While the summer lends itself to often-needed vacations, the U.S. District Court for the Eastern District of Pennsylvania has been hard at work. On June 25, Chief U.S. District Judge Mitchell Goldberg handed down a $95 million judgment against CVS Caremark Corp., CVS Health Corp.'s pharmacy benefits manager, for overbilling the government for Medicare Part D sponsored drugs.[1] The court's bench trial order culminated a decade of ongoing litigation.
In 2014, relator Sarah Behnke filed a qui tam action, U.S. ex rel. Sarah Behnke v. CVS Caremark Corp., alleging that Caremark, a pharmacy benefits manager, or PBM, violated the False Claims Act by causing Medicare Part D plan sponsors — health insurers that offer Medicare Part D coverage — with which it contracted to misrepresent to the government the amount they paid for prescription drugs on behalf of Medicare beneficiaries.
In other words, Caremark — through its contracted Medicare Part D plan sponsors — reported higher costs of drugs to the government than what it actually paid its contracted pharmacies as reimbursement for the Medicare Part D drugs they dispensed.
According to Judge Goldberg's 105-page opinion, the relator was the head Medicare Part D actuary for Aetna Life Insurance Co., which contracted with Caremark to become the insurer's PBM at the time she brought this lawsuit.
By way of brief background, Medicare Part D is designed to cover the partial costs of providing prescription drug coverage to Medicare beneficiaries. While Medicare —through the Centers for Medicare and Medicaid Services — administers the Part D program, it does not purchase drugs. Instead, Medicare contracts with health insurance companies such as Aetna to sell insurance plans to Medicare beneficiaries.
Those insurance companies are known as Medicare Part D sponsors or plan sponsors. The Medicare Part D plans offered by the plan sponsors partially cover the cost of prescription drugs for the beneficiaries.
The plan sponsors contract with PBMs, which then negotiate the prices that will be reimbursed to pharmacies when such pharmacies provide pharmacy services to the plan sponsor's Medicare beneficiary customers. Medicare remits to the plan sponsor subsidies that cover the costs of prescription drugs, in amounts based on the prices reported to it by the plan sponsor, pursuant to Medicare regulations.
Part of the regulations for participating in the Medicare Part D program as a plan sponsor require the reporting of various statistics related to the plan sponsor's business for Medicare beneficiaries.
This includes, for example, the cost of operations, patterns of utilization of service, pharmacy service performance metrics and other financial data, such as amounts paid to PBMs for the administration of pharmacy benefits on behalf of their insureds.[2]
Prior to 2010, Medicare Part D plan sponsors were permitted to report to Medicare costs that they remitted to the PBM, even if those costs were different from the amounts the PBM reimbursed to the pharmacy. The difference between the amount the PBM paid to the pharmacy and the amount received from the Medicare Part D sponsor is known as spread pricing.
Due to the unreliability of such reporting, CMS promulgated new rules in 2010 for the drug costs that are to be reported for Medicare Part D reimbursement. CMS required that Medicare Part D plan sponsors report to CMS the actual costs they reimbursed for medication dispensed to Medicare Part D beneficiaries.
In Behnke, the relator alleged that Caremark's Medicare Part D pricing arrangement with Aetna was significantly greater than what similar Medicare Part D plan sponsors charged their beneficiaries for the same drugs — meaning Caremark was charging Aetna more for the same Medicare Part D drugs than it was charging its other insurer clients.
And, Aetna was required, in turn, to report to Medicare Part D the actual prices paid to the PBM for Medicare Part D drugs. Because Caremark's charges to Aetna were higher than what Caremark was required to reimburse for fills of Part D drugs, Aetna and other Medicare Part D plan sponsors misrepresented the amounts they were required to report to the government as being higher than what they otherwise should have been. In light of such misrepresentations, Medicare ultimately paid Caremark more than it should have for the administration of Medicare Part D drugs.
The ruling is notable on multiple levels.
First, there is the amount of the $95 million judgment, which the law then allows to be trebled. While other FCA cases have resulted in significant judgments over the years, that this judgment represents actual damages to the government speaks to the scale of the alleged fraud.
The court has requested briefing on the issue of whether the damages should be trebled. If trebled, the damages to be awarded to the government would reach approximately $285 million.
Moreover, the court has not yet determined how many individual false claims were submitted, With mandatory civil penalties under the FCA, this could increase the final judgment amount.
Where Medicare Part D costs Medicare beneficiaries and the government over $130 billion per year, the recovery of such substantial damages for FCA violations represents a huge win for the government — even though the government did not intervene in the case.
While the government did not intervene in the case, it did file statements of interest, which appear to have influenced Judge Goldberg's opinion as to the materiality of Caremark's conduct.
Caremark argued that Medicare was aware that the actual costs of drugs dispensed to Medicare Part D beneficiaries were lower than the reported costs, but did nothing about it, and continued to pay claims based on the reporting. Therefore, Caremark argued, its alleged misconduct was not material to Medicare's decision to continue to pay subsidies.[3]
In opposing Caremark's argument that its allegedly fraudulent cost reporting was not material to Medicare's subsidy payments to plan sponsors, the government argued that its lack of intervention had no bearing on the materiality of Caremark's conduct, that Caremark maintains the burden to prove a lack of materiality based on the government's knowledge, and that any perceived failure by the government to claw back payments based on reporting provided by Caremark has no bearing on materiality findings.
Second, what also makes the ruling notable is the fact that PBMs have rarely been named defendants in FCA cases. In controlling the flow of medications between drug manufacturers, health insurance companies and pharmacies, and ultimately to pharmacy customers, PBMs obviously yield a substantial amount of power within the drug-pricing space.
Medicare relies on PBMs providing accurate information and reporting in order to keep drug costs within reasonable ranges. This case demonstrates the consequences when these entities, which are historically meant to lower drug prices, actually illegally inflate them. It also speaks to the ability of the FCA to serve as a remedy when that trust is breached.
Third, this ruling sheds more light on the all-too-opaque process of drug pricing. In recent years, the federal government has taken action in an attempt to halt these pricing practices. Beginning in 2024, CMS banned direct and indirect renumeration fees, which previously allowed PBMs to claw back reimbursements remitted to pharmacies based on undisclosed metrics.[4]
The Federal Trade Commission is also currently pursuing an administrative enforcement action, Express Scripts Inc. v. Federal Trade Commission, in the U.S. Court of Appeals for the Eighth Circuit, against the three largest PBMs — Caremark, Express Scripts and OptumRX — based on allegations that they are artificially inflating the cost of insulin.[5]
Again, while the government chose not to intervene in Behnke, the question remains whether it would have intervened if the case had been initiated in 2025. Since the case was filed in 2014, the government's priorities have shifted toward reining in alleged PBM misconduct.
Just recently, attorneys from the U.S. Department of Health and Human Services and the U.S. Department of Justice announced the formation of a working group focused on enforcing the FCA. Priority areas for enforcement include Medicare Advantage and drug pricing, two areas in which PBMs and pharmacies are directly involved.
Behnke also highlights the market power of PBMs nationally. The three largest PBMs, Caremark being one of them, control approximately 80% of the market in the U.S.[6] According to Judge Goldberg's opinion, the Aetna whistleblower discovered the fraud when an investigation identified that Caremark was charging higher prices than its competitors.
Aetna attempted to use this information to negotiate better drug prices. Caremark refused to lower its prices and told Aetna that it was not required to pass on its cost savings to Aetna.
Most businesses that negotiate with PBMs have much less leverage than Aetna. Independent pharmacies, meaning those not affiliated with or owned by a PBM, are beholden to the reimbursement structures dictated by PBMs such as Caremark.
When PBMs are accused of having violated the FCA by overbilling Medicare — when Caremark is supposed to be reporting the actual amounts remitted in reimbursement to pharmacies for Medicare Part D drugs — it follows that the reimbursement remitted to pharmacies will be significantly less than what it otherwise should be.
The Behnke opinion revealed that Caremark used the monies gained from a system of falsely reporting costs and reimbursements to Medicare in order to line its own pockets, rather than to increase reimbursements given to pharmacies servicing and treating Medicare beneficiaries.
Reimbursement from a PBM can be so low that a pharmacy may lose money by filling prescriptions for a PBM.
Two of the pharmacies allegedly involved in Caremark's scheme include Rite-Aid and Walgreens. Rite-Aid recently filed for bankruptcy, and Walgreens is closing over 1,000 stores nationwide in response to financial difficulties.
Indeed, one of the focuses of the FTC's 6(b) study of pharmacy benefit managers is the "complicated and opaque methods [used] to determine pharmacy reimbursement."[7]
While commercial parties have limited negotiating power, the federal government is able to set the rules governing its dealings with PBMs. Behnke illustrates the importance of evaluating compliance with Medicare rules, even in the context of commercial contracts.
Even when dealing with another private party, Medicare regulations may be implicated. For example, Caremark's relationship to Medicare was through Aetna, which had delegated the responsibility for negotiating drug costs to Caremark.
Even when dealing with commercial insurers or pharmacies, this case demonstrates that PBMs can be liable when they cause violations of the Medicare program rules.
Behnke underscores the opaque and sophisticated mechanisms through which PBMs can confuse drug costs and other healthcare financing. And it signals the potential for increased scrutiny of PBMs' practices and their outsized role in dealing with plan sponsors and pharmacies, which already has been rapidly stepped up over the past several years, including at the FTC, the U.S. House of Representatives and through various state actors.[8]
References
[1] U.S. ex rel. Sarah Behnke v. CVS Caremark Corp. et al. , Case No. 2:14-cv-00824, E.D.P.A., June 25, 2025.
[2] 42 CFR § 423.514
[3] Caremark relied on Universal Health Servs. Inc. v. United States ex rel. Escobar , 579 U.S. 176 (2016) to argue that government's knowledge and subsequent lack of action renders Caremark's conduct immaterial.
[4] 87 Fed. Reg. 27704 (May 9, 2022).
[5] The case was recently stayed due to lack of sufficient commissioners to oversee the matter based on necessary recusals. On July 7, 2025, the FTC filed a Motion to Lift the Administrative Stay, which is pending.
[6] Adam J. Fein, The Top Pharmacy Benefit Managers of 2024: Market Share and Key Working Developments, Drug Channels Institute (June 17, 2025).
[7] Press Release: FTC Launches Inquiry Into Prescription Drug Middlemen Industry, Federal Trade Commission (June 7, 2022).
[8] See, Hannah Albarazi, FTC To Probe Pharma Middlemen Over High Drug Prices, Law360 (June 7, 2022); Courtney Bublé, Comer Tells PBMs To Correct Record On Role In Drug Pricing, Law360 (Aug. 29, 2024); Patrick Hoff, Arkansas Bans PBMs From Owning Pharmacies, Law360 (Apr. 17, 2025).
Reprinted with permission of Law360.
