CVS, known to us as the American retail and health car company CVS Health, is facing some troubles. A potential consumer fraud class action lawsuit is on its plate. The lawsuit is claiming that CVS has engaged in a massive fraudulent scheme with third parties. It was done to increase generic prescription drug costs for consumers who buy them using insurance. And as you can guess, the goal of the scheme was supposedly to increase profits.
The lawsuit, filed in the US District Court for the District of Rhode Island gave us some insights. So, what we know is that CVS knowingly is colluding with third-party pharmacy benefit managers (PBMs). And all the colluding is done in order to raise the prices of generic drugs, charging consumers what is called a “co-pay.” Interestingly, a huge portion of this amount goes back to PBMs. Moreover, CVS also earns more money from the transaction compared to customers who don’t use insurance.
“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,” according to attorneys for the plaintiffs.
You should know that using their leverage with pharmacies, the PBMs negotiate lower prices that the insurance companies have to pay to pharmacies. Therefore, pharmacies benefit from having enrollees in insurance plan come to their stores to have prescriptions filled.
Moving on, CVS engages in as a two-pronged drug-pricing scheme. And surprisingly, CVS has done it since at least 2010. No doubt, the scheme violates the Racketeer Influenced and Corrupt Organizations (RICO) Act and federal ERISA laws.
CVS: first part of the scheme
According to the suit, this is what happens in the first part of the scheme. Customers who use their insurance to fill prescriptions at CVS are charged a higher price for the same medication than those people who pay with cash or don’t use their insurance. The important thing here is that the company does not inform customers that they can save money by not using insurance.
Megan Schultz is a plaintiff in the lawsuit. She claims that she used her insurance to buy a certain generic drug at her local CVS. She paid $165.68 under her plan. However, if she did not use her insurance and paid in cash, she would have paid only $92. That is a booming 45% difference that CVS hid from her.
Second part of the scheme
Now, let’s move on to the second part of the scheme. It involves CVS overcharging customers by collecting “co-pays” that exceed the pharmacist’s price and profit. Again, this is unknown to the customer, according to the complaint. What CVS does is giving back the extra cash to PBMS. That is part of the undisclosed agreement between the PBMS and CVS. And these contracts between the two are closed from public view under strict confidentiality agreements. Those ban consumers from ever knowing the true source of their drug cost.
In addition, the lawsuit claims that the hidden fraud is violating 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.
Did you know that under ERISA, the company has an obligation to act “solely in the interest of the participants and beneficiaries,” according to the suit? And I guess we all believe that by engaging in this fraudulent scheme CVS has failed to keep this duty. Furthermore, by generating its profits in this collusion with a third party, it has created an obvious conflict of interest that harmed its customers.