United States ex rel. Gill v. CVS Health Corp.

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UNITED STATES OF AMERICA ex rel. MICHAEL GILL, et al., Plaintiffs, v. CVS HEALTH CORPORATION, et al., Defendants.

No. 18-cv-6494

United States District Court, N.D. Illinois, Eastern Division

August 26, 2024

MEMORANDUM OPINION AND ORDER

Steven C. Seeger, United States District Judge

Michael Gill brought this qui tam suit against CVS Health Corporation and related entities about their pharmacy business practices. Gill brings a sweeping complaint about five alleged schemes to take money from the government. He seeks to recover taxpayer dollars under the False Claims Act and related state statutes. He also alleges retaliation by his employer after he raised concerns and refused to go along with improper business practices.

Defendants in turn, moved to dismiss. For the reasons stated below, the motion to dismiss is granted in part and denied in part.

Background

At the motion to dismiss stage, the Court must accept as true the complaint's well-pleaded allegations. See Lett v City of Chicago, 946 F.3d 398, 399 (7th Cir. 2020). The Court “offer[s] no opinion on the ultimate merits because further development of the record may cast the facts in a light different from the complaint.” See Savory v. Cannon, 947 F.3d 409, 412 (7th Cir. 2020).

The Parties

The Court will begin by introducing the cast of characters on the defense side. The case is against CVS Health Corporation and several of its subsidiaries. See Third Am. Cplt., at ¶¶ 1723 (Dckt. No. 67). All of them are in the drug-dispensing business. Id. at ¶ 24.

Defendant CVS Health Corporation (“CVS Health”) is a pharmacy services health care provider. Id. at ¶ 17. It's the parent company. It dispenses prescription drugs through its various subsidiaries. Id. at ¶ 24. All of the co-defendants are CVS Health's subsidiaries.

Defendant CVS Pharmacy, Inc. is the largest retail pharmacy in the United States. Id. at ¶ 18.

Defendant ProCare Pharmacy, LLC provides “specialty” pharmacy services. Id. at ¶ 19. Specialty pharmacies provide specialized medications. Id.

Defendants Caremark Rx and CaremarkPCS Health, LLC (collectively “Caremark”) are pharmacy benefit manager services companies. Id. at ¶ 20. They process prescription drug claims. Id.

Defendant Coram is one of the nation's largest providers of home infusion care. Id. at ¶ 21. Infusion care delivers treatment through needles or catheters. Id.

Defendant Coram Alternate Site Services enters into referral agreements with hospitals for Coram's infusion services. Id. at ¶ 22.

Finally Defendant Omnicare provides pharmacy services to long-term care facilities, penal institutions, and government facilities. Id. at ¶ 23.

Relator Michael Gill is on the other side of the case. He worked for CVS Health and Caremark Rx for more than 25 years. Id. at 1. Gill wore a series of compliance-related hats during his long tenure.

Gill's time with the pharmacy giant came to an end in 2018. Id. at ¶ 16. He resigned after enduring months of “intolerable” working conditions. Id.

The Alleged Conduct

The complaint alleges that CVS and its subsidiaries engaged in five separate schemes “to steal taxpayer funds in violation of False Claims Acts.” Id. at ¶ 1.

The first scheme is about overpayments. The second scheme is about excluded medical providers (i.e., banned doctors). The third scheme is about copay cards. The fourth scheme is about Coram's FOCUS Care program. The fifth and final scheme is about shipping prescriptions from out of state without a license.

The Court will summarize each scheme below.

I. The Failure to Return Overpayments (Scheme #1)

The first scheme involved CVS Health's and Coram's receipt of millions of dollars in “overpayments and potential overpayments” as income. Id. at ¶ 50. As the name reveals, an overpayment occurs when a payor pays too much. Id. at ¶ 51.

Typically, a provider must return the overpaid amount to the payor, or escheat the money to the state. Id. at ¶¶ 52-53. For context, under many state escheatment laws, if the original payor does not claim their property, businesses must return that unclaimed property to the state, including a customer's overpayments. Id. at ¶ 48. The money goes to the state of the last known address of the creditor, or, in some cases, the debtor's state of incorporation. Id.

Gill alleges that Defendants didn't follow the rules. Instead, Defendants pocketed $200 million of overpayments. Id. at ¶ 50.

The $200 million came from government and commercial payors. Id. Government payors accounted for one third of the overpayments. Id. The rest came from commercial payors. Id.

A. CVS Acquires Coram

The story about overpayments begins in 2013. Id. at ¶ 58. At the time, CVS was still considering acquiring Coram. Id. CVS hired Deloitte to conduct a due-diligence investigation. Id.

Deloitte prepared a report with its findings. Id. The report identified $98 million in “credit balances” that Coram improperly recognized as income between 2011 and June 2013. Id. at ¶ 59.

According to the complaint, a “credit balance” is a euphemism for an overpayment. See id. at ¶ 65. And recognizing balances as “income” means counting the cash as your own.

Putting those things together, Deloitte's report revealed that Coram had pocketed overpayments from its customers. Id. at ¶ 61 (quoting Deloitte Report, at 83 (Dckt. No. 67-1, at 15 of 150)).

The report also identified $42.3 million sitting in Coram's suspense account. Id. at ¶ 60. The funds in that account allegedly included overpayments. Id. Like the other credit balances, Coram eventually took the money to income. Id.

The findings raised some eyebrows at Deloitte. The firm recommended more due diligence. Id. at ¶ 64. Specifically, Deloitte suggested that CVS dig into Coram's “[t]reatment of credit balances in accounts receivable related to Medicare and Medicaid.” Id. at ¶ 63 (quoting Deloitte Report, at 181 (Dckt. No. 67-1, at 19 of 150)).

The complaint alleges that these overpayments accrued in the first place because Coram had unsavory billing practices. Id. at ¶ 66. The complaint identifies a few problematic procedures.

For example, Coram generated overpayments by double-billing services. Id. at ¶ 69. To hide the double billing, Coram entered slightly different information when it billed the second, duplicate claim (such as a different date of service) so payors wouldn't notice the redundancy. Id.

Eventually, CVS acquired Coram. Id. at ¶ 73. Executives from both companies met to discuss Coram's overpayment practices. Id. Gill attended the meeting. Id.

The executives discussed the Deloitte report. Id. at ¶ 76. Specifically, CVS management highlighted Coram's policy of “sweep[ing]” credit balances to income. Id. at ¶ 77. They also discussed Coram's failure to identify certain payors as government payors, its failure to adequately notify government and commercial payors of potential overpayments, and its failure to implement and consistently follow adequate billing policies. Id. In other words, management talked about the bad billing practices.

The executives also discussed Coram's failure to escheat non-government overpayments to state entities, as required by state law. Id. at ¶ 80.

Coram's poor bookkeeping made escheatment difficult. Id. at ¶ 116. Simply put, Coram didn't do a good job keeping records. Id. For example, Coram neglected to update its software system. The old system led to incomplete records. Id. at ¶¶ 116, 120. Coram's software could not connect a credit balance to a specific invoice. Id. at ¶ 120.

Coram's inadequate record-keeping allegedly resulted in a failure to properly escheat millions of dollars in commercial overpayments to the state of Delaware. Id. at ¶ 124.

According to the complaint, CVS and Coram should have escheated “tens of millions of dollars” in commercial overpayments. Id. at ¶ 125. Instead, the company pocketed the money. Id.

Even before CVS acquired Coram, CVS executives discussed how to handle the overpayments. Id. at ¶ 87. Executives worried about how various approaches would affect the bottom line. Id. “[Historical remediation” - meaning sending the money to where it should go - would cut into earnings. Id. Meanwhile, ignoring the overpayments would preserve the status quo and maintain the bottom line. Id.

After the acquisition, CVS executives decided not to refund the money. Id. at ¶ 89. They elected to keep the $98 million in overpayments that Coram had recorded as income. Id. In other words, they decided to reap the profits sowed by Coram's deficient practices.

At that point, Gill was a CVS compliance director. He raised the overpayment issue with a CVS executive in 2016. Id. at ¶ 93. He was rebuffed. Id. The executive told him that CVS senior management had decided not to “revisit” the issue of the overpayments. Id.

According to the complaint, the overpayments boosted profits. In the first quarter of 2016, CVS reported adjusted earnings per share $0.01 above guidance range, meaning the company's public estimate of its earnings expectations. Id. at ¶ 101. The company (barely) exceeded expectations because it swept its overpayments under the rug. Id. at ¶¶ 100-02.

The complaint suggests that CVS might have kept the overpayments as a last-ditch effort to meet Wall Street expectations. According to Gill, if CVS did not record the overpayments as income, CVS would have missed the guidance range for its adjusted earnings. Id. at ¶ 102. The stock price might have dropped. Id.

B. Other Defendants

According to the complaint, Coram was not the only entity in the CVS corporate family to improperly retain overpayments. Id. at ¶ 127. Two other CVS subsidiaries - CVS Specialty and Omnicare Advanced Care Scripts - also allegedly failed to return government...