Doctor concerned with health care law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Health Law Daily, September 23, 2015

Six years later, Caremark absolved of Part D fraud charges

By Kayla R. Bryant, J.D.

A lengthy case alleging that CVS Caremark Corporation (Caremark) committed widespread Medicare Part D fraud has finally come to a close in the company’s favor. The U.S. District Court for the Eastern District of Pennsylvania found that there were no disputes of material fact preventing it from entering summary judgment in favor of Caremark, and that no reasonable juror could determine that Caremark knowingly attempted to defraud the government by submitting false claims for payment in violation of the federal False Claims Act (FCA) (31 U.S.C. §3729 et seq). The court believed that this qui tam action was brought by a relator attempting to “convert an unprofitable private audit . . . into a successful recovery of funds” (United States ex rel. Spay v. CVS Caremark Corporation, September 22, 2015, Buckwalter, R.).

Companies. Medical Card System, Inc. (MCS) hired Relator’s company, Pharm/DUR, in a contingency arrangement to conduct an audit of Part D pharmacy benefit manager (PBM) and other services provided by SilverScript, LLC, (a subsidiary of Caremark) and its affiliates. This arrangement was formed shortly after the Part D program began in 2006. In the time period at issue in this case (2006 to 2007), Caremark was one of the country’s largest PBMs. The company and its subsidiaries generated 114,125,392 unique prescription drug event (PDE) records for Part D sponsors during this time period. The audit revealed six particular issues, but MCS did not recover any money from Caremark and, in turn, MCS did not pay Pharm/DUR for the audit. The complaint in this suit alleges fraud theories based on the six issues revealed in the audit, which survived a motion to dismiss (see Federal court upholds False Claims Act complaint against CVS, January 2, 2013). During the litigation, the court struck several alternative defenses, including failure to state a claim, unreasonable delay, learned intermediary doctrine, and public disclosure (see Defenses narrowed in Caremark whistleblower action, April 26, 2013). Caremark did receive some relief from the court during the litigation, when discovery was limited to the more relevant time period (see CVS Caremark must respond to discovery requests in qui tam action, August 28, 2013).

Dummy ID claim. The audit revealed that 2 percent (over 2.3 million) of the PDEs contained ‘dummy’ prescriber IDs that were not unique numbers assigned by the Drug Enforcement Administration (DEA). Testimony revealed that this was common practice in the industry to resolve system errors when prescriber numbers were not available or did not conform to DEA number formats. The FCA does not require proof of specific intent to defraud, but a showing that the actions were taken with knowledge, deliberate ignorance, or reckless disregard for the truthful state of the information. Courts are not prohibited from granting summary judgment in an FCA case, even when it turns on a state of mind determination, if there is no dispute as to whether the actions were taken knowingly.

Case law has established the “government knowledge inference” doctrine, which allows an inference that an actor did not “knowingly” submit a claim (regardless of the actual falsity of the claim), “when the government knows and approves of the facts underlying an allegedly false claim prior to presentment.” The court found that Caremark presented clear evidence that CMS knew that there was an issue with obtaining unique ID numbers for the PDEs, and that sponsors and PBMs were submitting PDEs with dummy numbers. CMS did not take enforcement actions against those that used dummy ID numbers from 2006 to 2007, and although it preferred unique numbers, affirmatively instructed that dummy numbers should be used when unique numbers were unavailable. CMS’ policy was not to reject claims that were otherwise valid, in an effort to prioritize beneficiaries’ access to necessary medications. The relator argued that Caremark failed to disclose several relevant facts to CMS, but the court found that these facts did not undermine the government knowledge inference. CMS was aware of the issues plaguing the new Part D program and PDE requirement, was not deceived by dummy IDs, and paid all PDEs knowing the practice of submitting them with dummy IDs. Therefore, Caremark did not act with the requisite intent for an FCA violation.

Gender Drug Utilization Review (DUR) claim. Part D sponsors must use systems that review for age and gender-related contraindications under 42 CFR section 423.153 as part of a quality assurance measure to reduce errors and adverse interactions. According to the audit, 15,000 claims were allegedly gender-contraindicated, or intended to be exclusively used in the gender opposite of the beneficiary that received the drug. The claim alleged that Caremark’s claims adjudication system was not designed to deny claims based on the drug being administered to the opposite gender for which its use is intended, which violates the FCA due to “worthless services.” This theory asserts that federal reimbursement was requested for a service with no medical value.

The court examined the regulations and found nothing that required Caremark, as opposed to the contracting pharmacies, to perform the DUR at issue. The regulation states that the sponsor must establish quality assurance measures that ensure that a drug review is performed before the medication is given to the beneficiary, “typically at the point-of-sale or point of distribution.” The court also noted that CMS recognized that pharmacies were going to be performing some DUR duties, therefore entitling them to some dispensing fees. The sponsor or PBM itself is not required to conduct the gender contraindication review. Caremark contractually delegated the obligation to the pharmacies, and therefore the FCA element of knowing that the submitted claims were false or fraudulent is not met.

Expired drug claim. The complaint also alleged that Caremark paid for claims where the information in the national drug code (NDC) number revealed that the drug had passed the shelf-life expiration date. Testimony revealed that over 87,000 PDE claims were for drugs dispensed to beneficiaries on a date after what is known as the Health Care Financing Administration (HCFA) termination date. This date is a value provided by CMS to indicate the shelf life expiration date of the last batch of the drug produced by the manufacturer.

This claim relies on the same regulation and worthless services theory as the prior claim, and infers that Caremark was required to deny claims when drugs had passed the last-batch shelf-life date. The relator alleges that the failure to do so presented a safety risk, and that Caremark had the capacity to identify these claims. The court found that Caremark fulfilled its regulatory duties by requiring participating pharmacies to comply with state laws regulating pharmacy practice. It rejected the relator’s argument that the Prescription Drug Benefit Manual imposed an obligation on PBMs to deny claims for drugs that had passed the HCFA termination date. The court also found that even if Caremark was obligated to screen for drug expiration, the relator did not show that Caremark knowingly submitted claims with expired HCFA termination dates.

Prior authorization claim. MCS used Caremark’s drug formulary, which specified that some medications required prior authorization before being dispensed. These measures were part of the attempt to follow federal regulations requiring DUR services to prevent the over- and under-utilization of medications. MCS relied on Caremark to identify Part D claims that required prior authorization. The relator alleged that Caremark improperly submitted claims for drugs without obtaining prior authorization, resulting in the government paying for worthless services. The court noted that almost all claims reviewed were found to have been properly paid, with 87 claims inconclusive. MCS declined to seek recoupment for these claims. The court found that even if some of these claims were improperly paid without seeking prior authorization, the resulting assumption would only be limited to the inference that the services provided were worth somewhat less than what was paid, but that the services were not “worthless.”

Quantity limits claim. The complaint alleged that Caremark allowed claims for drugs dispensed over formulary limits or exceeding the manufacturers’ maximum doses, also resulting in worthless services. This claim relies on the same regulation and failure to perform DUR services as the gender DUR and expired drug claims. The initial audit report indicated that 14,886 paid claims exceeded the specified quantity limit. Caremark reviewed about 450 claims and found that the limits had not been exceeded because the drugs were dispensed in 90-day supplies, which was permissible. The court found that the relator failed to demonstrate that worthless services were provided or that Caremark acted with gross negligence. There was no evidence that Caremark knowingly submitted false claims.

Maximum allowable cost prices claim. Part D sponsors must negotiate prices in order to provide enrollees with savings. MCS negotiated the minimum allowable cost (MAC) for generic drugs and created a list. According to the audit, Caremark adjudicated 3,658 claims without applying MAC pricing. Caremark argued that it did not overcharge MCS, and a false claim cannot be proven absent an overcharge. Caremark concluded in its final audit response that it had charged the correct price after reviewing the top 25 NDCs involved in the disputed claims, and MCS declined to pursue action on the matter. MCS’ corporate designee admitted that MCS provided Caremark with the commercial MAC list instead of the Medicare MAC list, and did not provide monthly updates. The court noted that the relator was attempting to create issues of fact by asserting his beliefs about the situation, but provided no real evidence to support his contentions. He also failed to establish that a false or fraudulent claim was knowingly submitted.

Conclusion. After years of litigation, the court finally entered summary judgment for Caremark . It determined that the company was in compliance with regulations and characterized the relator’s “lengthy briefing and tangential attacks” on Caremark’s evidence as “a game of smoke and mirrors designed to detract from the obvious factual backdrop.” As a result, the relator will not collect from this suit.

The case is Civil Action No. 09-4672.

Attorneys: Ian P. Samson (Engstrom Lipscomb & Lack) for Relator. Enu Mainigi (Williams & Connolly) for CVS Caremark Corporation, Caremark Rx, LLC, Caremark, LLC, Silverscript, LLC.

Companies: CVS Caremark Corporation; Caremark Rx, LLC; Caremark, LLC; Silverscript, LLC; Medical Card System, Inc.; Pharm/DUR

MainStory: TopStory FCANews CMSNews BillingNews DrugBiologicNews FraudNews PartDNews PrescriptionDrugNews PennsylvaniaNews

Health Law Daily

Introducing Wolters Kluwer Health Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.