CVS, Walgreens and PBMs worked together to gouge consumers, lawsuits claim

Even as the generic drug industry works through challenging pricing dynamics, new lawsuits say consumers aren’t realizing all of the benefits from the low prices dragging on the industry’s players.

Instead, top retail pharmacy chains CVS and Walgreens have been overcharging consumers and passing some proceeds to industry middlemen, according to the suits.

According to the class-action lawsuits, CVS and Walgreens overcharged consumers who bought certain generic drugs with their insurance. The pharmacy chains then kicked some of the proceeds back to third-party pharmacy benefit managers (PBMs). Those consumers would have been better off buying the drugs without using their insurance, the suits argue.

The lawsuits come as consumers are up in arms about the rising costs of some medications and, conversely, as generics makers post financial results burdened by pricing pressures. Pharma has caught much of the blame for those costs, but the industry has blamed PBMs for pushing discounts for themselves while consumers pay their share based on list price.

The named plaintiff in the CVS lawsuit is Megan Schultz, who through her insurance paid $165 for a generic drug at a CVS pharmacy. Had she paid in cash, according to the lawsuit, the drug would’ve cost $92. The 51-page suit (PDF) said the charges are called "copays" but are in fact designed to be payments for PBMs. CVS also makes more from consumers who buy the drugs with insurance, the suit contends.

David Grabstald is the named plaintiff in the Walgreens action. The suit says that, by using his insurance, he paid nearly double the cash price for his generic medication.

Confidential agreements between the pharmacy giants and PBMs establish the terms of the alleged kickbacks, according to the lawsuits, which add that the arrangements created a conflict of interest and harmed consumers.

A CVS spokesman pushed back, writing in a statement that the "allegations against us made in this proposed class action suit are built on a false premise and are completely without merit."

"Copays for prescription medications are determined by a patient’s prescription coverage plan, not by the pharmacy," he wrote in a statement. "Pharmacies collect the copays that are set by the coverage plans. Our pharmacists work hard to help patients obtain the lowest out-of-pocket cost available for their prescriptions."

CVS' spokesman said the company's internal PBM, CVS Caremark, "does not engage in the practice of copay clawbacks." He added that CVS has not overcharged patients for their prescription copays.

Walgreens didn’t immediately respond to a request for comment.

If the allegations prove true, it’s another look into a complex drug pricing environment governed by private agreements between drugmakers and middlemen. As U.S. pricing pressure has ramped up in recent years, so too has lobbying among segments of the drug business who are looking to avoid blame for high costs.

The drug industry has hit at PBMs in recent months by arguing that growing rebates are driving up list prices. PBMs, for their part, say drugmakers always set prices and that tough negotiations help limit spending.

The class-action lawsuit comes at a time when top generic drug players suffer from lower pricing in the U.S., hurting sales and share prices in recent quarters. Teva Pharmaceutical Industries’ struggles have been the worst lately, forcing the company to significantly shake up manufacturing and take a $6.1 billion impairment charge for the second quarter.

Editor’s note: This story was updated to include information on a second suit against Walgreens.