Qui Tam Lawsuits Blow the Whistle on PBMs

JANUARY 01, 2006
Erika A. Kelton, JD

Pharmacy benefit managers (PBMs) have come under intense scrutiny by federal and state governments in the past few years, largely as a result of whistleblower lawsuits that allege Medicare and Medicaid fraud. The companies could end up paying hundreds of millions of dollars to settle charges and changing their way of doing business.

Just recently, Caremark Rx Inc paid the federal government $137.5 million to settle a whistle-blower—or qui tam—lawsuit and related charges brought by the government involving soliciting and receiving kickbacks from pharmaceutical manufacturers by Caremark's AdvancePCS unit.

As part of the settlement, Caremark agreed not to engage in "drug switching," where a customer ends up paying more for a drug than the one prescribed by a doctor.

Qui tam lawsuits are brought by whistle- blowers under the False Claims Act, which allows private citizens, who are aware of fraud against the federal government, to sue any individual or company that is defrauding the government and recover funds on the government's behalf.

Whistle-blowers Entitled to Reward

Whistle-blowers are entitled to a reward of 15% to 25% of the amount the government recovers as a result of their qui tam lawsuits. The basis for a qui tam lawsuit can be any instance where the government loses money directly or indirectly, such as when a pharmacy switches a customer from a lower-priced drug to a higher-priced drug for nonmedical reasons or to increase profits.

Many states have false claims laws that allow private individuals to sue any individual or company that is defrauding the state or its programs, which includes Medicaid. When it comes to pharmaceutical fraud, qui tam lawsuits usually may be brought under both federal and state statutes, as both the federal government and the states fund the Medicaid program.

More Lawsuits Filed Against PBMs

Caremark faces at least 2 other qui tam lawsuits, including one brought by 2 married pharmacists who worked for Caremark. They allege that the PBM defrauded a Florida health plan for retired state workers by failing to give it credit for medications that were returned unopened by customers. The pharmacists also accuse Caremark of changing prescriptions without permission.

A separate whistle-blower lawsuit alleges that Caremark resold refrigerated drugs that had been returned through the mail without testing them. Medco Health Solutions, another giant in the PBM field, paid more than $29 million to 20 states in 2004 to settle state claims that it had encouraged physicians to switch patients to different prescription drugs to increase its rebates from drug manufacturers.

Other qui tam lawsuits and government complaints have raised a series of allegations against Medco, including mailing prescriptions to patients with less than the number of pills ordered and charging patients and health plans as if they had dispensed the full amount, and destroying patients' mail-order prescriptions so that the PBM could avoid penalties for its repeated delays in filling and mailing patient prescriptions.

Express Scripts is the latest PBM target of a major government fraud investigation. A lawsuit brought by the state of New York alleges that Express Scripts had inflated the cost of generic drugs sold to members of the state's largest employee health plan, the Empire Plan, and kept millions of dollars in drug manufacturer rebates that should have gone to the Empire Plan. State officials said that the PBM defrauded the Empire Plan in other ways, too. These charges could have been grounds for a qui tam lawsuit, but the state of New York does not have a qui tam law.

If a pharmacist is concerned that a company or individual may be defrauding Medicare or Medicaid and violating the False Claims Act, the pharmacist should consult an attorney who is an expert in the field. The lawyer can advise the pharmacist whether the fraud could be the basis of a qui tam lawsuit and what legal protections there are regarding job retaliation.

Ms. Kelton is a partner at the law firm of Phillips & Cohen LLP.

Pharmacy Times Strategic Alliance

Pharmacist Education
Clinical features with downloadable PDFs

Personalize the information you receive by selecting targeted content and special offers.