Pharmacy Giant Sues Texas Over Medicaid Pricing

AUSTIN, Texas (CN) – CVS Pharmacy says it could face millions of dollars in penalties because Texas flip-flopped on its interpretation of regulations regarding usual prices for Medicaid prescriptions.

CVS sued the Texas Health and Human Services Commission, or HHSC, and Commissioner Charles Smith in Travis County District Court on Dec. 22, challenging their view of state regulations.

The company owns and operates over 800 retail pharmacies in Texas. When CVS dispenses prescription medications to Texas Medicaid beneficiaries, the state reimburses it based on the claims it submits.

The amount of reimbursement is governed by Texas regulations, which say CVS is entitled to the lowest of multiple measures. One of the “lowest of” measures is the usual and customary price, the company’s complaint states.

According to CVS, Texas regulations define that cost as “the price the provider most frequently charges the general public for the same drug.” If the state cannot determine a most-frequent price, the median price is used.

CVS offers customers the chance to enroll in its Health Savings Pass, or HSP, program, which allows members who pay an annual fee to buy certain generic prescription medications at special HSP prices. Such prices cannot be combined with any insurance or other benefits on a given purchase.

The pharmacy chain says the HSP prices were not a discount that it was required to include in the usual and customary price determinations. The prices also did not fall within such regulations because HSP pricing was not available to a “segment of the general public” of which the “Medicaid recipient would otherwise have qualified as a member,” according to the complaint.

“Regarding the HSP program in particular, CVS’s interpretation of the U&C regulation comports with information CVS received directly from HHSC officials, in 2008, prior to the program’s launch in November of that year,” the complaint states.

The HHSC even met with a CVS executive and confirmed that its HSP program price was not a usual and customary price, the pharmacy giant says.

But Texas has since changed its interpretation of the U&C regulation, according to the 22-page lawsuit, telling CVS that its reporting practices are illegal.

On Aug. 24, 2015, HHSC allegedly sent CVS a demand letter saying its usual and customary price reporting “systematically fails to appropriately account for discounts (including without limitation those available under CVS’ Health Savings Pass and price overrides) routinely offered by CVS to its cash-paying customers in Texas.” (Parentheses in original).

The letter also said CVS submitted claims using a usual and customary price “that was falsely and artificially higher than appropriate,” the company claims.

“In the commission’s view, CVS inaccurately reported its U&C price on approximately 7.1 million Medicaid transactions in violation of the Texas Medicaid Fraud Prevention Act, accounting for approximately $30.5 million in payments from Texas Medicaid. The commission alleges this is the case because CVS did not report as its U&C prices the lesser of (a) the result of a novel ‘mode-average calculation’ of historical CVS purchase records and (b) CVS’s HSP program prices,” according to the complaint.

CVS disputes HHSC’s interpretation of the usual and customary price regulation and says it would face imminent harm given its current practice of submitting such prices under its own interpretation.

“Defendants have threatened CVS with millions of dollars in civil damages and statutory penalties if CVS does not accede to their demand to settle the parties’ dispute over the pricing information,” the complaint states. “Because these threats are based on an unprecedented and legally incorrect interpretation of Texas law governing Medicaid price reporting, including an interpretation that Texas’s officials have themselves disclaimed, CVS brings this suit to obtain a judicial interpretation of Texas law and a declaration of its rights.”

HHSC’s press office told Courthouse News it was aware of the lawsuit and is coordinating with the state attorney general’s office for a response.

CVS seeks a declaration that its interpretation of the usual and customary price regulation is correct, and that the HHSC is acting outside its authority in misinterpreting the regulation and making a settlement demand. It is represented by Joseph Knight of Ewell Brown Blank & Knight in Austin.

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