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CVS' Superman Scam: "RX2000" Software Automatically Overbilled Medicaid

CVS Caremark's $17.5 million prescription overbilling settlement with the Department of Justice will likely fuel calls for the FTC to break up the prescription dispensing conglomerate because it restricts drug pricing competition.

The case behind the settlement alleges that CVS used a computer program named "RX2000" to automatically overbill state Medicaid when certain types of patients ordered prescriptions. CVS was able to do this because, as both a dispensing pharmacy and a prescription benefit manager that negotiates with private healthcare insurers, it knew how much private insurers reimbursed for prescriptions while Medicaid did not. Knowing that Medicaid was operating in the dark, CVS charged taxpayers more for prescriptions than the law allows. The company allegedly gambled that because Medicaid did not have access to private insurers' pricing data it would never find out it was being ripped off.

CVS's RX2000 system will sound familiar to anyone who has ever watched Superman III or Office Space -- two movies in which the protagonists create computer programs that repeatedly steal small amounts of money at a time, diverting millions of dollars in aggregate to themselves. This is called a "salami slicing" scam, because it involves stealing small slices of cash over a long period of time. (This is also the second recent case in which a PBM has been accused of creating a compter system that salami sliced Medicaid payments.)

RX2000 took advantage every time a "dual eligible" Medicaid patient asked for a prescription, the case alleges. Dual-eligible patients are people who have private insurance but who nonetheless qualify for Medicaid as well. For those patients, Medicaid should only be charged what the customer would have been required to pay as a co-pay if the customer was only using their private insurance, the case alleges. Then, the patient must assign their insurance rights to Medicaid, which seeks additional reimbursement from the insurer. But as Medicaid is not privy to the price agreements between insurers and PBMS, it does not know what prices private insurers get. CVS, as both a PBM and a pharmacy, does know that, the case claimed:

The state Medicaid agency is at the mercy of the provider, CVS Caremark, to accurately calcuate the assigned benefit of the drug pricing.
In reality, RX2000 increased the alleged copay whenever a dual-eligible patient showed up. So, for a $25 copay on a common drug like Adderall, Medicaid was billed $26.75, the case claims.

The alleged scam was discovered by Stephani LeFlore, an overnight pharmacist at a CVS in St. Paul, Minn., who noticed that whenever she rang up a dual eligible patient in the RX2000 system it dinged Medicaid for a slightly greater price than it would have a private insurer. She figured out the maneuver the old-fashioned way -- by calling both Medicaid and the insurers to ask what prices they thought they were getting.

The case has serious policy consequences, too. Aside from exposing the pricing advantage CVS gets because it is both a PBM and a pharmacy it also points out yet another way that taxpayers are ripped off by the system: Because the law prevents Medicaid from negotiating drug prices they way private insurers do, it always has to pay more for drugs, the case claims:


Image of an RX2000 piledriver for sale on Ali Baba.
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