Chief Judge Goldberg Denies Appeal in Caremark Whistleblower Suit

On July 30, 2024, Chief U.S. District Judge Mitchell S. Goldberg of the Eastern District of Pennsylvania denied a request to appeal his interpretation of the Centers for Medicare and Medicaid Services’ regulations from CVS Caremark Corp. (“Defendant” or “Caremark” or the “Company”) in a qui tam lawsuit against the Company for falsely reporting prescription drug prices to the government in violation of the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq.

The FCA allows private citizens (known as whistleblowers or relators) to bring lawsuits on behalf of the government against entities suspected of misusing government funds. Relator Sarah Behnke (“Behnke”), the former head actuary for Medicare Part D (“Part D”) at Aetna Life Insurance (“Aetna”) when Aetna entered into an agreement with Caremark, filed this suit on behalf of the United States in February 2014.

Behnke’s allegations accuse Caremark of causing health insurers (including Aetna) to request inflated subsidies under Part D by reporting false actual drug costs, negotiated drug prices, and prescription drug event data, and by charging insurers significantly higher prices than those charged by other Part D sponsors to their beneficiaries for the same drugs.

Following Caremark’s failure to have the lawsuit dismissed in August 2018, the case proceeded through substantial and contentious discovery with over a dozen depositions and cross-motions for summary judgment supported by over 400 exhibits on multiple issues. One of the issues subject to summary judgment was the issue of “falsity,” a necessary element of a FCA complaint.

The regulations imposed by the Centers for Medicare and Medicaid Services (“CMS”) require Caremark’s clients to report what Caremark “actually paid” for drugs, defined as the amount “actually incurred” net any “direct or indirect renumeration.” Behnke argued that because Caremark contracted with pharmacies to pay a fixed average price for drugs while setting its own individual sale price for each transaction, the fixed average price was the amount “actually paid” rather than the chosen individual sale price. Therefore, Caremark caused its clients to submit false reports to CMS by reporting the higher individual sales prices.

Judge Goldberg ultimately agreed with Behnke’s interpretation of the CMS regulations and ruled in Behnke’s favor regarding the issue of falsity, finding that if an insurer “contracted with a pharmacy to pay at least a certain average price across all drug purchases, and paid no more than that guaranteed average, then the guaranteed average was the price ‘actually paid.'”

Caremark asked Judge Goldberg to certify an appeal of his interpretation, which Behnke opposed based on the application of CMS’s regulations being fact-bound and relevant only in the context of Caremark’s unique pricing scheme. Judge Goldberg again agreed with Behnke and concluded that an appeal would only cause additional delay “given the voluminous record, technical subject matter, and wide-ranging factual disputes.”

The whistleblower is represented by Miller Shah LLP and Berger Montague PC. The lawsuit will now proceed through the pretrial stage and is on track to reach trial shortly thereafter. Updates will be posted to this blog as the matter progresses. The case caption is U.S. v. CVS Caremark Corp. et al., case number 2:14-cv-00824, in the U.S. District Court for the Eastern District of Pennsylvania.

Under the FCA’s whistleblower provision, individuals may bring lawsuits on behalf of the Federal Government against entities suspected of misusing government money. Whistleblowers are eligible to receive between 10 and 30 percent of the recouped funds. Federal whistleblower programs, such as the FCA scheme, have recovered billions in taxpayer dollars and are an important part of the government’s anti-fraud toolkit.

The legal team at Miller Shah LLP has extensive experience with class action and False Claim Act matters. If you have any questions regarding this subject or this post, please contact John Roberts (jcroberts@millershah.com). The Firm can also be reached toll-free at (866) 540-5505.