WOONSOCKET – CVS Caremark Corp. (NYSE: CVS) today agreed to pay $37.8 million to the U.S. government and states including Rhode Island, Massachusetts and Connecticut, to settle Medicaid drug-switching claims related to its handling of ranitidine, the generic form of the heartburn medicine Zantac.
The settlement concludes investigations by the U.S. Department of Justice and 23 states into the CVS/pharmacy division’s “practice … of dispensing the generic drug ranitidine in capsule rather than tablet form to Medicaid recipients,” the parent company said in a statement today. “The company has expressly denied engaging in any wrongful conduct,” it emphasized.
The retailer “agreed to the settlement in order to defray the distraction, burden and expense of continuing litigation,” CVS Caremark said, adding that “the government has been engaged in an investigation of the dispensing practices of various pharmacies related to ranitidine for many years.”
“For many years, the company purchased and stocked the capsule form of ranitidine across its chain of retail stores – for dispensing to all patients, not just Medicaid recipients – due to the fact that the acquisition cost of capsules was lower than the cost of tablets,” CVS Caremark said.
“At various times, certain state Medicaid programs reimbursed pharmacies at a higher rate for capsules than for tablets. Both of these dosage forms for ranitidine contain the same active ingredients.
“The government alleged that the practice of dispensing capsules instead of tablets was motivated by a desire to increase Medicaid reimbursement. The company has expressly denied this allegation.”
But a complaint filed in federal court in Chicago, by 23 states, the District of Columbia and the U.S. government, charged that substituting capsules for tablets was illegal. In some cases, the complaint alleged, the change allowed the company to charge state programs four times as much for each pill.
“Switching medication from tablets to capsules might seem harmless,” Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, said in a statement today. “But when that is done solely to increase profit and in violation of federal and state regulations that are designed to protect patients, pharmacies must know that they are subjecting themselves to the possibility of triple damages, civil penalties and attorney fees.”
“The Medicaid program is an important part of the medical safety net for our neediest citizens,” added Mass. Attorney General Martha Coakley. “In today’s economic climate, the state must account for every penny.”
The settlement announced today “calls for payment by the company of $36.7 million, plus approximately $800,000 in investigative costs and other fees,” for a total of about $37.5 million, CVS Caremark said. Illinois pharmacist Bernard Lisitza, who filed the initial complaint in 2003, will receive $4.3 million, Bloomberg News reported.
Of the 36.7 million in penalties, the federal government will get about $21 million while the remaining $15.6 million will be divided among the 24 other parties. It was not immediately clear how much of that would go to Rhode Island. The Bay State will get $3.7 million, payable to the Mass. Medicaid Program, plus another $150,000 in costs and attorneys’ fees, Coakley’s office said.
CVS will pay the settlement within 10 days, Randall Samborn, a spokesman for Fitzgerald, told Bloomberg today. The payments “have been fully accrued … in prior fiscal periods and will not affect the company’s 2008 earnings results,” CVS Caremark said.
Besides Rhode Island, Massachusetts, Connecticut, the District of Columbia and the federal government, the settlement involved the states of Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Vermont, Virginia and West Virginia.
The settlement also calls for the company to enter into a corporate integrity agreement with the U.S. Office of the Inspector General, which CVS Caremark described as evidence of “the company’s strong commitment to compliance with the law, as well as adherence to the highest ethical standards.” The integrity agreement – applying to both retail and mail-service operations – calls for the company to institute “certain employee training,” and to maintain its existing compliance program, code of conduct and employee ethics hotline, CVS Caremark said.
The company last month agreed to pay $38.5 million to settle a multi-state consumer protection probe of pharmacy benefits management divisions Caremark LLC and the former AdvancePCS (now CaremarkPCS LLC). (READ MORE)
Additional information about the settlement is available from Morrisville, Pa.-based PRforLaw LLC at www.PharmacyFraudSettlement.com.
CVS Caremark Corp. (NYSE: CVS) operates the CVS/pharmacy stores; the CVS.com online pharmacy; Caremark Pharmacy Services; and the MinuteClinic retail-based health care subsidiary. Additional information is available at investor.cvs.com.
