CVS Caremark agrees to settle FTC complaint over Part D generic advertising

by Ben Vernia | January 13th, 2012

On January 12, the Federal Trade Commission announced a settlement with CVS Caremark Corp. over claims that the company’s subsidiary, RxAmerica, misled consumers over the cost of generic drugs under its Medicare Part D plans. According to the FTC’s announcement:

CVS Caremark Corporation will pay $5 million to settle Federal Trade Commission charges that it misrepresented the prices of certain Medicare Part D prescription drugs – including drugs used to treat breast cancer symptoms and epilepsy – at CVS and Walgreens pharmacies. The allegedly deceptive claims caused many seniors and disabled consumers to pay significantly more for their drugs than they expected and pushed them into the “donut hole” – a term referring to the coverage gap where none of their drug costs are reimbursed – sooner than they anticipated or planned. The settlement will bar deceptive claims related to Medicare Part D drug prices and require CVS Caremark to pay $5 million to reimburse affected Medicare Part D consumers for the price discrepancy.
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According to the FTC complaint, CVS Caremark offers Medicare Part D prescription drug plans through subsidiaries like RxAmerica, which CVS Caremark acquired in October 2008. Many consumers choose their Medicare Part D drug plans by looking up plan benefits and drug prices on RxAmerica’s website, by going to the Centers for Medicare & Medicaid Services website and using the web-based tool Plan Finder, or by visiting other third-party websites where such information is posted.

The FTC charged that from 2007 through at least November 2008, RxAmerica posted on its website and supplied for posting to Plan Finder and third-party websites incorrect prices for Medicare Part D prescription drugs at two pharmacy chains, CVS and Walgreens. In some instances, the actual prices for these drugs were as much as 10 times more than the posted prices. As a consequence of the deceptive price claims, many elderly and disabled consumers chose RxAmerica plans and paid significantly more than they expected for their drugs at CVS and Walgreens, the FTC alleged.

Under the proposed settlement’s consent decree, Caremark must refrain from misrepresenting the price of generics and other costs under Part D, and reimburse consumers $5 million. The FTC Commissioners voted to accept the settlement, which will be posted in the Federal Register for a 30-day comment period.

Comment: The FTC’s action begs the question: what about the government’s damages? As the FTC’s complaint against Caremark makes clear, the Part D costs borne by typical Part D enrollees – such as copayments and the “donut hole” – are paid by the federal government for low-income enrollees. In addition, if inflated generic prices move enrollees into the donut hole more quickly, they likewise move enrollees into the catastrophic reinsurance coverage zone more quickly, and in that zone, the federal government pays 80% of the costs of Part D drugs. The FTC’s settlement makes it unlikely that DOJ will pursue Caremark under the False Claims Act. If they do not (and if the FTC’s allegations are true), they are certainly letting the company get away with defrauding the government.

The case also highlights the dangers of permitting ownership of Part D sponsors such as RxAmerica by companies with network pharmacies like CVS. The assumption underlying Part D is that each participant – Part D sponsors, pharmacy benefit managers, pharmacies, and drug makers – negotiate at arms’ length. If the Part D sponsor also owns large numbers of pharmacies, it enables the kind of cost-shifting alleged to have taken place here.

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