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New lawsuit uncloaks pricing scheme hidden from consumers, cites RICO and ERISA violations
A new class-action lawsuit has been filed against CVS Health (NYSE: CVS) alleging that the company has engaged in a massive fraudulent scheme with third parties in order to increase profits by driving up generic prescription drug costs for consumers who purchase them using insurance, according to Hagens Berman. CVS earns more than $10 billion in profit annually from drug sales.
The lawsuit, filed Aug. 7, 2017, in the U.S. District Court for the District of Rhode Island, says CVS knowingly colludes with third-party pharmacy benefit managers (PBMs) to raise the prices of generic drugs, charging consumers what it calls a “co-pay,” when in reality a significant portion of this amount is kicked back to PBMs. CVS also earns more money from the transaction compared to customers who don’t use insurance.
PBMs use their marketing leverage with pharmacies to negotiate lower prices that the insurance companies have to pay to pharmacies. Pharmacies, in turn, get the benefit of having enrollees in the insurance plan coming to their stores to get their prescriptions filled.
If you used your insurance plan to fill a prescription for generic drugs at a CVS pharmacy, you may be entitled to relief. Find out more about the class-action lawsuit against CVS for prescription drug cost increases.
“Consumers are led to believe that pharmacists have their best interest in mind. That’s what CVS would want you to believe, anyway,” said Steve Berman, managing partner of Hagens Berman. “In reality, CVS is engaging in a widespread fraudulent scheme to overcharge the public for certain generic drugs.”
Berman added, “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.”
Generic Drug Pricing Fraud Explained
The lawsuit details a two-pronged drug pricing scheme perpetrated by CVS since at least 2010 that attorneys say violates the Racketeer Influenced and Corrupt Organizations (RICO) Act and federal ERISA laws.
In the first part of the scheme, customers who use their insurance to fill prescriptions at CVS are actually charged a higher price for the same medication than those who pay with cash or don’t use their insurance, according to the suit. CVS never tells customers that they can save money by not using insurance.
The suit’s named plaintiff, Megan Schultz, used her insurance to purchase a certain generic drug at her local CVS. Under her plan she paid $165.68, but if she simply paid in cash, without using her insurance, she would have paid only $92 – a whopping 45 percent difference that CVS never told her about.
In the second part of the scheme, CVS overcharges customers by collecting “co-pays” that exceed the pharmacists’ price and profit, again unbeknown to the customer, according to the complaint. CVS gives this extra cash back to PBMs, again part of an undisclosed agreement between the PBMs and CVS.
“This ‘co-pay’ is not a co-pay at all, but CVS forcing its customers to overpay for drugs that they could get for cheaper without insurance,” Berman said. “Much of this money goes to paying off the PBMs who in turn keep CVS on their pharmacy network.”
These contracts between CVS and the PBMs are sealed from public view under strict confidentiality agreements, barring consumers from ever learning the true source of their drug cost.
The lawsuit states that this hidden fraud violates 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.
Under ERISA, CVS has an obligation as a fiduciary to act “solely in the interest of the participants and beneficiaries,” according to the suit, and attorneys believe that by engaging in this alleged fraudulent scheme, CVS failed to uphold this duty, and that by basing its profits in this collusion with a third party, created a blatant conflict of interest that harmed its customers.
Berman added, “In 2016, CVS proclaimed in a ‘social responsibility’ report that it is ‘committed to bringing accessible and affordable care to as many people as we can. It’s the right thing to do…’ Despite that awareness, CVS has only sought to profit from those it serves.”
Read more about the lawsuit against CVS.
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with offices in 10 cities. The firm has been named to the National Law Journal’s Plaintiffs’ Hot List eight times. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at @ClassActionLaw.
Hagens Berman Sobol Shapiro LLP
Ashley Klann, 206-268-9363
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