Showdown looms between CVS pharmacies and Texas Medicaid regulators

Jan. 18--The Texas Attorney General's office has accused some of the state's largest pharmacies of cheating the Medicaid program by reporting exaggerated prices on medications and raking in larger reimbursements than they deserve.

And while several pharmacies have settled with the state and gone about their business, CVS is giving the state its stiffest opposition yet. Five years of negotiations have resulted in competing lawsuits filed recently in Travis County, leaving a civil judge to interpret a law that's at the center of a $130 million dispute.

CVS' lawsuit, filed in late December, insists the pharmacy had the state's blessing to use the prices that are now in question for Medicaid reimbursement. Weeks later, the state filed a lawsuit of its own, accusing CVS of submitting fraudulent reimbursement requests since 2005. That lawsuit, unsealed this month at the end of a five-year investigation, says CVS inflated prices reported to Medicaid by as much as 670 times the customary price. For example, the lawsuit says the pharmacy falsely reported a $999.99 price for over-the-counter eye drops.

The state estimates CVS has made between $128 million and $130 million by falsely reporting the prices, according to Raymond Winter, division chief of the attorney general's civil medicaid fraud division.

In its lawsuit against the state, CVS says the amount in dispute is $30.5 million, which Winter says is old and came from a settlement conference over a year ago.

If the disagreement goes to a jury trial -- and it will if a settlement isn't reached -- CVS runs the risk of being banned from the state's Medicaid program for 10 years if it loses.

There is similar litigation pending against CVS in California and Rhode Island.

"They've never made any attempt to comply with a Texas regulation and apparently have not complied with other state regulations either," Winter said.

Trying to match Walmart

Other pharmacies have been accused of using similar tactics. In October 2016, Randall's settled with the state for $1 million. H-E-B settled a similar case for $12 million in 2014, court records show. According to Winter, a settlement with yet another pharmacy will be finalized in the coming weeks.

The payouts are split into four shares -- one for the federal government, which helps fund the state Medicaid program; one for the state; one for the whistleblower ; and one for the attorney general's office to offset legal costs.

The state has also received damages from federal lawsuits filed against Walgreens, K-Mart and others.

Walmart has avoided litigation because, Winter says, it plays by Medicaid's rules.

In 2006, the big box department store rocked the pharmacy industry by offering generic drugs at $4 and reporting that figure to Medicaid as its usual and customary price. That left Walmart's competitors scrambling to keep up. According to the state's lawsuit against CVS, a number of CVS pharmacies agreed to customers' requests to match Walmart's prices.

However, the lawsuit says when the profit hit became too much to bear, CVS created a program called the Health Savings Pass, which charged customers without insurance $15 annually for the opportunity to buy drugs at a discount.

CVS says the price associated with the Health Savings Pass is different from its customary price for drugs; the state disagrees, accusing the pharmacy of jacking up the customary price to get a bigger reimbursement. The state alleges in its lawsuit that the membership fee often is not enforced, citing 180,000 members who had fees waived.

In 2015, CVS discontinued the Health Savings Pass.

CVS spokesman Michael DeAngelis said the pharmacy has complied with the law.

"The company believes that it complied with Texas regulations with respect to the Health Saving Pass program, and that the paid membership program's discounted prescription prices did not constitute the 'Usual and Customary Prices' for Texas' Medicaid program," he said.

CVS says in its lawsuit against the state that Texas officials agreed in 2008 that prices the pharmacy offered through the savings pass programs weren't the pharmacy's customary prices -- and therefore weren't the prices the pharmacy would use in calculating Medicaid payments. In the lawsuit, CVS says that Andy Vasquez, the state's Medicaid director, confirmed that in a phone call to a CVS vice president.

Winter said CVS never had permission to report the prices it reported and that the pharmacy's representatives misled Vasquez, who said during the call that he'd get back with them if he had any issues with their pricing plan.

"As far as we know, that's where the conversation ended," Winter said. "There was never any official response from the state of Texas saying what CVS was doing was in compliance with Texas law. Furthermore, the information the CVS executive gave to the Texas Medicaid official was not complete information. In fact, it was patently false information which was contradicted by later statements he gave us under oath as part of our investigation."

Editor's note: This story has been changed to correct an error about oversight of the attorney general's medicare fraud division.

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