Lawsuit: CVS Caremark inflated drug costs via ‘manipulation scheme’
A roofers’ union is the latest organization to file a lawsuit accusing a major health insurer and its pharmacy benefit manager of orchestrating a scheme that allegedly drove up prescription drug costs while withholding billions of dollars in rebates.
The complaint, filed in a Rhode Island federal court on Wednesday, alleges that CaremarkPCS Health — one of the nation’s largest pharmacy benefit managers — used its control over drug formularies to favor higher-cost medications in exchange for payments routed through a related company. CVS Health Corp., owner of Caremark, is also a defendant.
The lawsuit comes on the heels of a similar complaint filed last month in Illinois by the Plumbers’ Welfare Fund, accusing Express Scripts and its parent company, Cigna, of a similar scheme.
Caremark has long said its role is to negotiate lower net drug costs for clients and ensure access to safe and effective medications. The Roofers’ Unions Welfare Trust Fund said they paid billions annually to Caremark to manage prescription drug benefits for millions of members.
The union “represents workers’ rights in all segments of the roofing and waterproofing industry” and is located in Oak Brook, Ill. CaremarkPCS is headquartered in Rhode Island.
CVS could not be reached for comment.
‘Manipulation scheme’
According to the lawsuit, Caremark attracted clients by promising to reduce costs through rebate negotiations with drug manufacturers and careful management of formularies, the lists of medications covered under health plans.
But the plaintiffs allege those promises were undermined by what they describe as a “Formulary Manipulation Scheme” involving Caremark, its parent, CVS Health, and subsidiary Zinc Health Services.
The lawsuit claims Caremark steered drugmakers to make large payments to Zinc — described in the filing as a group purchasing organization created in 2020 — rather than securing higher rebates for clients. Those payments were allegedly labeled as service fees but functioned as kickbacks tied to favorable placement of drugs on formularies.
“Defendants’ scheme of negotiating with drug companies for the payment of billions of dollars to Zinc, falsely labeled as service and other fees, has reduced by billions of dollars the payments that Roofers and the Class received from Caremark as rebates,” plaintiffs state. “Instead of using their negotiating leverage to maximize the rebates secured for Caremark PBM customers as they represented they would do, Defendants used that leverage to extract payments to Zinc for their own benefit.”
Preferred access alleged
The plaintiffs allege that, in exchange for the payments, Caremark gave preferred formulary placement to higher-priced brand-name drugs while excluding or limiting lower-cost alternatives, increasing costs for plan sponsors and their members.
Nearly every major drug company participated in the scheme, plaintiffs allege, including AbbVie, Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, Boehringer Ingelheim, Eli Lilly, Gilead Sciences, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer and Sanofi.
The lawsuit further claims that these practices violated contractual obligations requiring that compensation from drug manufacturers be tied to legitimate services, as well as the implied duty of good faith and fair dealing.
The alleged scheme dates back to March 2020, when Zinc was established, and continues to the present, according to the filing.
Plaintiffs also point to ongoing scrutiny of pharmacy benefit managers by regulators and lawmakers, citing investigations by the Federal Trade Commission, state officials and congressional committees.
The lawsuit seeks to recover the plaintiffs’ alleged losses, along with additional damages and other relief.
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