CVS Caremark has become a frequent subject of government probes

Retired social worker Nina Nestor got an all-too-familiar phone call last week: Her prescription refill was ready at her CVS store in San Clemente.

Trouble is, the 83-year-old cancer patient didn’t ask for the refill or numerous others that CVS pharmacists filled this year without her permission. “The pharmacist told me after two weeks they put it back in stock and reverse the billing,” Nestor said. “But I wonder about that.”

Government officials share her concerns. Allegations that the pharmacy giant has been automatically refilling medications without patient consent — and possibly overbilling insurers and government programs for unused medicine — have sparked four government investigations in recent weeks, the most recent by the U.S. Justice Department.

CVS Caremark Corp. is no stranger to government scrutiny. In recent years, the company has paid more than $80 million to resolve allegations of overbilling Medicaid, improperly changing patients’ prescriptions and, in one case, using blow dryers to peel off patients’ mailing labels to resell returned medicine.


Federal authorities say they are reviewing whether the latest allegations, made by pharmacists and consumers in several states, including California, violate any terms of previous settlements with the government.

Critics say CVS Caremark warrants closer inspection because of its record. “This company will keep pushing the envelope and stepping across the line,” said Mark Cooper, director of research at the Consumer Federation of America. “If they have serious violations, it’s time to make them understand that breaking the law is not going to be profitable.”

CVS Caremark says it has done nothing wrong and insists that it has procedures in place to ensure compliance with all applicable laws and protect the well-being of patients. Company spokeswoman Carolyn Castel said it will cooperate with any inquiry and it is company policy to refill and dispense a prescription only with the patient’s authorization.

“We continuously monitor to ensure that prescriptions are filled appropriately, and we have well-established, time-tested and thoroughly audited procedures for the proper handling of medications that are not picked up by patients, including procedures for reversing any insurance charges,” Castel said. She also said the company is frequently audited by insurers and other payers.


All this comes as the nation struggles to control rising healthcare costs and absorb the effect of baby boomers entering Medicare. Some experts worry that consolidation in the pharmacy business and across much of the medical industry is driving up prices even further while the $2.6-trillion U.S. healthcare system loses tens of billions of dollars annually to fraud and abuse.

CVS Caremark is a key player, handling 1 in 5 prescriptions in the U.S., or about 800 million annually, at its drugstores and through the mail. The Woonsocket, R.I., company is the product of a 2007 deal that merged the CVS retail chain with the Caremark pharmacy-benefits business.

Its 7,400 drugstores are a familiar sight across the U.S. But the company’s reach extends far beyond those stores because it also manages drug benefits for more than 60 million people on behalf of major employers, such as the federal government, and numerous health plans such as Aetna Inc.

In that role as a pharmacy-benefits manager, the company negotiates discounts with drug makers, advises employers and insurers on prescription coverage and runs huge mail-order pharmacies. It has also become a leading provider of Medicare prescription-drug plans, and it has opened nearly 600 in-store clinics to help ease a shortage of primary-care doctors.

Last year, CVS Caremark’s revenue grew 12% to $107.1 billion, and it posted a profit of $3.5 billion.

The company is already operating under two previous settlements with the federal government that call for tighter monitoring. It denied any wrongdoing in those two cases and said it settled them to avoid the time and expense of litigation.

CVS Caremark originally entered into a corporate integrity agreement in 2008, when it paid $36.7 million to resolve allegations from a CVS pharmacist that the company improperly switched patients to a more expensive form of a stomach medicine billed to Medicaid, the government program for the poor and disabled. The agreement called for extra employee training, reviews by an outside organization and additional reporting to the government.

Last year, the company’s probationary status was extended three years after the company settled another whistle-blower complaint for $17.5 million. A CVS pharmacist in Minnesota accused the company of using a computer program to inaccurately bill Medicaid.


This year, the company has paid an additional $10.3 million to the Federal Trade Commission and Justice Department to resolve allegations that a subsidiary reported inaccurate information about generic-drug prices in 2007 and 2008 and overcharged seniors on a Medicare Part D plan. CVS Caremark said those errors were inadvertent and occurred before its acquisition of the unit involved.

Some industry experts say it’s common for big companies to occasionally overstep the rules, particularly in healthcare because regulations are often vague and subject to change.

“I don’t believe CVS Caremark has a global compliance problem,” said Adam J. Fein, a pharmaceutical industry consultant.

More importantly for the company, the FTC dismissed allegations of anticompetitive behavior this year. For more than two years, federal regulators had looked into whether CVS Caremark had an unfair market advantage by being a large retailer and one of the biggest pharmacy-benefit managers. The company works with nearly 60,000 pharmacies to distribute medicine to insured patients beyond its own stores.

Some consumer advocates, pharmacies and lawmakers had raised concerns to the FTC that CVS Caremark would unfairly use information about its competitors and steer customers to its stores. CVS Caremark said it had firewalls in place to separate business and patient information.

Concerns about consolidation intensified again when pharmacy-benefits manager Express Scripts Inc. recently acquired rival Medco Health Solutions Inc. to form the nation’s biggest pharmacy-benefit manager, leaving it and Caremark as the top two companies with nearly 50% market share combined. The FTC cleared the Express Scripts deal this year.

FTC Commissioner Julie Brill voted against the merger, saying reduced competition may lead to higher costs. “I’m still concerned they will be pulling their punches against each other,” Brill said. “We want aggressive competition so employers get good prices and they can pass that along to workers.”

CVS Caremark says its services help lower costs and improve patients’ health. The company said it tries to make prescription refills easier because patients’ failure to take medication as directed can lead to bigger medical problems, adding an estimated $300 billion a year in healthcare costs nationwide.


Michael and Peppi Fowler say they filed a whistle-blower suit against the company because it often put profits ahead of patients when they worked there from 1992 to 2004. The Fowlers were pharmacists at a Caremark mail-order facility in southern Florida.

The Fowlers said they watched workers use blow dryers and irons to remove patients’ mailing labels from returned medicine and resell it in violation of state health laws. They alleged the company billed twice for the same medicine in some cases.

“Whenever they do get caught, it’s a slap on the wrist,” Michael Fowler said. “What’s a couple million dollars in fines for them?”

CVS Caremark agreed to pay nearly $20 million last year to resolve the Fowlers’ allegations that it defrauded state pension systems in California, Illinois and Florida. The company denied wrongdoing and said it settled to avoid the expense of further litigation.

One of the pension funds involved in that settlement, the California Public Employees’ Retirement System, rehired CVS Caremark last year for pharmacy management. CalPERS said it is satisfied with the company’s performance.

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