Case 1:21-cv-00223-WES-PAS Document 1 Filed 05/21/21 Page 1 of 40 PageID #: 1
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF RHODE ISLAND
`
`CAREFIRST OF MARYLAND, INC.,
`GROUP HOSPITALIZATION AND
`MEDICAL SERVICES, INC., CAREFIRST
`BLUECHOICE, INC., BLUE CROSS AND
`BLUE SHIELD OF SOUTH CAROLINA,
`BLUECHOICE HEALTHPLAN OF SOUTH
`CAROLINA, INC., LOUISIANA HEALTH
`SERVICE & INDEMNITY COMPANY,
`D/B/A BLUE CROSS AND BLUE SHIELD
`OF LOUISIANA, and HMO LOUISIANA,
`INC.
`
`
`v.
`
`CVS HEALTH CORPORATION and
`CVS PHARMACY, INC.,
`
`
`
`
`
`
`
`
`
`Plaintiffs,
`
`Defendants.
`
`Civil Action No.
`
`JURY TRIAL DEMANDED
`
`
`
`
`COMPLAINT
`
`
`
`

`

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`TABLE OF CONTENTS
`
`NATURE OF THE ACTION ......................................................................................................... 1
`
`PARTIES ........................................................................................................................................ 5
`
`A.
`
`B.
`
`PLAINTIFFS .............................................................................................................. 5
`
`DEFENDANTS ........................................................................................................... 6
`
`JURISDICTION AND VENUE ..................................................................................................... 7
`
`FACTUAL ALLEGATIONS ......................................................................................................... 7
`
`I.
`
`II.
`
`CVS’S BUSINESS ............................................................................................................. 7
`
`CVS IS REQUIRED TO SUBMIT TRUE AND ACCURATE
`USUAL & CUSTOMARY PRICES TO PLAINTIFFS. .................................................... 9
`
`A.
`
`B.
`
`C.
`
`CVS MUST SUBMIT THE TRUE AND ACCURATE U&C PRICE
`DURING THE ADJUDICATION PROCESS. ................................................................... 9
`
`PLAINTIFFS PAY CVS, THROUGH PBMS, THE “LESSER OF” A
`NEGOTIATED PRICE OR THE U&C PRICE............................................................... 10
`
`U&C IS A CRITICAL PRICING MEASURE THAT CVS REGULARL
` MONITORS AND ALSO MANIPULATES. .................................................................. 11
`
`III.
`
`CVS DID NOT SUBMIT THE CASH DISCOUNT PROGRAM PRICES
`AS THE U&C PRICE. ...................................................................................................... 12
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`CVS’S COMPETITORS ADOPTED DISCOUNT PROGRAMS, WHICH
`THREATENED CVS’S MARGINS. ............................................................................ 12
`
`CVS IMPLEMENTED THE HSP PROGRAM NOT ONLY TO COMPETE
`WITH OTHER DISCOUNT PROGRAMS, BUT MORE IMPORTANTLY,
`AS A PRETEXT TO AVOID REPORTING HSP PRICES AS U&C PRICES. ................... 14
`
`CVS CONTINUED ITS UNLAWFUL SCHEME USING SCRIPTSAVE. ........................... 18
`
`CVS REPLACED THE HSP PROGRAM WITH THE VPSC PROGRAM........................ 20
`
`CVS UNLAWFULLY REPORTED FALSE U&C CHARGES, THEREBY
`OVERCHARGING PLAINTIFFS BY MASSIVE AMOUNTS. .......................................... 21
`
`IV.
`
`CVS’S FRAUDULENT CONCEALMENT TOLLED THE STATUTE OF
`LIMITATIONS. ................................................................................................................ 22
`
`COUNT I FRAUD ........................................................................................................................ 24
`
`i
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`

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`COUNT II FRAUDULENT CONCEALMENT .......................................................................... 26
`
`COUNT III NEGLIGENT MISREPRESENTATION ................................................................. 27
`
`COUNT IV UNJUST ENRICHMENT ........................................................................................ 29
`
`COUNT V CIVIL LIABILITY FOR LARCENY BY FALSE PRETENSES
`PURSUANT TO R.I. GEN. LAWS § 9-1-2; § 11-41-4 .................................................... 30
`
`COUNT VI VIOLATION OF MARYLAND CONSUMER PRTOECTION ACT,
`MD. COM. LAW CODE § 13-101 et seq.
`(BROUGHT BY CFMI, GHMSI AND CAREFIRST BLUECHOICE ........................... 31
`
`COUNT VII VIOLATION OF VIRGINIA CONSUMER PROTECTION ACT,
`VA. CODE §§ 59.1-200
`(BROUGHT BY GHMSI AND CAREFIRST BLUECHOICE) ..................................... 33
`
`COUNT VIII VIOLATION OF SOUTH CAROLINA UNFAIR TRADE PRACTICES ACT,
`S.C. CODE ANN. §§ 39-5 et seq.
`(BROUGHT BY BLUE CROSS AND BLUE SHIELD OF SOUTH CAROLINA
`AND BLUECHOICE HEALTHPLAN OF SOUTH CAROLINA, INC. ........................ 34
`
`
`PRAYER FOR RELIEF ............................................................................................................... 36
`
`JURY DEMAND .......................................................................................................................... 36
`
`
`
`ii
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`Plaintiffs CareFirst of Maryland, Inc. (“CFMI”), Group Hospitalization and Medical
`
`Services, Inc. (“GHMSI”), CareFirst BlueChoice, Inc. (“CareFirst BlueChoice”), Blue Cross and
`
`Blue Shield of South Carolina (“BCBSSC”), BlueChoice HealthPlan of South Carolina, Inc.
`
`(“BCHPSC”), Louisiana Health Service & Indemnity Company, d/b/a/ Blue Cross and Blue Shield
`
`of Louisiana (“BCBSLA”), and HMO Louisiana, Inc. (“HMOLA”) (collectively, “Plaintiffs”)
`
`bring this Complaint against Defendants CVS Health Corporation and CVS Pharmacy, Inc.
`
`(together, “CVS”), and allege as follows:
`
`NATURE OF THE ACTION
`
`1.
`
`For more than a decade, CVS—the largest retail drugstore chain in the United
`
`States—has intentionally engaged in a fraudulent scheme to overcharge Plaintiffs for prescription
`
`drugs by submitting claims for payment at artificially inflated prices.
`
`2.
`
`Plaintiffs offer health care plans for comprehensive health care services and
`
`coverage, including prescription drug coverage, to their members in Maryland, South Carolina,
`
`Virginia and other states.
`
`3.
`
`The scheme was, at its core, quite simple. CVS offered hundreds of generic drugs
`
`at low, discounted prices through cash discount programs: originally, its Health Savings Pass
`
`(“HSP”) Program, and then a later successor to the HSP Program, the Value Prescription Savings
`
`Card (“VPSC”) Program (together, the “Cash Discount Programs”).
`
`4.
`
`CVS created and maintained the Cash Discount Programs for two reasons: first, to
`
`compete for cash customers who might otherwise be attracted to discounts offered by CVS’s
`
`competitors, and second—and more importantly—to obfuscate its true prices from third party
`
`payors, including Plaintiffs. CVS intentionally told third party payors, including Plaintiffs, that
`
`the prices charged to cash customers for these generic drugs were higher—often much higher.
`
`Third-party payors then reimbursed CVS based on those higher, inflated prices—instead of the
`
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`actual, lower, prices CVS offered to the general public, including through its Cash Discount
`
`Programs.
`
`5.
`
`CVS was required by governing contracts, and industry standards, to submit the
`
`same low price it offered to the general public who paid “cash”—i.e., who paid out-of-pocket not
`
`using insurance—called the Usual & Customary (“U&C”) Price. By intentionally submitting
`
`falsely inflated U&C prices, CVS knew that it was being overpaid for these generic drug
`
`transactions. In fact, as internal documents show, that was CVS’s plan all along. CVS has now
`
`pocketed billions of dollars in ill-gotten gains through this unlawful scheme—including millions
`
`from Plaintiffs.
`
`6.
`
`7.
`
`This is fraud. And CVS was able to perpetrate and conceal this fraud for years.
`
`When a customer purchases drugs at CVS (or at other pharmacies) using insurance,
`
`the pharmacist or pharmacy technician enters the prescription information and information from
`
`the customer’s insurance card into CVS’s computerized claims processing system. Once this
`
`information is entered, CVS submits the claim for dispensing and adjudication.
`
`8.
`
`Adjudication is the automated process by which CVS submits prescription claims
`
`electronically in real time to third party payors or, as with Plaintiffs, to middlemen known as
`
`Pharmacy Benefit Managers (“PBMs”), who contract separately with both CVS and Plaintiffs to
`
`provide administrative and claims processing services. When submitting electronic claims for
`
`payment, CVS is required by contract and industry standards to truthfully and accurately submit
`
`its U&C price, which is the price offered to a member of the general public paying for a
`
`prescription drug without insurance.
`
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`9.
`
`The PBMs electronically verify the claim and confirm patients are eligible for
`
`insurance coverage or another prescription drug benefit. The PBM then determines the amount
`
`owed by Plaintiffs and the out-of-pocket amount owed by the insured customer.
`
`10.
`
`Payment amounts are subject to specific limitations widely used throughout the
`
`industry. When Plaintiffs’ members fill prescriptions for those drugs using their insurance,
`
`Plaintiffs reimburse CVS (through the PBMs) at specific prices negotiated by their PBMs with
`
`CVS—subject to a very relevant and very important exception.
`
`11.
`
`Plaintiffs’ reimbursement arrangements with PBMs provide that, if the U&C price
`
`is lower than the negotiated price, Plaintiffs are only required to pay CVS (through their PBMs)
`
`the U&C price. This makes perfect sense. This commonplace provision ensures that Plaintiffs
`
`(and their insureds) do not pay more for a given generic drug than a customer who pays “cash”—
`
`i.e., pays out-of-pocket, without using any insurance. Indeed, contracts, network pharmacy
`
`manuals, Medicare and Medicaid requirements, payor sheets, and industry standards, all recognize
`
`that the U&C price operates as a ceiling for reimbursement.
`
`12.
`
`CVS knew that a discounted price offered to a cash customer constituted its true
`
`U&C price; that this discounted cash price must be reported to third party payors as the U&C price;
`
`and that reimbursement by those third party payors at the new U&C price would have a deeply
`
`negative effect on CVS’s revenue.
`
`13.
`
`Large big-box stores competing for CVS’s generic drug customers, like Walmart,
`
`did report its discounted prices as the U&C price and so too did Target (at least until CVS acquired
`
`Target’s pharmacies in 2015 and caused it to stop doing so). For those large big-box stores,
`
`pharmacy revenues form a relatively small part of their overall business. But for CVS, customers
`
`filling generic prescriptions are an essential source of revenue. Over 75% of CVS’s revenue from
`
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`its retail stores derives from pharmacy sales, and over 88% of those transactions are for generic
`
`drugs.
`
`14.
`
`Although it sought to compete with these big-box discount drug programs, CVS
`
`did not want to report discounted prices for generic drugs as U&C prices. So, CVS tried to have
`
`its cake and eat it too. It tried to find a way to both broadly offer discounts to retain critical
`
`pharmacy customers, including cash paying customers, and also avoid the unprofitable result of
`
`reporting the discounted prices as the U&C price.
`
`15.
`
`CVS deliberated internally about how to accomplish this goal and devised a
`
`“membership program”—the HSP program. But this program was a ruse from the start. Anyone
`
`could become a member—even pets—for a negligible fee of $10 and later $15. Moreover,
`
`internally CVS described the program as a “cash program,” “cash card,” or “cash script,” and CVS
`
`marketed the program to the public as a “discount.” Further, CVS’s transaction data categorizes
`
`HSP transactions as a “cash discount” program price. In other words, the HSP price was the “cash”
`
`price offered to the general public and should have therefore been reported as the U&C price. But
`
`CVS intentionally decided not to do so.
`
`16.
`
`CVS intentionally concealed this scheme for years. CVS did little to promote or
`
`advertise its HSP prices, and CVS certainly did not inform Plaintiffs that the U&C price
`
`transmitted during the adjudication process was not the true U&C price, which in many instances
`
`was the lower price offered in the HSP program. Moreover, CVS has refused to disclose its cash
`
`pricing information to allow third party payors, including Plaintiffs, to discover CVS’s true U&C
`
`prices. In fact, CVS frequently made the HSP prices available to non-HSP member cash
`
`customers—showing that the supposed “membership” aspects of the program were pretextual.
`
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`17.
`
`Had CVS been open and notorious about its fraudulent pricing scheme, it never
`
`would have succeeded—Plaintiffs would have insisted that CVS submit the correct U&C price.
`
`Indeed, while carrying out this scheme, CVS internally feared that third party payors would learn
`
`of the deception and demand correction.
`
`18.
`
`Fearing that it would be caught in its misconduct, CVS supposedly terminated the
`
`HSP Program in 2016. But in reality, CVS simply replaced that program with another cash
`
`discount offering that was substantially similar (but had no membership fee): the VPSC Program.
`
`CVS moved over its existing HSP Program members to the VPSC Program by default unless a
`
`member opted out. And CVS continued on with its deceptive and manipulative practice: offering
`
`the VPSC Program discounted cash prices to the general public, but not reporting those prices as
`
`CVS’s U&C prices even though they qualified as such.
`
`19.
`
`Plaintiffs file this Complaint seeking the millions of dollars they were overcharged
`
`by CVS through CVS’s unlawful scheme to submit fraudulently inflated U&C prices to Plaintiffs
`
`for prescription drugs purchased by their members.
`
`PARTIES
`
`A. Plaintiffs
`
`20.
`
`Plaintiff CFMI is a not for profit corporation organized under the laws of Maryland
`
`with its principal place of business in Baltimore, Maryland. CFMI operates as a nonprofit health
`
`services plan in Maryland.
`
`21.
`
`Plaintiff GHMSI is a congressionally chartered corporation with its principal place
`
`of business in Washington, D.C. GHMSI operates as a not for profit health services plan in two
`
`counties of Maryland, Northern Virginia, and the District of Columbia.
`
`22.
`
`Plaintiff CareFirst BlueChoice is a corporation organized under the laws of the
`
`District of Columbia with its principal place of business in Washington, D.C. CareFirst
`
`5
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`BlueChoice operates as a health services plan in Maryland, Northern Virginia, and the District of
`
`Columbia.
`
`23.
`
`Plaintiff BCBSSC is a mutual insurance company organized under the laws of
`
`South Carolina with its principal place of business in Columbia, South Carolina.
`
`24.
`
`Plaintiff BCHPSC is a wholly owned subsidiary of BCBSSC and a corporation
`
`organized under the laws of South Carolina with its principal place of business in Columbia, South
`
`Carolina.
`
`25.
`
`BCBSLA is a Louisiana domestic health insurance corporation organized under the
`
`laws of Louisiana with its principal place of business in Baton Rouge. BCBSLA provides and
`
`manages health benefits to more than one million insureds and members throughout the United
`
`States. BCBSLA also provides third-party administrative services for insureds and members.
`
`26.
`
`HMOLA is a wholly owned subsidiary of BCBSLA and a Louisiana domestic
`
`health maintenance corporation organized under the laws of Louisiana with its principal place of
`
`business in Baton Rouge, Louisiana. HMOLA provides and manages health benefits to insureds
`
`and members throughout the United States.
`
`27.
`
`Plaintiffs (themselves or through affiliates) are independent licensees of Blue Cross
`
`and Blue Shield Association, which is a national association of 36 independent, community-based
`
`and locally operated Blue Cross Blue Shield licensees. Blue Cross Blue Shield licensees provide
`
`health insurance to more than 107 million people in all 50 states, Washington, D.C., and Puerto
`
`Rico.
`
`B. Defendants
`
`28.
`
`Defendant CVS Health Corporation is a corporation organized under the laws of
`
`Delaware and headquartered at One CVS Drive, Woonsocket, Rhode Island, 02895.
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`6
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`29.
`
`Defendant CVS Pharmacy, Inc. is a corporation organized under the laws of Rhode
`
`Island and headquartered at One CVS Drive, Woonsocket, Rhode Island, 02895. CVS Pharmacy,
`
`Inc. is a wholly-owned subsidiary of CVS Health Corporation.
`
`JURISDICTION AND VENUE
`
`30.
`
`The Court has jurisdiction over this matter and over Defendants pursuant to 28
`
`U.S.C. § 1332. Complete diversity exists because (1) Plaintiffs are incorporated in and have their
`
`principal places of business in Maryland, the District of Columbia, South Carolina, and Louisiana,
`
`and (2) Defendants CVS Health Corporation and CVS Pharmacy, Inc. are incorporated in
`
`Delaware and Rhode Island, respectively, and have their principal places of business in Rhode
`
`Island. In addition, the amount in controversy exceeds $75,000.
`
`31.
`
`32.
`
`Alternatively, jurisdiction exists under 28 U.S.C. § 1367.
`
`The Court has general personal jurisdiction over Defendants because their principal
`
`places of business are located in Rhode Island.
`
`33.
`
`Venue is proper in this District under 28 U.S.C. § 1391 because Defendants reside
`
`in, and are subject to personal jurisdiction in, this District at the time Plaintiffs commenced this
`
`action and because Defendants’ contacts within this District are significant and sufficient to subject
`
`Defendants to personal jurisdiction. Venue is appropriate in this District for the further reason that
`
`a substantial part of the events or omissions giving rise to Plaintiffs’ claims occurred in this
`
`District.
`
`I. CVS’s Business
`
`FACTUAL ALLEGATIONS
`
`34.
`
`CVS describes itself as “the nation’s premier health innovation company” with “a
`
`bold new approach to total health,” including its business strategy of “delivering transformational
`
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`products and services.” See CVS Health Corporation 2019 Annual Report at 2, available at
`
`https://bit.ly/2VI5uUp (last accessed on May 21, 2021).
`
`35.
`
`CVS’s most recognizable business segment is its nationwide chain of retail
`
`pharmacy stores. CVS has approximately 9,900 locations throughout the United States, including
`
`numerous locations in this District, where its corporate headquarters is located. Id. at 2. According
`
`to CVS, 70% of the U.S. population lives within three miles of a CVS retail pharmacy, and one-
`
`in-three Americans interact with CVS annually. Id. at 2.
`
`36.
`
`CVS’s retail pharmacy stores are also CVS’s most profitable business segment. In
`
`2019, CVS reported total revenues of $86.6 billion from those stores, with a reported adjusted
`
`operating income of $7.4 billion. Id. at 6, 63-65, 68.
`
`37.
`
`Pharmacy counters provide the vast majority of the retail stores’ revenue. For 2019,
`
`CVS reported pharmacy revenues of $66.4 billion, which is approximately 76.7% of all revenue
`
`from CVS’s retail stores. Id. at 6, 63. According to CVS’s 2019 Annual Report, “retail pharmacy
`
`operations will continue to represent a critical part of the Company’s business.” Id. at 68.
`
`38.
`
`This action concerns the price that CVS charged Plaintiffs for generic drug
`
`prescriptions filled by Plaintiffs’ members.
`
`39.
`
`A generic drug is a copy of a brand-name drug, which by law must have the same
`
`active ingredients, same strength, and same mechanism of action as the brand name drug it copies.
`
`40.
`
`The vast majority of all prescriptions filled in the United States are for generic
`
`drugs—approximately 86%, according to the IMS Institute for Healthcare Informatics.
`
`41.
`
`Generic drugs are a critical part of CVS’s retail pharmacy operations. In 2019,
`
`CVS dispensed approximately 1.417 billion prescriptions—approximately 26.6% of the total retail
`
`pharmacy prescriptions dispensed in the entire United States. Id. The vast majority of these
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`prescriptions—88.3% of them, or approximately 1.25 billion of CVS’s dispensed prescriptions—
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`were for generic drugs. Id.
`
`42.
`
`Perhaps counterintuitively, CVS earns a higher profit margin on generic drugs than
`
`it earns on more expensive brand name drugs. As CVS’s 2019 annual report states, “generic drugs
`
`. . . normally yield a higher gross profit rate than equivalent brand name drugs.” Id. at 32.
`
`According to CVS, “[t]he increased use of generic drugs has positively impacted the [retail
`
`pharmacy] segment’s operating income and adjusted operating income …” Id. at 69.
`
`II. CVS Is Required To Submit True And Accurate
`Usual & Customary Prices To Plaintiffs.
`A. CVS Must Submit The True And Accurate
`U&C Price During The Adjudication Process.
`
`43.
`
`Consumers who are uninsured, or who pay cash for generic prescription drugs,
`
`represent a relatively small portion of the market. The vast majority of transactions for generic
`
`prescription drugs in the United States are paid for by health plans like Plaintiffs.
`
`44.
`
`Each time one of Plaintiffs’ members uses his or her insurance to pay for a
`
`prescription, CVS submits the member’s insurance information electronically to Plaintiffs’ PBMs
`
`in a process called adjudication.
`
`45.
`
`At all relevant times, CVS used the industry standard established by the National
`
`Council for Prescription Drug Programs (“NCPDP”) related to the electronic transmission and
`
`adjudication of its pharmacy claims.
`
`46.
`
`NCPDP is a non-profit, multi-stakeholder organization that develops industry
`
`standards for electronic healthcare transactions used in prescribing, dispensing, monitoring,
`
`managing, and paying for medications and pharmacy services. Its membership is made up of
`
`approximately 1,500 stakeholders from across the pharmaceutical industry, including pharmacies,
`
`pharmacists, health plans, and government agencies. The NCPDP works through a consensus
`
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`process to develop industry standards, many of which have been adopted into federal legislation,
`
`including HIPAA, MMA, HITECH and Meaningful Use (MU).
`
`47.
`
`HIPAA requires uniform methods and codes for exchanging electronic information
`
`between health plans. These standards were developed by the NCPDP and are referred to as the
`
`NCPDP Telecommunications Standard. HIPAA also requires prescribers follow the NCPDP
`
`SCRIPT Standards when prescribing drugs under Medicare Part D. See 42 C.F.R. § 423.160. The
`
`NCPDP also adjudicates claims between pharmacies and patients.
`
`48.
`
`As a required component of the adjudication process, CVS reports to third party
`
`payors, like Plaintiffs, CVS’s U&C price for the drug being dispensed in Field 426-DQ.
`
`49.
`
`The NCPDP’s standards define the U&C price as the “[a]mount charged cash
`
`paying customers for the prescription exclusive of sales tax or other amounts claimed.” The U&C
`
`price, the NCPDP standards explain, “represents the value that a pharmacist is willing to accept as
`
`their total reimbursement for dispensing the product/service to a cash-paying customer.” In other
`
`words, the U&C price is what a customer who buys a given drug without using any insurance
`
`customarily pays.
`
`B. Plaintiffs Pay CVS, Through PBMs, The
`“Lesser Of” A Negotiated Price Or The U&C Price.
`
`50.
`
`PBMs play an integral role in adjudication and in this action. PBMs act as
`
`middlemen between CVS and Plaintiffs, providing a variety of services including the negotiation
`
`of drug prices and the management of prescription billing.
`
`51.
`
`Plaintiffs had contracts with multiple PBMs during the relevant period. Each
`
`contract contains the pricing formula for certain drugs covered by each Plaintiff’s insurance plans.
`
`These pricing formulas set the negotiated prices that Plaintiffs pay to the PBM when a given
`
`prescription for that drug is dispensed at CVS.
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`52.
`
`But Plaintiffs are not always required to pay PBMs the negotiated prices pursuant
`
`to their respective contracts. The contracts also provide that Plaintiffs only owe the “lesser of” or
`
`“lower of” the negotiated price or the U&C price. Where the negotiated price listed in the PBM
`
`contract is greater than this U&C price, Plaintiffs only owe the U&C price—not the negotiated
`
`price.
`
`53.
`
`These contracts generally define the U&C price consistently with the NCPDP
`
`definition to mean the “cash” price to the general public, which is the amount charged to customers
`
`who are paying out-of-pocket for the prescription.
`
`54.
`
`In this way, “lesser of” pricing ensures that Plaintiffs—and their members—are not
`
`charged more than customers who simply pay cash. The “lesser of” provision is intended to ensure
`
`that Plaintiffs and their insureds are not charged more than if they had no insurance at all. But this
`
`“lesser of” protection only serves its intended function when CVS accurately reports U&C pricing.
`
`55.
`
`CVS was well aware that its contracts with PBMs and third party payors—and
`
`payors’ contracts with PBMs—capped CVS’s reimbursement at the U&C price if that price was
`
`lower than the negotiated price. Because of this, CVS knew that the price it reported as its U&C
`
`price played a critical role in the amount of money it would make on prescription purchases made
`
`using insurance—and that CVS could make more money by manipulating its U&C prices.
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`C. U&C Is A Critical Pricing Measure That
`CVS Regularly Monitors And Also Manipulates.
`
`56.
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`U&C prices are almost always higher than the negotiated prices in the PBM
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`contracts. This makes sense. A retail price—what a cash customer would pay without insurance—
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`is usually higher than the price an insurer can negotiate for its members.
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`57.
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`Once the negotiated prices are set, CVS obviously cannot alter those prices. But
`
`CVS can control the U&C price because CVS decides what prices to offer a cash paying customer.
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`Case 1:21-cv-00223-WES-PAS Document 1 Filed 05/21/21 Page 15 of 40 PageID #: 15
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`Because CVS gets paid the “lesser of” the negotiated price or the U&C price, CVS has an incentive
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`to ensure that the U&C price is always higher than the negotiated price.
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`58.
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`Indeed, CVS carefully monitors the number of transactions paid at its U&C price.
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`CVS tracked what it called its “U&C Default rate,” the percentage of transactions at which health
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`plans have been reimbursed at U&C prices. CVS runs a weekly report tracking the U&C Default
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`rate and, if that rate becomes too high in CVS’s view, CVS raises U&C prices.
`
`III. CVS Did Not Submit The Cash Discount Program Prices As The U&C Price.
`A. CVS’s Competitors Adopted Discount Programs,
`Which Threatened CVS’s Margins.
`
`59.
`
`As described above, CVS’s pharmacy business is essential to CVS’s profitability.
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`But in 2006, that lucrative business was disrupted. Large “big-box” retailers with pharmacy
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`departments began offering hundreds of generic prescription drugs at significantly reduced prices.
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`For example, in September 2006, Walmart began charging $4 for a 30-day supply of the most
`
`commonly prescribed generic drugs and $10 for a 90-day supply. In November of that same year,
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`Target began charging $4 for a 30-day supply of the most commonly prescribed generic drugs and
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`$10 for a 90-day supply. Other “big box” retailers with pharmacy departments followed suit and
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`offered similar, competing discount pricing on generic drugs.
`
`60.
`
`Critically, here: Walmart reported its $4 price for generic prescription drugs as its
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`U&C price. Target also reported its discount generic drug prices as its U&C price—until 2015
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`when CVS acquired Target’s pharmacies. They did so for the straightforward reason that the cash
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`price being offered to the general public was now lower with these discounts than before.
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`Moreover, large retailers, like Walmart and Target, were willing to absorb lower margins on
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`generic drug sales because pharmacy sales represented a relatively low percentage of their total
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`sales.
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`61.
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`CVS experienced considerable market pressure as its customers gravitated away
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`from CVS to pharmacies offering significant discounts on certain generic drugs. For example, in
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`an internal May 2008 presentation, CVS worried that it is “‘late to the party’ with a competitive
`
`$4 offering.”
`
`62.
`
`But CVS knew that if it offered similar discounts, CVS risked having to report these
`
`discounted prices as the new, lower U&C price—as Walmart and Target did. CVS’s own internal
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`glossary of terms defines U&C to mean “the dollar amount a cash customer usually pays.”
`
`Moreover, CVS previously offered a senior discount in some of its stores and, when CVS applied
`
`that discount, CVS computed a separate U&C price reflecting the senior discount and reported that
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`U&C price to certain PBMs. CVS was thus concerned that “[m]aking the program ‘too attractive’
`
`creates higher risk for our 3rd party plan pricing and profitability.” As a result, CVS risked a steep
`
`decline in the amount third party payors, like Plaintiffs, would reimburse CVS for those sales if
`
`CVS introduced generic drug discounts to compete with retailers like Walmart.
`
`63.
`
`Internal CVS documents show that CVS began monitoring its competitors’ generic
`
`discount programs and strategizing about whether the competitors were reporting those discount
`
`prices as the U&C prices.1 For example, Rite Aid, CVS’s competitor, launched its Rx Savings
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`Card program, which “require[d] no membership fee and [was] free to anyone who enrolls.” About
`
`this program, one CVS employee wrote: “Without any enrollment fee, will this create some of the
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`3rd party compression we’ve discussed over the past several months?” CVS’s Tom Morrison,
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`former Vice President of Managed Care, responded: “I have been puzzled by their offering from
`
`
`1 This Complaint quotes CVS internal documents contained in public legal filings. No documents currently
`designated as confidential under any protective order have been included in this Complaint.
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`the start. They expose themselves to other third parties and to Medicaid agencies. This is their
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`new U&C.”2
`
`64.
`
`CVS also considered how to avoid what it viewed as a problem of reduced
`
`reimbursements from third party payors like Plaintiffs. For example, when Kmart introduced its
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`program in January 2008, one CVS employee wrote:
`
`I’m wondering if the [sic] Walgreens and KMART are billing usual and
`customary prices to all third party plans and only eating the difference on
`their own generic plan. Since they identify their plans as third party they
`might not be eroding their global reimbursement like Wal-Mart. These are
`some interesting points to note if we decide to enter the game.
`B. CVS Implemented The HSP Program Not Only To Compete
`With Other Discount Programs, But More Importantly,
`As A Pretext To Avoid Reporting HSP Prices As U&C Prices.
`
`65.
`
`CVS worked with a PBM that it owns—Caremark—to develop its own discount
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`program. Caremark had valuable knowledge because, at the time, it was administering various
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`cash discount cards and could provide insight to CVS as CVS developed its own discount program.
`
`As a PBM, Caremark also has information about how CVS’s competitors had designed their
`
`programs.
`
`66.
`
`Because of Caremark’s experience as a PBM, it knew that CVS would not want to
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`submit any discount price as a U&C price.