U.S. Attorney Announces $37.76 Million Settlement With CVS For Over-Dispensing Insulin Pens To Patients

United States Attorney for the Southern District of New York, Jay Clayton, Special Agent in Charge of the New York Regional Office of the U.S. Department of Health and Human Services Office of the Inspector General (“HHS-OIG”), Naomi D. Gruchacz, Acting Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (“DCIS”), Christopher M. Silvestro, and Special Agent in Charge of the U.S. Office of Personnel Management Office of the Inspector General (“OPM-OIG”), Derek M. Holt, announced that the United States has filed and settled a healthcare fraud lawsuit against national retail pharmacy chain CVS PHARMACY, INC. (“CVS”).  The settlement resolves allegations that, from 2010 through 2020, CVS violated the False Claims Act in connection with its billing and dispensing of insulin pens to patients enrolled in Government healthcare programs (“GHPs”), including Medicare, Medicaid, TRICARE, and the Federal Employees Health Benefits Program.  Specifically, the Government alleges that CVS improperly requested and received GHP reimbursement for premature refills, dispensed more insulin pens than patients needed according to their prescriptions, and falsely under-reported the days-of-supply of insulin that its pharmacies dispensed. 

Under the settlement approved by U.S. District Judge John G. Koeltl, CVS agreed to pay a total sum of $37.76 million, with $24,446,240 to be paid to the United States and the remainder to be paid to various states.  As part of the settlement, CVS also admitted and accepted responsibility for certain conduct alleged by the Government in its complaint, including that GHPs paid CVS substantial amounts for insulin pen refills that were ineligible for reimbursement and CVS pharmacies dispensed more insulin to GHP beneficiaries than they needed.

“CVS engaged in a decade-long practice of repeatedly prematurely refilling insulin prescriptions for patients and improperly billing government healthcare programs for more insulin than patients needed,” said U.S. Attorney Jay Clayton.  “These programs rely on pharmacies to follow appropriate refill schedules and to accurately report the amount of medicine dispensed, which CVS pharmacies frequently failed to do.  This settlement reflects our continued commitment to holding pharmacies to account, enforcing rules designed to keep costs down, and protecting taxpayer dollars.”      

“Companies that participate in federal health care programs are required to obey laws meant to protect the integrity of program funds, including the responsibility to bill only for services and supplies eligible for reimbursement,” said HHS-OIG Special Agent in Charge Naomi D. Gruchacz.  “Working closely with our law enforcement partners, HHS-OIG will continue to investigate allegations of improper billing to safeguard our taxpayer-funded federal healt​hcare system and the millions of enrollees who rely on its programs.”

“Investigating false claims against TRICARE, the healthcare system for military members and their families, is a top priority for the Defense Criminal Investigative Service, the criminal investigative arm of the Department of Defense’s Office of Inspector General,” said DCIS Acting Special Agent in Charge Christopher M. Silvestro.  “This announcement underscores our commitment to working with our law enforcement partners and the Department of Justice to protect TRICARE against unwarranted and fraudulent expenses.”

“Knowingly submitting claims for medically unnecessary insulin refills exploits benefits that federal employees rely on to manage their health, increasing the cost of care and wasting taxpayer dollars,” said OPM-OIG Special Agent in Charge Derek M. Holt.  “We thank our agents, law enforcement partners, and the Department of Justice for their dedication to investigating and pursuing these improper billing practices that undermine the Federal Employees Health Benefits Program.”

Insulin pens (hard plastic, pen-shaped cases containing syringes filled with insulin solution) are a common way for diabetic patients to self-administer insulin.  During the relevant period, manufacturers frequently distributed insulin pens in five-pen cartons with each pen containing 300 units (3 mL) of insulin solution.  Insulin prescriptions must set forth the “directions for use,” which typically designate both how much insulin to administer and the frequency and/or timing of when to administer it.

When pharmacies seek reimbursement from GHPs for insulin pens, they are required to report, among other data, the “quantity dispensed” and the “days-of-supply.”  The “quantity dispensed” means the total amount of medication dispensed to a patient when the pharmacy fills the prescription, and the “days-of-supply” refers to the number of days that the quantity dispensed is expected to last if taken as directed by the prescriber.  Typically, pharmacists calculate days-of-supply by dividing the total quantity of medication dispensed by the patient’s “daily dose,” i.e., the amount of medication that the prescriber directs the patient to use each day.

GHP plans, and pharmacy benefit managers (“PBMs”) working on their behalf, typically set limits on the days-of-supply that a pharmacy may dispense when filling prescriptions (such as a 30-day supply), and reject reimbursement claims for fills that exceed those limits.  GHPs and PBMs also deny reimbursement for prematurely refilled prescriptions—refills dispensed before the beneficiary would have consumed a substantial portion of the previously-dispensed quantity of medication if taken as prescribed.  PBMs use automated processes to review claims for reimbursement submitted by pharmacies and deny claims that are submitted too far in advance of the expected refill date.  The ability of PBMs to detect and reject reimbursement claims for premature refills depends on pharmacies complying with their obligations to accurately report days-of-supply data.

Dispensing insulin in full cartons containing five pens can exceed applicable days-of-supply limits, resulting in claim rejections.  PBMs developed rules to address reimbursement when dispensing medications like insulin in the smallest commercially-available container would exceed the days-of-supply limit.  Some PBMs required pharmacies to seek an override of the limit and then to resubmit the claim reporting the accurate days-of-supply actually dispensed so the PBM could verify when the next refill would be needed.  Other PBMs permitted pharmacies to submit claims reporting the maximum days-of-supply allowed, even if that number was lower than the actual supply dispensed.  Importantly, however, those PBMs still required pharmacies to track and use the actual days-of-supply dispensed to determine when patients would actually need a refill.  All PBMs prohibited pharmacies from seeking reimbursement for premature refills, regardless of container size.  

As alleged in the Government’s Complaint:

From January 1, 2010, through December 31, 2020 (the “Covered Period”), CVS violated the FCA by knowingly submitting, or causing to be submitted, false claims to GHPs for reimbursement for insulin pens where CVS: dispensed more insulin to GHP beneficiaries than was specified by their prescriptions and refilled GHP beneficiary prescriptions substantially before GHP beneficiaries needed the refills; falsely under-reported the days-of-supply for the insulin refills, which often prevented PBMs from detecting that the refills were premature; and failed to comply with applicable rules when refilling insulin prescriptions requiring pharmacies to calculate refill dates using the actual days-of-supply dispensed. 

To fill insulin prescriptions as quickly as possible and to ensure that reimbursement claims for insulin pens were not rejected, CVS instructed its pharmacy staff simply to report the maximum days-of-supply allowed under the beneficiary’s plan when dispensing full insulin pen cartons, which was often lower than the actual days-of-supply dispensed.  Many CVS pharmacies did not internally document and use the actual days-of-supply dispensed to determine when patients could next refill their prescription.  To the contrary, CVS’ dispensing software calculated refill dates automatically based on inaccurate days-of-supply data reported to the PBM.  As a result, CVS pharmacy staff repeatedly refilled prescriptions prematurely, dispensing substantially more insulin to GHP beneficiaries than they actually needed and substantially sooner than they needed it according to their prescriptions. As a result, some GHP beneficiaries accumulated large quantities of unused insulin, which was both wasteful and potentially dangerous as insulin can expire.

CVS management was well aware that it was over-dispensing insulin.  PBMs conducted periodic audits of CVS pharmacies and repeatedly found violations of the dispensing rules, including reporting invalid days-of-supply data, refilling insulin pen prescriptions too soon, and dispensing insulin pens in excess of the quantities authorized by the prescription.  PBMs issued chargebacks to CVS based on these violations.  For several years, CVS management knew that insulin pens were among the drug products most frequently subject to chargebacks for premature refills.   Yet, despite these audit findings, CVS failed to take necessary steps to address this long-standing problem during the Covered Period.

Under the settlement, CVS admitted, among other things, that:

• During much of the covered period, many CVS pharmacies did not break open insulin pen cartons when dispensing insulin pens. As a result, at times, CVS pharmacies dispensed amounts of insulin that exceeded applicable days-of-supply limits.  When a claim for reimbursement was rejected for exceeding the limit, some CVS pharmacies did not obtain overrides and re-submit the claim listing the actual days-of-supply dispensed as required by some PBMs.  Instead, CVS pharmacies often reported the maximum days-of-supply allowed under the beneficiary’s insurance plan for insulin pens when resubmitting the claim, which was lower than the actual days-of-supply dispensed.  While certain PBMs allowed this practice because the carton was the smallest commercially-available container for the medication, CVS pharmacies at times did not adhere to the appropriate refill intervals for patients that were to be based on the actual days-of-supply dispensed.
• During much of the covered period, CVS customers with insulin-pen prescriptions who enrolled in CVS’ optional auto-refill program received automatic prompts notifying them that their refilled prescriptions were available to be picked up.  CVS’ auto-refill logic calculated prescription refill dates based on the days-of-supply data recorded by pharmacy staff and sent customers refill notifications based on those dates.  When pharmacy staff recorded days-of-supply numbers that were lower than the actual days-of-supply dispensed, the system would at times calculate refill dates for patients that were premature.  As a result, some CVS pharmacies dispensed insulin pen refills to GHP beneficiaries before the beneficiaries needed more insulin and before the GHP plan or PBM would have approved such refills for reimbursement.
• At times during the covered period, GHPs and the payors working on their behalf paid CVS substantial amounts for insulin pen refills that were ineligible for reimbursement, and CVS pharmacies dispensed more insulin to GHP beneficiaries than they needed.

In connection with the filing of the lawsuit and settlement, the Government joined five private whistleblower lawsuits that had previously been filed under seal pursuant to the False Claims Act.

Mr. Clayton praised the outstanding investigative work of the HHS-OIG, DOD-OIG, OPM-OIG, the Department of Veterans Affairs OIG, and the U.S. Postal Service OIG.

This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Pierre Armand is in charge of the case.