A U.S. federal court has ordered CVS Health’s pharmacy benefit management unit, Caremark, to pay nearly $290 million in damages and penalties over allegations it defrauded the Medicare system. The decision, issued this week by Chief U.S. District Judge Mitchell Goldberg in Philadelphia, marks one of the largest False Claims Act rulings against a pharmacy benefit manager in recent years. The case originated from a whistleblower lawsuit filed in 2014 by Sarah Behnke, a former actuary at Aetna specializing in Medicare Part D.
Behnke alleged that Caremark submitted inaccurate drug cost data to the Centers for Medicare & Medicaid Services (CMS) for the 2013 and 2014 calendar years. These cost adjustments, known as direct and indirect remuneration (DIR) fees, allegedly led to Medicare overpaying approximately $95 million to private insurers, including Aetna and CVS’s SilverScript unit. In June, Judge Goldberg found Caremark liable for the overbilling and initially awarded $95 million in damages. On Tuesday, he applied treble damages as required under the False Claims Act and added $4.87 million in civil penalties, bringing the total award to $289.87 million.
The court determined that Caremark had acted with reckless disregard and deliberate ignorance, legal standards sufficient to trigger maximum financial penalties under federal law. While the judge concluded that there was no clear evidence Caremark knowingly committed fraud, he emphasized that the company’s failure to properly vet the data it submitted constituted serious misconduct. The decision also upheld the constitutionality of the penalty amount, rejecting arguments that the financial sanctions were excessive under the Eighth Amendment. CVS Health, the parent company of Caremark, expressed disappointment with the ruling and confirmed plans to appeal.
Court triples damages against CVS under False Claims Act
The company noted that its core businesses, including CVS Pharmacy and CVS Health Corporation, were not found liable. CVS stated that it remains committed to compliance with all regulatory obligations and believes the penalties imposed do not align with the company’s intent or the circumstances involved. The ruling includes post-judgment interest, which will accrue until the award is paid in full.
While the federal government stands to recover a significant sum, it remains unclear what portion of the settlement Behnke will receive under whistleblower provisions of the False Claims Act, which typically allow claimants to receive between 15 and 30 percent of recovered funds. This judgment adds to the mounting legal pressures facing CVS. In July, a federal court in Manhattan ordered the company’s long-term care pharmacy unit, Omnicare, to pay $948.8 million in damages and penalties related to the submission of thousands of allegedly invalid prescriptions to federal healthcare programs. CVS has also appealed that ruling.
Federal Trade Commission flags PBM pricing abuse
The cases come amid heightened scrutiny of pharmacy benefit managers, or PBMs, which act as intermediaries between drug manufacturers, insurers, and pharmacies. Earlier this year, the Federal Trade Commission released a report identifying significant price markups by major PBMs, including Caremark, on commonly used drugs. The agency’s findings have intensified calls for transparency reforms in the sector. Combined, the penalties against Caremark and Omnicare total over $1.2 billion, underscoring growing enforcement efforts by federal authorities to crack down on fraudulent billing practices within the U.S. healthcare system.
The Department of Justice has increasingly prioritized False Claims Act litigation, particularly in the Medicare and Medicaid space, as a means to recoup losses and deter systemic abuse. The outcome of CVS’s appeals in both cases could set important precedents for how PBMs operate and are regulated, particularly as the government continues to examine the role of intermediaries in driving up healthcare costs for patients and taxpayers. – By Content Syndication Services.