CVS Caremark To Pay FTC $5 Million To Resolve First Medicare Part D Deceptive Pricing Case
This article was originally published in The Pink Sheet Daily
Executive Summary
The Federal Trade Commission claims a CVS subsidiary posted prices for Rx drugs at CVS and Walgreens pharmacies that were as much as ten times less than the actual prices, pushing consumers into the donut hole more quickly.
In the first deceptive pricing case of its kind, the Federal Trade Commission claims that CVS Health Corp. subsidiary RxAmerica misrepresented the prices of Medicare Part D-covered prescription drugs at CVS and Walgreens pharmacies by as much as ten times less than the actual price, causing beneficiaries to run through their coverage much more quickly.
The agency made the allegation in an administrative complaint against CVS, which was released Jan. 12 when the FTC announced a $5 million proposed settlement agreement with the company.
The complaint claims that from approximately 2007 until the end of 2008, RxAmerica posted prices on its website and on third-party websites that were below what it was paying to CVS and Walgreens, and also sent this misleading pricing information to the Centers for Medicare and Medicaid Services for posting on the agency’s Part D Plan Finder.
The FTC said beneficiaries use the information on Plan Finder when selecting a Medicare drug plan because it calculates the beneficiary’s estimated costs for any given plan and projects which plan will keep the beneficiary out of the donut hole – the point at which the beneficiary has to pay the full cost of the drugs – for the longest time.
The complaint cites several examples of pricing discrepancies. For example, it alleges that RxAmerica represented to beneficiaries that the price of the generic epilepsy drug gabapentin at CVS was $26.83 when in reality it was paying CVS $257.70. FTC also claims that the price of the generic breast cancer drug megestrol was represented as $55.68 while RxAmerica was paying CVS $305.89 and that the price of the generic drug omeprazole for gastroesophageal reflux disease was represented as $22.04 when RxAmerica was paying Walgreens $162.
RxAmerica Sought To Pay Off Debts Via Higher Reimbursement Rates, FTC Says
The complaint says RxAmerica owed money to CVS Pharmacy and Walgreens and rather than pay them directly it increased the reimbursement rate to them for generic drugs purchased by plan beneficiaries.
RxAmerica provides pharmacy benefits management services and Medicare beneficiary Rx drug plans. CVS acquired the company with its acquisition of Longs Drug Stores Corp. in 2008. CVS Caremark is continuing to expand its presence in the Part D market, most recently with an agreement to acquire Part D plans from Health Net (Also see "CVS Caremark Continues Expansion In Medicare Part D Market With Purchase From Health Net" - Pink Sheet, 12 Jan, 2012.).
FTC’s complaint says that because the total cost of a drug is comprised of the beneficiary’s copayment plus the pharmacy’s reimbursement rate, beneficiaries were adversely affected by RxAmerica’s reimbursement structure.
“As a result of this reimbursement structure, many beneficiaries using CVS and Walgreens stores ran through their benefits coverage at faster rates than they would have based on the posted prices,” the complaint says. “Many beneficiaries, therefore, unexpectedly entered the donut hole and became responsible for the total cost of their prescription drugs, with no opportunity to change plans until the next calendar year.”
FTC indicated that the claims against CVS are unprecedented. “We have had deceptive pricing cases before, but this is the first in the healthcare context,” an agency spokesperson said.
NCPA Says FTC Actions Against CVS Did Not Go Far Enough
The complaint was the result of an FTC investigation of CVS business practices requested by the National Community Pharmacists Association two years ago. The group alleged CVS engaged in anti-consumer and anticompetitive business practices following its 2007 merger with pharmacy benefit manager Caremark (Also see "FTC Investigating CVS Caremark Business Practices" - Pink Sheet, 9 Nov, 2009.).
The group issued a release saying it appreciated FTC’s investigation and that the settlement “should serve as a warning to any Medicare drug plan sponsors that have potentially misled seniors in their promotion of so-called ‘preferred pharmacy plans.’”
“At the same time, it is regrettable that the FTC’s actions fell short of more robust protections for consumers and pharmacy competition, which were warranted in our view,” the association stated. “NCPA provided to the agency what we believe to be compelling evidence, including one-sided contract terms with pharmacy small business owners, patient privacy concerns and a lack of transparency.”
Under the proposed consent agreement, CVS is to pay the commission $5 million for consumer redress and administrative costs. The FTC will be mailing checks to eligible consumers. The FTC spokesman said the Commission has no public data on the number of consumers affected by the pricing discrepancies but has evidence suggesting that this sum is enough to reimburse all of them for the amount they were harmed.
The agreement requires CVS to provide FTC with a list of all RxAmerica Medicare Part D enrollees who purchased at least one Medicare Part D generic prescription drug from Walgreens or CVS pharmacies between June 1, 2007 and December 31, 2008.
The proposed order prohibits CVS from misrepresenting the price or cost of Part D prescription drugs and other costs associated with Part D drug plans.
For five years, CVS must also maintain all submissions to CMS containing representations regarding the price or cost of Part D prescription drugs or other prices and costs associated with Part D drug plans, all pricing for adjudicated claims and all complaints and other communications with consumers.
The proposed agreement will be subject to public comment for 30 days through Feb. 13 after which the commission will decide whether to make it final.