Three hospitals have sued CVS Health, alleging the company redirected $250 million in savings from the 340B program. Mount Sinai Hospital, including St. Luke’s-Roosevelt Hospital and Mount Sinai Beth Israel; the University of Kansas Hospital Authority; and the University of Michigan Hospitals and Health Centers filed separate lawsuits claiming CVS siphoned funds that should have gone to the institutions.
How the alleged scheme works
The complaints, filed by Frier Levitt, a healthcare law firm, name CVS Health, CaremarkPCS Health, Caremark, CVS Specialty and WellPartner as defendants. The $250 million represents savings generated under the 340B Drug Pricing Program, according to the lawsuits.
Under the agreements cited in the complaints, hospitals required all third-party payments for successfully adjudicated 340B specialty drug claims to be passed through to them, except for CVS Specialty dispensing fees and WellPartner administrative fees. Because 340B eligibility often cannot be determined at the point of sale, specialty drug claims are initially processed at standard national network reimbursement rates.
Several weeks after the point of sale, when WellPartner flagged a claim as 340B-eligible, CaremarkPCS allegedly paid CVS Specialty an artificially reduced reimbursement rate. WellPartner then presented the hospitals with this artificially reduced amount as the full reimbursement for the claim.
Related: St Christophers Hospital eyes potential partners
CVS concealed the earlier claim that reimbursed at higher rates, which would have yielded more revenue to the hospital, the lawsuit said. “CVS retained the ‘spread’ as pure profit,” the law firm stated.
CVS allegedly artificially reduced the payments it received at the point of sale on 340B-eligible specialty drugs, retained some of the payor reimbursement, and passed on the lower amount to the hospitals, resulting in approximately $250 million being diverted between 2020 and 2025.
The companies did not immediately reply to a request for comment.
The 340B program context
The 340B program, enacted in 1992, requires drug manufacturers to give price discounts on outpatient drugs to hospitals that qualify for the program. The hospitals provide care to uninsured and low-income patients.
Related: Resmed ventilators linked to serious injuries
The discounted prices are typically available through a covered entity’s wholesaler or a specialty distributor. The hospitals that have bought drugs at a discount can then bill payers at the non-discounted price, generating revenue for the hospitals to expand care for vulnerable patients.
The program has been controversial for several reasons. One reason is that hospitals are abusing the program. Another is the lack of transparency over the actual 340B prices and whether manufacturers are providing the required discounts, according to The Commonwealth Fund. It is also unclear how much revenue covered entities receive from 340B drugs and how they use that revenue, the report said.
There are also claims of duplicate discounts from drugs being supplied at the 340B price while getting a discount through such federal programs as the Medicaid Drug Rebate Program.