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A ‘veritable playground’: CVS whistleblower details how patients were charged higher drug prices

The conversation reflected frustration and disbelief.

A woman had called SilverScript, which runs one of the largest Medicare prescription drug plans, to complain that she was unable to get a generic version of a brand-name asthma medication known as Advair. She couldn’t understand why a less-expensive generic was not on the list of covered medicines, because paying for it anyway would cost her about $100 more.

“Well, it sounds like SilverScript just doesn’t want to change, because it’s to their benefit and I’m not feeling that they’re thinking of the consumer and it’s hard for me to believe that the generic is pricier than the Advair,” the woman responded to the customer service representative after an appeal was denied, according to a transcript of the phone call. “It shouldn’t be that way.”

But it was allegedly that way for countless Medicare beneficiaries across the U.S. who obtained their prescription drug coverage from SilverScript, which is owned by CVS Health, according to a recently unsealed lawsuit that was filed by a former CVS executive.

Starting in 2015, CVS allegedly coordinated an effort that relied not only on its SilverScript subsidiary, but also its Caremark pharmacy benefit manager and its chain of CVS retail pharmacies to prevent consumers from obtaining low-cost generics because the company profited from making only higher-priced brand-name medicines available to its customers.

The scheme involved arrangements with drug companies that allegedly sought to block generic competition for more than a dozen widely prescribed, brand-name medicines. Some of the drugs in question are used to treat hepatitis C, multiple sclerosis, dementia, schizophrenia, ulcerative colitis, asthma and high eye blood pressure, among other conditions, according to the lawsuit.

In doing so, CVS profited from the rebates paid by drug companies to its pharmacy benefit manager. This often meant that Part D beneficiaries were forced to pay more than they would have otherwise if SilverScript had made lower-cost generics available on its formulary, or list of covered medicines. CVS executives allegedly maintained this approach yielded an “enterprise-wide benefit,” the lawsuit stated.

“The complicity among CVS Health’s Part D plan sponsor, SilverScript; its pharmacy benefit manager, CVS Caremark, and CVS Pharmacies has created a veritable playground of opportunities to hold off generic competition, allowing the drugmakers free reign to block beneficiary access to less costly generic drugs,” according to the lawsuit, which was filed in a federal court in Philadelphia.

The lawsuit describes a highly complicated plan called “Single Source Generic/Do Not Substitute” designed to bolster CVS profits at the expense of consumers and American taxpayers, since Medicare was forced to pay more for some brand-name medicines. As a result, the lawsuit also contended that CVS reneged on a 2012 consent decree with the Federal Trade Commission by breaching firewalls designed to prevent anticompetitive practices. At the time, the agency accused CVS Caremark of deceptive prescription drug pricing.

The lawsuit was filed by Alexandra Miller, who worked at CVS Health — most recently as a senior director for Part D operations — for 19 years before leaving three years ago. Miller, who complained to CVS supervisors about the business practices but said she was rebuffed, filed the lawsuit as a whistleblower. The Department of Justice declined to join the case.

In a statement sent to us, CVS said: “We intend to vigorously defend this lawsuit and are pleased that the government has chosen not to participate in the lawsuit.”

The lawsuit arrives amid intensifying scrutiny of prescription drug prices and the opaque roles played by drugmakers and pharmacy benefit managers. For the past several years, poll after poll has shown that a growing number of Americans complain they are unable to afford some medications, but the federal government has failed to find a fix and patchwork efforts by state lawmakers have not made a dent.

The FTC, however, is currently investigating anticompetitive practices that lead to higher prescription drug costs. Among the issues being examined is the interplay between drug manufacturers and pharmacy benefit managers, given the murky role played by rebates that drugmakers pay to win favorable placement on formularies managed by pharmacy benefit managers.

For this reason, the lawsuit may generate attention, because it purports to pull the curtain back on the ways CVS allegedly sought to manipulate drug costs. The allegations describe very detailed practices by CVS to counter consumer efforts to pursue low-cost generics, including authorized generics. These are identical versions of brand-name drugs made by the same manufacturer, but offered at a discount.

“I think the biggest issue here is the intentional overcharging of patients when they go to fill a drug for which a cheaper alternative — a lower list price — drug is available,” said Stacie Dusetzina, an associate professor of health policy at the Vanderbilt University School of Medicine, who studies prescription drug pricing and the Medicare system.

“This is really disappointing to see when patients have reached out to try to gain access to the lower cost drug via an appeals process and have still been unable to obtain the drug. For some of these drugs, the difference in price for the beneficiary can be hundreds or thousands of dollars. I think that there is a broader point that some of these behaviors… are costly to Medicare beneficiaries and may result in patients foregoing treatment.”

A study published last year in JAMA Internal Medicine and co-authored by Dusetzina found Part D beneficiaries would save money if they had access to lower-priced, authorized generics, although Part D plans and Medicare are “unlikely” to save money. But “for patients to take advantage of these lower list prices, they must be aware that the authorized generic drug is available, be on a plan that provides coverage for the product, and find a pharmacy that has this product in stock,” the study noted.

Although there were already concerns that Part D plans may dissuade use of authorized generics, the lawsuit alleged that CVS eventually fine-tuned its approach by targeting the many Part D beneficiaries who had low-income subsidies, since they may not readily notice issues with their co-payments. Why? The Medicare program subsidizes most of the Part D premium, deductibles and cost sharing.

The lawsuit offered details of other troubling practices, however, according to industry experts. For instance, while SilverScript would not cover certain authorized generics for its formulary, the CVS retail pharmacies were also instructed to no longer stock the same medicines. This drastically curtailed wider public access, since 35% of all prescriptions filled in the U.S. in 2019 were at a CVS pharmacy, the suit stated.

The lawsuit goes on to allege that CVS violated Medicare regulations since SilverScript sometimes failed to disclose differences in prices for drugs that were or were not covered on its formulary. Instead, the company customer service representatives simply maintained that a drug was not available due to the formulary policy, according to the lawsuit.

Consequently, SilverScript did not inform beneficiaries their out-of-pocket cost would be higher than if the identical authorized generic was available or that paying cash might cost less than paying for a drug on the formulary. SilverScript also did not disclose this scheme would more quickly force beneficiaries into costlier stages of Medicare known as the donut hole and catastrophic coverage. This also pushed up costs for Medicare at large.

At one point, though, CVS went beyond withholding information about the right to seek a formulary exception and began making outright denials of all formulary exceptions and appeals for certain drugs that were included in the scheme, according to the lawsuit. These included two hepatitis C drugs — Harvoni and Epclusa — that are manufactured by Gilead Sciences.

CVS allegedly determined there would be a low risk of getting caught, though, because so many of the SilverScript customers had low-income subsidies. Of 1,604 prescriptions that SilverScript was projected to cover each month for the Gilead drugs, 84% had a subsidy and, as a result, Medicare would absorb any higher copay for the brand-name versions instead of authorized generics that were available.

So, even if the difference in price between the generic and brand-name versions was many thousands of dollars, the out-of-pocket costs for these patients would differ little, the suit stated. As a result, CVS executives determined that SilverScript beneficiaries had much less incentive to file complaints or grievances because they were unable to obtain a lower-cost generic.

“We know that vertical integration in the PBM sector creates a bevy of conflicts and perverse incentives that can create inappropriate enticements that yield extreme financial inequity among pharmacy providers and bloated drug costs for plan sponsors,” said Antonio Ciaccia, who heads 3 Axis Advisors, a prescription drug pricing research and consulting firm that works with health plan sponsors, provider organizations, and state regulators.

“But the impact that these dynamics have on patients is far too often overlooked. The learnings from the allegations in this case cast a timely shadow over the field of play as the FTC begins its inquiry into the PBM industry.”


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