CVS Caremark settles Medicare investigation

Agrees to pay $5m to settle FTC case

After more than two years of investigation, CVS Caremark Corp. agreed yesterday to pay $5 million to settle charges by the Federal Trade Commission that the company had misrepresented the price of certain prescription drugs in one of its Medicare drug plans, causing many older consumers to pay significantly higher prices than advertised.

The settlement comes at a time of intensive government scrutiny of pharmacy benefits managers like CVS Caremark, companies that manage prescription drug plans for employers and insurers. The FTC is currently reviewing the proposed merger of the two main competitors to CVS Caremark: Medco Health and Express Scripts.

In the case of Medco and Express Scripts, regulators are examining whether the combination would create a player with too much market share.


With CVS Caremark, the agency looked into whether the merger of one of the largest drug store chains with one of the largest pharmacy benefits managers had given the company an unfair market advantage in steering customers and obtaining information about competing pharmacies. CVS Caremark is one of the country’s largest pharmacy benefits managers with a network of about 65,000 pharmacies, including more than 7,300 of its own stores.

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In 2009, some legislators, labor unions, pharmacies, and consumer groups raised concerns about potentially anticompetitive and anticonsumer business practices by the Woonsocket, R.I., company. The FTC opened an investigation early that year.

Yesterday, the agency dismissed the more serious allegations of anticompetitive behavior. The agency found only one violation - that one of the company’s Medicare drug plans, then called RxAmerica, had misled some consumers about drug prices.

“After a thorough and comprehensive review of other consumer protection and competition issues in this matter, the FTC issued a letter closing the investigation,’’ the agency said in a press release.

In 2006, when CVS proposed to merge with Caremark, executives pledged that the new company would put up a firewall to keep the activities of its own stores separate from the benefits manager, which processes prescriptions from competing pharmacies. Tom Ryan, then the company’s chief executive, said in a conference call with investors in 2006 that the merged company would “be agnostic to where the consumer fills their prescription.’’


But pharmacies and consumer groups asserted in their complaints to regulators that the two divisions of the company had shared consumers’ records, steering people to the company’s own retail stores and mail-order operations, which gave CVS Caremark an unfair advantage over its competitors. At the time, some consumer advocates called for the agency to dissolve the merger.

The FTC mounted a sweeping investigation, involving its bureau of consumer protection, bureau of economics and bureau of competition - a highly unusual effort by the agency. But the agency ultimately cited CVS Caremark for only one narrow violation.

In the statement, Douglas A. Sgarro, the chief legal officer of CVS Caremark said, “It is important to note that, at the conclusion of this comprehensive investigation, the FTC made no allegations of antitrust law violations or anti-competitive behavior associated with any of our business practices, products or service offerings.’’

The FTC contended that from 2007 through at least November 2008, the RxAmerica plan posted on its website and supplied to some third-party websites incorrect prices for Medicare Part D prescription drugs at two pharmacy chains, CVS and Walgreens. The posted prices caused many people to choose the CVS Caremark plan and pay as much as 10 times more than they had expected, according to the FTC complaint. In some cases, the higher prices unexpectedly pushed older consumers into the so-called doughnut hole - a gap in prescription drug coverage that requires people to pay out of pocket for their medicines.

The settlement requires CVS Caremark to pay $5 million to reimburse consumers for the price difference and bars the company from making deceptive claims about drug prices. The agency said it planned to mail checks to consumers who were deceived.