Qui Tam Lawsuits Blow the Whistle on PBMs

Pharmacy benefit managers(PBMs) have come underintense scrutiny by federal andstate governments in the past fewyears, largely as a result of whistleblowerlawsuits that allege Medicareand Medicaid fraud. The companiescould end up paying hundreds of millionsof dollars to settle charges andchanging their way of doing business.

Just recently, Caremark Rx Inc paid thefederal government $137.5 million tosettle a whistle-blower—or qui tam—lawsuit and related charges brought bythe government involving soliciting andreceiving kickbacks from pharmaceuticalmanufacturers by Caremark'sAdvancePCS unit.

As part of the settlement, Caremarkagreed not to engage in "drug switching,"where a customer ends up payingmore for a drug than the one prescribedby a doctor.

Qui tam lawsuits are brought by whistle-blowers under the False Claims Act,which allows private citizens, who areaware of fraud against the federal government,to sue any individual or companythat is defrauding the governmentand recover funds on the government'sbehalf.

Whistle-blowers Entitled to Reward

Whistle-blowers are entitled to areward of 15% to 25% of the amountthe government recovers as a result oftheir qui tam lawsuits. The basis for aqui tam lawsuit can be any instancewhere the government loses moneydirectly or indirectly, such as when apharmacy switches a customer from alower-priced drug to a higher-priceddrug for nonmedical reasons or toincrease profits.

Many states have false claims lawsthat allow private individuals to sue anyindividual or company that is defraudingthe state or its programs, whichincludes Medicaid. When it comes topharmaceutical fraud, qui tam lawsuitsusually may be brought under both federaland state statutes, as both the federalgovernment and the states fund theMedicaid program.

More Lawsuits Filed Against PBMs

Caremark faces at least 2 other qui tamlawsuits, including one brought by 2 marriedpharmacists who worked forCaremark. They allege that the PBMdefrauded a Florida health plan for retiredstate workers by failing to give it credit formedications that were returned unopenedby customers. The pharmacistsalso accuse Caremark of changing prescriptionswithout permission.

A separate whistle-blower lawsuitalleges that Caremark resold refrigerateddrugs that had been returnedthrough the mail without testing them.Medco Health Solutions, another giantin the PBM field, paid more than $29million to 20 states in 2004 to settlestate claims that it had encouragedphysicians to switch patients to differentprescription drugs to increase itsrebates from drug manufacturers.

Other qui tam lawsuits and governmentcomplaints have raised a series ofallegations against Medco, includingmailing prescriptions to patients withless than the number of pills orderedand charging patients and health plansas if they had dispensed the fullamount, and destroying patients' mail-orderprescriptions so that the PBMcould avoid penalties for its repeateddelays in filling and mailing patient prescriptions.

Express Scripts is the latest PBM targetof a major government fraud investigation.A lawsuit brought by the state ofNew York alleges that Express Scriptshad inflated the cost of generic drugssold to members of the state's largestemployee health plan, the Empire Plan,and kept millions of dollars in drug manufacturerrebates that should have goneto the Empire Plan. State officials saidthat the PBM defrauded the Empire Planin other ways, too. These charges couldhave been grounds for a qui tam lawsuit,but the state of New York does not havea qui tam law.

If a pharmacist is concerned that acompany or individual may be defraudingMedicare or Medicaid and violatingthe False Claims Act, the pharmacistshould consult an attorney who is anexpert in the field. The lawyer can advisethe pharmacist whether the fraud couldbe the basis of a qui tam lawsuit andwhat legal protections there are regardingjob retaliation.

Ms. Kelton is a partner at the lawfirm of Phillips & Cohen LLP.