicillin, Amphetamine, Azithromycin, Cephalexin, Benzoyl Peroxide, Clindamycin, Clonazepam, Clonidine, Diazepam, Flonase, Hydrocodone, Ibuprofen, Lantus, Levocetirizi, Levofloxacin, Levothyroxine, Lexapro, Lorazepam, Oxycodone, Penicillin, Percocet, Prednisone, Restasis, Sertraline, Simvastatin, Singulair, SMZ/TMP, Tamiflu, Viagra, Vitamin D.
The lawsuit states that this hidden fraud violates federal racketing laws. The suit also brings claims of fraudulent concealment, fiduciary conflicts of interest, lack of adequate care and violations of state consumer rights laws.
Under ERISA, CVS has an obligation as a fiduciary to act “solely in the interest of the participants and beneficiaries,” according to the suit. Plaintiffs believe that by engaging in this alleged fraudulent scheme, CVS has failed to uphold this duty. Further, by basing its profits in this collusion with a third party, it has created a blatant conflict of interest that harmed its customers.
Plaintiffs are represented by Steven Berman of Hagens Berman.