Class Action Lawsuit Claims CVS Caremark Sold Drug Formulary Access, Retained Health Plan Rebates

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A proposed class action lawsuit alleges pharmacy benefit manager (PBM) CVS Caremark and fellow CVS subsidiary Zinc Health Services have executed a scheme to sell access to lists of drugs available to prescription plan members in exchange for bribes and kickbacks from drug makers, with the companies retaining the money for themselves rather than providing maximum rebates to be passed on to consumers.

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The 77-page RICO lawsuit contends that CVS Caremark, one of the largest PBMs nationwide, and CVS have, since at least March 2020, “orchestrated an elaborate, fraudulent scheme” whereby they’ve collected kickbacks from major drug manufacturers in exchange for access to, and preferential placement on, Caremark’s drug formularies—lists of drugs available to members of a prescription plan—for “high-price” brand-name drugs. The lawsuit alleges that Caremark, rather than use its negotiating power to secure from drug makers greater rebates for PBM clients and thus consumers, instead used its leverage to divert “exorbitant payments” to Zinc Health Services, maximizing profits while driving up PBM customers’ prescription drug costs.

“Defendants concealed these bribes and kickbacks by arranging for each drug company to funnel the payments to Zinc and to label them as ostensibly legitimate fees,” the complaint alleges. “Payments from drug companies to Caremark itself are deemed ‘rebates’ or ‘administrative fees’ that must be shared with Caremark PBM customers, under their contracts with Caremark.”

According to the filing, parent company CVS Health runs the Caremark PBM program, whose promised aim is to “drive down” prescription drug costs for members in the prescription drug plan. The lawsuit coveys that, as part of this responsibility, Caremark is supposed to maximize savings, negotiate with pharmaceutical companies for lower rates and consumer rebates, and craft a formulary, or list of available drugs, that “prioritizes both efficacy and cost.”

However, the class action lawsuit alleges that Caremark and CVS “manipulated” drug formularies through a scheme whereby they forced drug manufacturers to make massive payments to subsidiary Zinc Health Services to place pricier, name-brand drugs on the lists rather than cost-effective generics.  

Essentially, instead of focusing on value for consumers, Caremark and CVS made decisions about drug formularies based on the “profitability” of certain drugs, the case charges.

Rather than using the wrongfully collected payments to offer “significant cost savings” to consumers for name-brand drugs through rebates, CVS, the suit alleges, used Zinc to withhold billions of dollars received as kickbacks and “evade” rebate payments to consumers without disclosure, instead diverting the funds “into their own pockets.”

The case alleges that Zinc, which CVS created in March 2020, purports to be a “nominally independent and separate” group purchasing organization (GPO) that ostensibly negotiates with drug manufacturers, despite its actual function of “simply replicating a task” Caremark assured consumers it was taking care of.

The case points out that Zinc has no additional bargaining power and does not provide “more leverage” than Caremark would in negotiating drug prices. A former Caremark and Zinc director quoted in the suit reportedly said “‘[y]ou really don’t know a PBM from a GPO because there is no difference … think of the PBM/GPO as one entity.’”

The lawsuit says that while CVS Health and Caremark have argued that they provide bona fide GPO services through Zinc, the subsidiary is used simply to extract money from drug manufacturers and funnel the ill-gotten funds to CVS without needing to disclose the payments or restitute them to consumers as rebates. Indeed, one investigative reporting firm looking into Zinc, Hunterbrook Media, discovered “a single empty office suite within an office space that was primarily occupied by CVS employees,” the complaint says.

Moreover, the case says that during the same visit, “not a single Zinc employee” was present, and that while CVS employees present reiterated that Zinc was a separate business owned by CVS, they were not able to provide “any” contact information for the company.

“For operating an empty office suite with a handful of scattered employees, Zinc has received billions of dollars from drug companies for providing alleged ‘bona fide service,’” the lawsuit adds.

The lawsuit notes that Illinois and Caremark reached a $45 million settlement in June 2024 over allegations that the company failed to disclose the true nature of the relationship between Zinc and Caremark, reflecting the “magnitude” of the wrongfully retained rebates.

Despite facing major scrutiny from the Federal Trade Commission and news agencies like the New York Times and Hunterbrook, CVS and Caremark have continued to make false claims about what Zinc’s role is to consumers, the case says.

The filing states that Caremark has an “obligation” to treat its PBM customers “fairly and in good faith,” but fails to fulfill this responsibility, given that it receives massive kickbacks and disguises the income, which should have been distributed to consumers, using Zinc as a smokescreen.

The CVS Caremark class action lawsuit seeks to cover all entities in the United States or its territories, including health insurance companies, health maintenance organizations, self-funded health and welfare benefits plans, third party payors, and any other health benefit providers, that paid or incurred costs for Caremark’s services that were inflated as a result of the defendants’ fraudulent scheme, from March 18, 2020 to the present, and suffered damages thereby.

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