Fraud By Pharmacy Benefit Management Companies

Pharmacy benefit managers (“PBMs”) typically operate on behalf of employers, insurance companies, and unions; they are also sometimes referred to as “third-party payors.” While PBMs are largely unrecognized by most employees, they wield substantial power over healthcare decision-making because they influence more than 80% of prescription drug coverage.

Originally, PBMs issued drug cards for identification and account tracking, and offered cost-effective services as well as claims information to their customers. Now, PBMs provide much more. Among other things, they administer the drug plans that patients use to buy prescriptions at local pharmacies or by mail, they make bulk purchases and negotiate drug prices to obtain discounts for their clients, and they help determine which drugs get selected to be in a health plan’s list of approved medications (the “formulary”).

Some PBMs have, however, defrauded the government and others. As alleged in dozens of lawsuits filed in recent years by whistleblowers, federal and state governments, health maintenance organizations, corporations, and unions, PBMs have improperly:

  • retained manufacturer rebates instead of passing them along to Medicaid customers;
  • switched Medicaid patients from low- to high-cost drugs by tricking patients and their doctors (or by just not informing them) and limiting the use of generics;
  • reshipped potentially unsafe drugs that had been sent back by mail-order customers;
  • provided unlawful remuneration to pharmacies in order to steer a Medicaid beneficiary toward a certain plan or drug, or for formulary placement; and
  • failed to offer a beneficiary the negotiated price of a Part D drug.

Two qui tam/whistleblower lawsuits against PBMs illustrate the types of fraud engaged in by PBMs.

  • Caremark Rx Inc.: In September 2005, Caremark agreed to pay the federal government $137.5 million to settle whistleblower lawsuits and related charges brought by the federal government involving soliciting and receiving kickbacks from pharmaceutical manufacturers by Caremark’s AdvancePCS unit. The whistleblowers alleged that Caremark knowingly solicited and received inflated payments through “administrative fees” and “services agreements” from pharmaceutical manufacturers. These kickbacks were allegedly paid by the manufacturers in exchange for favorable treatment of their products under contracts with government programs, including the Federal Employees Health Benefit Program, the Mailhandlers Program and Medicare + Choice programs. The lawsuits also alleged that improper kickbacks were paid by AdvancePCS and Advance Paradigm to existing and potential customers as an inducement to sign contracts with Caremark.
  • Medco Health Solutions Inc.: On October 24, 2006, Medco agreed to pay the government $155 million in damages and fines to settle three qui tam/whistleblower actions joined by the government, alleging fraud, kickbacks and other wrongful conduct. The settlement covered a wide variety of fraudulent conduct, including: shorting prescriptions (i.e., mailing patients prescriptions containing fewer than the number of pills ordered and paid for, but charging patients and health plans as if the PBM had dispensed the full amount), canceling prescriptions to avoid paying non-performance penalties, destroying patient prescriptions when its mail-order pharmacies did not fill them as quickly as required by its insurance plan contracts, filling prescriptions by using drugs other than those prescribed by physicians in order to earn rebates from drug manufacturers, soliciting and accepting kickbacks from pharmaceutical manufacturers to favor their drugs over competitors’ products, and paying kickbacks to health plans to obtain business (partly by illegally pressuring pharmacists and doctors to switch prescriptions).

If you know or suspect fraud, please contact Michael S. Bigin or Laurence J. Hasson.