Recent CVS Caremark Settlement on Drug-switching Allegations

CVS Caremark Corporation (CVS) recently agreed to a $37.5 million settlement with the federal government and over twenty states. The settlement arose from allegations that CVS improperly switched patient prescriptions to increase Medicaid reimbursements. According to the Department of Justice, from 2000 to 2006, CVS routinely dispensed Ranitidine, a heartburn and ulcer medication, in the more expensive capsule form rather than the less expensive tablet version of the drug. Ranitidine typically comes in tablet form, with a government-set maximum price for reimbursement. The less frequently prescribed capsules have no government-set maximum price. Consequently, the capsule form can recover more than four times the reimbursement of the tablet form. However, both forms of the drug contain the same active ingredients, and the switch from one form to another adds no medical benefit to patients. Therefore, according to the Department of Justice, switching from the prescribed tablet form to the capsule form was designed to increase CVS’ reimbursement rather than to address legitimate medical concerns. The claims resulting in the settlement were initiated by a whistleblower, Mr. Bernard Lisitza, a licensed pharmacist. Pursuant to the settlement, the federal government received $21.1 million and the states collectively received $15.6 million. As his share of these federal and state settlements, Lisitza received $4.3 million. Alabama, where CVS has about 140 stores in operation, was awarded $805,487 in the settlement. Alabama, where CVS has about 140 stores in operation, was awarded $805,487 in the settlement. The settlement also required CVS to enter into a five-year corporate integrity agreement with the Department of Health and Human Services Office of the Inspector General (OIG). Among other things, the corporate integrity agreement requires CVS to maintain a corporate compliance plan, submit mandatory reports and agree to various inspections, audits and reviews by the OIG. These measures are designed to ensure that CVS does not improperly switch drugs in the future. In regard to the settlement, CVS denied any wrongful conduct and asserted that the practice of dispensing the capsules rather than the prescribed tablets was not motivated by a desire to increase Medicaid reimbursement. According to a statement issued by CVS, CVS purchased and stocked the capsules, rather than the tablets, because “the acquisition cost of capsules was lower than the cost of tablets.” Nonetheless, regardless of the acquisition costs to CVS, dispensing the capsules rather than the tablets resulted in higher reimbursement costs to the Medicaid program. This is not the first time a settlement has been reached based on improperly switching more expensive drugs for their less expensive versions. In November 2007, Omnicare Inc. settled with the federal government and over forty states for $49.5 million based on similar allegations. These recent settlements highlight the OIG’s continued enforcement of Medicare/Medicaid fraud. “Switching medication from tablets to capsules might seem harmless, but when that is done solely to increase profit and in violation of federal and state regulations that are designed to protect patients, pharmacies must know that they are subjecting themselves to the possibility of triple damages, civil penalties and attorney fees,” U.S. Attorney Patrick Fitzgerald said. “These penalties, coupled with the willingness of insiders to report fraud, should deter such misconduct, but when it doesn’t, the result in this case and others serves notice that we will aggressively pursue all available legal remedies.” In light of these enforcement actions, all pharmacies should review and update existing policies regarding drug switching. If your pharmacy does not already have such a policy in place, you should consider implementing one. Among other things, the policies should address when physician approval for the drug switch is necessary, what form of documentation must be maintained by the pharmacy and for how long, and what requirements, if any, must be satisfied before the version or form of a drug may be altered. For example, under the Alabama Medicaid Agency regulations, any changes to an original prescription, including changes in drug version or form, must be documented on the original prescription. Having policies in place to address such legal requirements and making those policies available to all employees who assist in filling prescriptions will help ensure that your pharmacy is not next to be targeted by the Department of Justice. Kelli C. Fleming is an associate with Burr & Forman LLP and practices exclusively within the firm’s Health Care Practice Group. May 2008