Pharmacy Lawsuit Challenges Government Investigation After Relying on Purported Prior Telephone Assurance from Regulators

On December 27, 2016, CVS Pharmacy (“CVS”) filed suit against the Texas Health and Human Services Commission (the “Commission”) in the District Court of Travis County, Texas. The suit claims that regulators at the Commission specifically approved of certain billing practices that the Commission’s Office of Inspector General is now claiming constitute false claims.

Specifically, the Commission is arguing that a CVS membership program that allowed access to significant discounts on a limited formulary of drugs was in fact available to the general public and therefore constituted the lower “Usual and Customary” price that should have been charged to Medicaid. The Commission believes this resulted in significant overpayments to CVS. CVS, however, cites a conversation with the Commission as evidence that the Commission approved the CVS model and notes that it sent an email confirming its position to the Commission. CVS acknowledges that the Commission did not respond to this email.

This dispute is but one of a series of cases nationally in which qui tam relators are arguing that lower prices available to pharmacy and provider membership program participants are in fact available to the general public. To the extent such prices are available to the general public, they would represent the Usual and Customary amount that should have been billed to Medicare, Medicaid and certain other private payors including Part D plans.

Irrespective of the outcome of this case, providers (including pharmacies) obtaining advice from state Medicaid agencies should carefully consider obtaining affirmative written evidence from the applicable state agency whenever indicated. What is particularly notable about this case is that it highlights an area of constant struggle for health care providers – the ability to rely on verbal guidance provided by a state agency in the absence of clear written guidance and a subsequent email memorializing that advice (which the state agency does not refute as inaccurate). It is worth watching the evolution of this case to see what, if any, deference is given to CVS’s documentation related to that telephone conversation and what, if any, insight is offered by the court in that regard.

Background

The Commission has been investigating CVS since 2012 regarding CVS’s submission of its Usual and Customary pricing. Pharmacies that accept Medicaid agree to receive reimbursement from Medicaid at the lowest of certain pricing measures, one of which is the pharmacy’s Usual and Customary price. In Texas, consistent with most states due to federal statutory requirements, Usual and Customary pricing is defined as the “the price the provider most frequently charges the general public for the same drug.”¹ The Commission alleged in a 2015 letter to CVS that CVS failed to include the prices charged to members of its Health Savings Pass program when calculating the Usual and Customary amount. As a result of not incorporating such transactions into its Usual and Customary pricing calculations, the Commission claimed that 7.1 million claims were overpaid, with a total overpayment of approximately $30.5 million. CVS states that, under the Health Savings Program, individuals pay $15 for an annual membership and in return receive lower prices on approximately 400 generic medications. The program started in 2008, and from 2008 to 2010, the annual membership fee was $10.

CVS Complaint

In its complaint, CVS claims that the Health Savings Program prices are not required to be included in Usual and Customary pricing calculations, as such prices are not available to the general public. As support for its position, CVS included notes from a 2008 telephone call between a CVS vice president and the Texas Director for Medicaid/CHIP Vendor Drug Program and Regional Pharmacist Manager for Texas Medicaid. The notes indicate that the Commission, after being informed of the details of the Health Savings Program, stated its position that the Health Savings Program pricing did not constitute CVS’s Usual and Customary price. CVS also attached to its complaint a follow-up email that its vice president sent to the Texas Director for Medicaid/CHIP Vendor Drug Program memorializing and confirming the prior phone conversation and the Commission’s stance. The Commission did not respond to that email.

Analysis

When attempting to comply with complicated and/or vague laws, rules and/or regulations, confirming a planned approach with the agency responsible for overseeing such requirements can be extremely helpful in ensuring your organization is transparent with the agency and, in turn, consistent with the agency’s position. While the preference is to receive any guidance in writing, regulators often are unwilling to formally document their advice and will only discuss issues on the phone. Therefore, many providers have taken the approach used by CVS in this case – receiving advice on a phone call and, to the extent possible, creating contemporaneous supporting documentation. Although such notes do not provide the same level of comfort as written confirmation from the regulating agency, the thought behind this approach was that the provider would receive some level of protection if the practice was challenged in the future. This case will serve as a test of the effectiveness of this approach.

Practical Takeaways

This case is worth following, as it may provide insight into the practice of receiving verbal guidance from a regulating agency, memorialized in a subsequent email, and the ability to rely on such advice. It also underscores the importance of maintaining proof of your organization’s compliance efforts and especially highlights the need to document any correspondence between your organization and the government. In this case, CVS was able to produce handwritten notes and an email and have marshalled these documents in an attempt to challenge a multi-million dollar investigation.

If you have any questions regarding the impact of this case, or on government investigations in general, please contact: