CVS Caremark Ordered to Pay $95 Million in Medicare Fraud Whistleblower Case

In a significant victory for whistleblower protections and Medicare oversight, a federal judge has ordered CVS Caremark, the pharmacy benefit management subsidiary of CVS Health, to pay at least $95 million to the U.S. government for overcharging Medicare for generic prescription drugs.

U.S. District Judge Mitchell Goldberg, presiding over the case in the Eastern District of Pennsylvania, ruled that Caremark improperly inflated the cost of drugs under the Medicare Part D program to offset other business costs.  Although the ruling stops short of assigning liability to the parent company, CVS Health, or to CVS Pharmacy, the judge found Caremark responsible for violating the False Claims Act through deceptive pricing practices.

The case originated in 2014 when whistleblower Sarah Behnke, a former actuary at Aetna (which is now owned by CVS Health), filed a lawsuit under the False Claims Act’s qui tam provisions.  These provisions allow private individuals to sue on behalf of the government and share in any recovery.  Behnke alleged that Caremark knowingly misrepresented drug prices in reports to the Centers for Medicare & Medicaid Services (CMS), effectively defrauding the Medicare program between 2010 and 2016.

Under the False Claims Act, the whistleblower is entitled to a financial reward of 25% to 30% of the amount the government ultimately recovers as a result of the whistleblower lawsuit.  As a result of the court’s finding that Caremark owes at least $95 million, the whistleblower reward will be at least $23 million in this case.

At the core of the case was Caremark’s use of “spread pricing,” a controversial practice in which pharmacy benefit managers (PBMs) charge insurers more for drugs than they reimburse pharmacies, pocketing the difference.  Judge Goldberg found that Caremark strategically manipulated its reported costs for Medicare Part D drugs in order to increase profits from commercial plans.

“Caremark knew that the more it paid for Part D drugs, the less it had to pay for commercial drugs,” the judge stated in his decision.  “Caremark knew if it paid less on commercial drugs, it could earn more spread.”

This pricing manipulation, according to the court, led to inflated government subsidies and reimbursements under Medicare Part D.  While CMS relies on accurate drug cost reporting from insurance plan sponsors and PBMs to calculate subsidies, Caremark’s misrepresentations distorted that process and caused the government to pay more than it should have.

CVS spokespersons acknowledged the court’s ruling but emphasized their relief that CVS Health and CVS Pharmacy were not found liable.  “We are pleased that the court ruled in favor of CVS Health and CVS Pharmacy, but disappointed in the findings against Caremark,” a company representative said.

Though Judge Goldberg established liability and the minimum damages of $95 million, he left open the possibility that Caremark’s financial penalties could increase significantly.  Under the False Claims Act, damages can be tripled, and the court may also impose civil penalties for each false claim submitted.  The exact amount of additional liability will be determined following the submission of opening briefs on July 9.

This ruling comes amid growing national scrutiny of PBMs and their influence on drug prices.  In recent years, lawmakers and state regulators have increasingly questioned the role of PBMs in driving up costs for patients and taxpayers.  States such as Iowa, Texas, Georgia, Indiana, and Montana have passed laws restricting certain PBM practices, including spread pricing and pharmacy reimbursement policies.

The whistleblower’s case had initially remained under seal until 2018, as is standard while the Department of Justice decides whether to intervene.  The DOJ ultimately declined to take over the case, but Behnke pursued it independently, resulting in this landmark ruling.

This case marks one of the most high-profile recent victories for whistleblowers in the healthcare sector and underscores the continuing role of the False Claims Act in uncovering fraud against the government.  It also places renewed pressure on the PBM industry to reform practices that critics argue prioritize profit over transparency and affordability.

Pending further proceedings, CVS Caremark faces not only the financial implications of this ruling but also increased scrutiny from both federal and state authorities—and the possibility of additional legal challenges from other stakeholders in the prescription drug supply chain.

If you have evidence that a health care provider is submitting false claims to Medicare, Medicaid or other government programs, you may be eligible for significant financial rewards and legal protections as a whistleblower.  To learn if you qualify, call John Howley, Esq. at 212-601-2728 to schedule a free and confidential consultation.