Megan Schultz of California sued CVS Health Corporation, the US’s largest pharmacy chain, Monday, accusing the company of charging excessive copayments for certain medicines, The Boston Globe reports. Schultz says she paid a $166 copay for a drug for which she could have paid $92 in cash.
The suit was filed in a federal court in Rhode Island, where CVS is headquartered.
It alleges that the pharmacy chain has forged agreements with benefit managers—companies that, according to a Bloomberg report, “process prescriptions…and determine whether they will carry a copay”—to conceal the cash price of medicines so that both parties can collect exorbitant copays. These alliances, according to the document, violate federal racketeering and insurance laws, and lead to artificially high prescription costs. Clauses in the contracts allegedly forbid CVS from informing customers that a given medicine is available at a lower price.
The Boston Globe quotes the following passage from the suit: “CVS, motivated by profit, deliberately entered into these contracts, dedicating itself to the secret scheme that kept customers in the dark about the true price [of drugs].” The suit accuses CVS of holding such agreements with benefit managers including Express Scripts Holding Co. and CVS Caremark, CVS’s own prescription benefit management arm.
CVS spokesman Michael DeAngelis categorically denied the suit’s allegations, which he says, per The Boston Globe, are “built on a false premise and…completely without merit.” He added that benefit managers unilaterally determine the size of copays.
The suit “does not name any benefit managers as defendants,” the Globe says, but DeAngelis said CVS Caremark does not inflate copays. Express Scripts spokeswoman Jennifer Luddy said the allegations were “meritless.”
According to Bloomberg, a lobby group for benefit managers released a statement in July saying it “support[s] the patient[’s] paying the lowest price available at the pharmacy counter for the prescribed drug.”
The practice of charging inflated copays for drugs is a form of “clawbacking.” A “clawback,” according to Investopedia, is any action by which “an employer or benefactor takes back money that has already been disbursed, sometimes with an added penalty.” In effect, insurance companies give customers money by covering the cost of medications, etc. By charging excessive copays and pocketing the margin, the companies are taking that money back.
According to the Globe, Schultz’s suit, which is seeking class action status, is another in a long string of similar cases filed across the nation. Wednesday, a frustrated customer filed sued Walgreens, the U.S.’s second-largest pharmacy chain, over clawbacks. Schultz’s lawyer will represent him as well. Twice in the fall of 2016, United Health, along with its benefit management operation, OptumRX, was sued in connection with copay clawbacks. Humana, Inc. and Cigna Corporation have also been taken to court over the issue. In total, more than fifteen clawback-related lawsuits have been filed in the US since the practice was first exposed last year.
Some states have passed laws meant to prohibit clawbacks. In July, Connecticut Governor Dan Malloy approved a bill that will allow pharmacies to inform customers when a drug’s cash price is cheaper than the copay amount, Bloomberg says. The law will go into effect in January. North Dakota, Louisiana, Georgia, and Maine have passed similar statutes.
CVS is the nation’s largest pharmacy chain in terms of both number of stores—there are almost 10,000 CVS stores throughout the country—and total prescription revenue, and its performance is only improving. In quarter two, CVS reported $45.6 billion in revenue and just under $1.1 billion worth of net income. Revenue increased $1.9 billion (4.5%) year over year, while net income jumped by $174 million (18.8%).
CVS stock closed at $79.06/share on Monday, but fell 2.6% Tuesday morning on news of the pending litigation. It has since climbed to $79.43/share.
Featured image via Flickr/Mike Mozart